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NACBA’s Washington Update IX

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This is the latest update from Washington, designed to keep NACBA members informed about significant and relevant activity on the part of Congress, regulatory agencies and interest groups/think tanks.  Feedback should be directed to mthompson@hastingsgroup.com.

Obviously, the big news out of Washington continues to be the election results.  NACBA members who joined us for the November 18 webinar, “The 2016 Election: What Now?,” heard NACBA leaders and our representatives in Washington answer the questions about what to expect in 2017 from the Administration, Congress and the courts.  We are planning to issue a special report in the next few weeks, after we learn more about the Cabinet and priorities of the Trump Administration and Congress.  Our report will focus not only on what to expect from the White House come January, but also the key agencies of interest to NACBA — Department of Justice, Consumer Financial Protection Bureau, and the Department of Education — as well as the leadership and key committees in Congress.

Continue reading for non-election news out of Washington this week.

ON THE HILL The 114th Congress has unofficially come to a close, but our elected officials are still at work.  Sen. Elizabeth Warren (D-MA) and Rep. Elijah Cummings (D-MD) are broadening their investigation of the Wells Fargo scandal to examine whether Prudential Financial insurance products were also charged to the bank’s customers without their knowledge.  In a December 13, 2016 letter to Prudential’s CEO, the two Democrats asked for documents related to the bank’s sales of Prudential insurance. They requested the information and a briefing by January 13, 2017.

The action came after three former Prudential (PRU) employees alleged that Wells Fargo employees signed up customers for a low-cost Prudential life insurance policy without their knowledge or permission.  The three former PRU employees filed a Dodd-Frank whistleblower complaint with the SEC alleging they were retaliated against after uncovering the misconduct.

IN THE AGENCIES Fannie Mae and Freddie Mac announced a program to aid homeowners who are behind on their mortgage payments.  The Flex Modification loan program will begin in January 2017 and replaces the Home Affordable Modification Program (HAMP), a foreclosure-prevention policy that’s set to expire at the end of this year. Loan servicers have until October 2017 to implement the program.

The new loan modification guidelines are expected to expand the population of homeowners eligible for lower monthly payments, short sales and other alternatives to foreclosure, according to Fannie Mae.

The Government Accountability Office (GAO) has released a report documenting the consequences that the Department of the Treasury’s practice of garnishing Americans’ social security payments has on student loan borrowers in default. The number of older Americans defaulting on education loans has steadily increased in recent decades, as many have returned to college or co-signed loans for family members. Unpaid debt has resulted in the government garnishing the benefits of 114,000 people age 50 and older in the past year, more than half of whom were receiving Social Security disability rather than retirement income.  The report found that for more than two-thirds of borrowers whose monthly benefit was below the poverty line, the money deducted from their Social Security benefits was enough only to pay fees and interest, so the amount of the debt was not even reduced. The report also found that of older student loan borrowers with a Social Security offset, 43% had held their loans for 20 years or more and 80% had held their loans for 10 years or more.  Although there are rules designed to protect a portion of the recipient’s benefits, the dollar amount protected has not changed since 1996, and leaves a borrower with only $750/month ($9,000/year) to live on.

MORE FROM CFPB  The Bureau released a report raising new concerns about costly fees and risky features that can be attached to certain college-sponsored accounts. The report comes after analysis of roughly 500 marketing deals between the schools and large banks found that many deals allow for risky features that can lead students to rack up hundreds of dollars in fees per year. The report also examines trends in the school-sponsored credit card market. The CFPB also issued a bulletin today reminding colleges and universities they are required to publicly disclose marketing agreements with credit card companies.  The campus banking report is available at here.

Both the Director of the CFPB and the head of the FHFA have expressed their intent to finish out their terms at their respective agencies.  Richard Cordray “has no plans” to leave the top job at the CFPB, the agency said. “Director Cordray was confirmed by a bipartisan group of 66 senators to serve a term until July 2018 and has no plans to step down,” CFPB Communications Director Jen Howard said in an email.  Mel Watt, the FHFA head overseeing Fannie Mae and Freddie Mac, will serve out the remaining two years of his term after President-elect Donald Trump takes office.  Watt made his intent clear during a recent meeting with agency staff, according to people familiar with that gathering who confirmed the remarks Friday. His term expires in January 2019.

FROM THE INTEREST GROUPS U.S.PIRG has released a report titled “Big Banks, Big Overdraft Fees” that concludes that “overdraft fees are a major source of consumer pain, since they are borne disproportionately by Americans with few financial resources” but, that the CFPB is working to protect consumers from unfair overdraft fees.” A copy of the report is available here.

The private student loan industry is making a push to expand its role in the Department of Education’s growing $1.3 trillion portfolio of federal student loans.  A main lobbying group for the industry, the National Council of Higher Education Resources, wrote a letter this week to President-elect Donald Trump’s transition team, making a series of proposals that included a bold plan to auction off some of the existing portfolio of federal loans to private investors. You can read a copy of the letter here.

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Washington Update VIII

This is the latest issue of our weekly update from Washington, designed to keep NACBA members informed about significant and relevant activity on the part of Congress, regulatory agencies and interest groups/think tanks.  Feedback should be directed to Maureen Thompson.

Obviously, the big news out of Washington is the election results.  NACBA members who joined us for the November 18 webinar, “The 2016 Election: What Now?,” heard NACBA leaders and our representatives in Washington answer the questions about what to expect in 2017 from the Administration, Congress and the courts.  We are planning to issue a special repot next week after President-Elect Trump announces his full roster of cabinet picks.  We will focus not only on what to expect from the White House come January, but also the key agencies of interest to NACBA: Department of Justice, Consumer Financial Protection Bureau, and the Department of Education, as well as the leadership and key committees in Congress.

Continue reading for non-election news out of Washington this week.

ON THE HILL Congress remains focused on Wells Fargo.  Senator Sherrod Brown (D-OH) – ranking member on the Senate Banking Committee – and Representative Brad Sherman (D-CA)– a member of the House Financial Services Committee – introduced legislation that will give Wells Fargo customers who were victims of a fraudulent account scheme their day in court. Wells Fargo is using the forced arbitration clauses it tucked away in the fine print of contracts customers signed when they opened legitimate accounts to block them from suing over the fraudulent accounts.  Read more about the bill here.

Senator Mike Enzi (R-WY), chairman of the Senate Budget Committee reacted to a General Accountability Office (GAO) report on the cost of Department of Education’s Income Driven Repayment (IDR) plans for student loans (see “In the Agencies) by harshly criticizing the Department, which is responsible for calculating the cost of the program.  “This Administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes,” Enzi said in a statement. “It will be crucial to consider updates to the Federal Credit Reform Act because Congress is not receiving credible, transparent cost data under the existing statute, as this report suggests.”

A group of 21 current and former members of Congress filed an amicus brief in support of the Consumer Financial Protection Bureau’s (CFPB) petition filed with the D.C. Circuit seeking a rehearing of its decision in CFPB v PHH Corporation.  Read the brief here.

IN THE AGENCIES The Government Accountability Office (GAO) released a report critical of the Department of Education’s approach to estimating the cost of income-based student loan repayment plans, which allow borrowers to make student loan payments based on how much they make.  According to the GAO report, these plans will cost more than twice as much as the Education Department expected them to.  The Education Department’s approach to estimating the costs of the repayment plan “do not ensure reliable budget estimates,” the GAO report says.   You can read the report here.

The Education Department responded to the GAO report, saying it “generally concurs” with the findings, but noted that “the decisions made (and critiqued in this report) were based on existing staff and systems resources available, assessed impact, and consideration for conservatism.”  “The lifecycle of a student loan is exceedingly complex, with a multitude of projection paths and outcomes,” the department’s response said. “Estimating the federal cost of student loans is a task we take very seriously, and we are constantly seeking to enhance and refine our cost estimation models.”

On November 18, the CFPB petitioned the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) for an en banc review of PHH v. CFPB. The petition, which was expected, argues that this case represents “what may be the most important separation-of-powers case in a generation.” You can read the petition here.

More from the CFPB… the CFPB has taken action against B&B Pawnbrokers, Inc. for deceiving consumers about the actual annual cost of its loans. In a lawsuit filed in federal court, the CFPB alleged that B&B Pawnbrokers broke the law by misstating the charges associated with pawn loans. The CFPB’s lawsuit seeks to end B&B Pawnbrokers’ illegal practices, get restitution for the consumers it harmed, and impose penalties. You can read the lawsuit here.

In good news for consumers, the Internal Revenue Service (IRS) aims to include as many homeowners as possible in a taxable-income exclusion set to expire at the end of the year.

According to Notice 2016-72, the IRS will accept debt reduction modifications as long as the borrower receives a trial offer by the sunset of the Home Affordable Modification Program, set for Dec. 30, 2016. The program was created to encourage banks to lower monthly mortgage payments to help homeowners stave off foreclosure after the subprime mortgage crisis.  “This is trying to capture as many people as possible in the folks that can benefit from that tax assistance,” Sarah Bolling Mancini, of counsel at the National Consumer Law Center Inc., told Bloomberg BNA Nov. 28.

The IRS guidance focuses on the programs that allow homeowners to reduce the principal balance on their loans, not programs that just reduce interest rates or stretch repayment terms, Mancini said.  Homeowners must receive a trial period plan from their bank before Jan. 1, 2017, but don’t need to complete the plan or enter into a permanent version before the deadline, the IRS said. Typically, a bank will send out a letter saying a homeowner is approved for a trial plan, and the homeowner must then make a trial payment for the next three months before a permanent version will be offered, Mancini said.

FROM THE INTEREST GROUPS A group of 10 consumer advocacy organizations has also filed an amicus brief in support of the Consumer Financial Protection Bureau’s (CFPB) petition filed with the D.C. Circuit seeking a rehearing of its decision in CFPB v PHH Corporation.  Read the brief here.

OTHER For easy access, here is a link to the CFPB Ombudsman’s webpage. There you will find their 2016 Annual Report, which you may find informational as well as a useful as a resource.