Washington Update

NACBA’s Washington Update IX


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.

Washington Update VI

Get Caught Up on What’s Happening In Washington! Read Today’s Washington Update VI

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.

ON THE HILL Wells Fargo settled with regulators for $185 million after its employees were found to have opened some 1.5 million bank accounts and applied for almost 600,000 credit cards that may not have been authorized by customers, but as promised, the Senate investigation continues.  Senators Warren, Sanders, Markey and Hirono sent a letter to accounting firm KPMG asking for an explanation as to why its audits of Wells Fargo failed to uncover the cross-selling misconduct.  The senators asked KPMG a series of questions, including whether the firm has faced disciplinary action from the Public Company Accounting Oversight Board (PCAOB) related to Wells Fargo audits. KPMG has until Nov. 28 to reply.

The special inspector general for the Troubled Asset Relief Program (TARP) is proposing to make it easier to charge bank executives when fraudulent activity occurs at their institution.  Christy Goldsmith Romero, in SIGTARP’s quarterly report to Congress, recommends that Congress require senior bank officials to sign an annual certification that they have done their due diligence to determine that there is no criminal conduct or civil fraud happening at their institution.

The White House called on Congress to rethink its approach to rebuilding the hobbled mortgage market and offered, for the first time, a set of principles for housing reform.

Affordability and access to credit, especially for middle-income Americans and minorities, must provide the foundation of any new system, the White House said. The White House went on to say that revamping the arcane infrastructure of the global mortgage market, which has challenged policymakers since the 2008 housing collapse, should take a backseat.  The request is laid out by Treasury advisers Antonio Weiss and Karen Dynan and can be read here.

IN THE AGENCIES  In a speech given at a major payments and financial technology industry conference (Money 20/20) in Las Vegas, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray called for consumers to have more control over their financial data.  “Consumers should be able to access this information and give their permission for third-party companies to access this information as well.” The CFPB director added that his bureau is “gravely concerned by reports that some financial institutions are looking for ways to limit, or even shut off, access to financial data rather than exploring ways to make sure that such access, once granted, is safe and secure.”  You can read Director Cordray’s speech here.

Director Cordray also delivered remarks at the Consumer Advisory Board meeting in Washington, DC.  His remarks addressed the issues people encounter when they are paying back debt, and more specifically, the debt collection market and the student loan servicing market.  You can read his remarks here.

The U.S. Department of Education announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct.  Read the full press release from the Department of Education here.  Reaction to the new regulations is unfolding, with at least one publication (Bloomberg analysis) suggesting that the new regulations will make seeking student debt relief more difficult.

FROM THE INTEREST GROUPS  In a letter to the CFPB, the Consumer Bankers Association (CBA) told regulators that its members have changed or are changing contracts for private student-loan customers to ensure that loans in good standing aren’t placed in default because a co-signer has died or filed for bankruptcy.  The changes address the regulators’ criticism of the banks’ practice known as “auto-defaults.” The system causes surprise defaults for borrowers when the status of co-signers changes even when the borrowers’ themselves have met their payment obligations.  You can read the CBA’s press release here.

The Mortgage Bankers Association has stepped up political pressure for housing reform.  The group will launch an inside-the-beltway campaign in January to promote the stability and transparency of the home loan industry.  They also will call on the incoming president to appoint a housing director to coordinate policy across multiple agencies and local state and federal governments. “Someone who works in the White House, someone with the authority of a direct report to the new president,” MBA President David Stevens said in a speech at the group’s annual meeting in Boston. “It’s the only way to untangle the confusion and imbalances. It’s the only way to avoid the housing crisis to come.”

Read all the Washington Updates in NACBA News

Washington Update V

Issue five of our weekly update from Washington, designed to keep NACBA members informed about any significant and relevant activity on the part of Congress, regulatory agencies and interest groups/think tanks.

ON THE HILL As noted in previous updates, Congress is on an extended leave and most members are focused on the upcoming election.  However, there is an update on Wells Fargo.  CEO John Stumpf, who faced outraged questioning from both sides of the aisle in committee hearings held in both the House and the Senate, has stepped down as chairman and chief executive officer.  Lawmakers from both sides of the aisle responded to the news with pledges that they will continue pursuing the investigation into Wells Fargo following revelations last month that it opened more that 2 million accounts without customers’ authorization.  Mr. Stumpf will be replaced by Tim Sloan, who was chief operating officer at Wells Fargo.

IN THE AGENCIES An appellate court overturned the Consumer Financial Protection Bureau’s (CFPB) $109 million fine against mortgage company PHH Corp. and called the agency “unconstitutionally structured.”  The CFPB had fined PHH for referring customers to insurers who purchased reinsurance from a PHH subsidiary, a practice the agency likened to illegal kickbacks. PHH sued, saying the agency had overstepped its authority.  “The director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. government, other than the president,” wrote the three-judge panel of the U.S. Court of Appeals for the District of Columbia.  “This is a case about executive power and individual liberty,” the court wrote. “Because of their massive power and the absence of presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

The court underscored what it called “the important but limited real-world implications” of the decision. The agency will continue to operate, but the president will now have the authority to remove its director at will. The court decision can be read here.  The CFPB has not yet decided if it will appeal the decision.  In the meantime, congressional opponents of the CFPB believe the ruling will boost their efforts to rein in the agency and undercut its independence.

FROM THE INTEREST GROUPS In a letter to Sen. Chuck Schumer (D-NY), the presumed Democratic Leader in the next Congress, several progressive groups have asked him to avoid letting the Banking Committee become too cozy with the financial industry in the next Congress.  At issue are concerns that the committee’s contingent of moderate Democrats might grow.

Washington Update IV

Issue four of our weekly update from Washington, designed to keep NACBA members informed about any significant and relevant activity on the part of Congress, regulatory agencies and interest groups/think tanks.

ON THE HILL Before leaving late last week for an extended recess, Congress announced the introduction of three new bills aimed at addressing the debt burden faced by many student loan borrowers:

  • H.R. 6239 (The HIGHER ED Act) includes a provision to restore bankruptcy protection for student loans.  You can read a summary of the bill here.
  • H.R. 6197, Supporting America’s Young Entrepreneurs Act, addresses the effects of a heavy student debt burden on the creation of new business.  Read about the bill here.
  • The Transparency in Student Lending Act (S. 3399) was introduced in the Senate, and as its title suggests, addresses the information that must be provided to borrowers.  You can read a summary of the bill here.

IN THE AGENCIES The Internal Revenue Service (IRS) announced that it plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program.  Read the full announcement here.

The Consumer Financial Protection Bureau (CFPB) issued the procedures its examiners will use in identifying consumer harm and risks related to the Military Lending Act rule which was updated in July 2015. The exam procedures released by the Bureau provide guidance to industry on what the CFPB will be looking for during reviews covering the amended regulation.  The full press release from the CFPB can be read here.

The CFPB recently published a blogpost and consumer advisory on credit repair companies, outlining consumers’ rights and warning of potentially harmful practices. The CFPB wants to be sure that consumers know that they do not have to pay anyone to help correct inaccurate information in their credit reports and that there are steps they can take if they need to dispute inaccurate information in their reports.

At the request of the Federal Trade Commission (FTC), a federal court has found that racecar driver Scott A. Tucker and several corporate defendants in a Kansas City-based payday lending scheme violated Section 5 of the FTC Act and has ordered them to pay $1.3 billion for deceiving consumers across the country and illegally charging them undisclosed and inflated fees.  You can read the full press release from the FTC here.

FROM THE INTEREST GROUPS Consumer advocates expressed disappointment over an announcement that four private debt collection companies were selected to collect federal tax debts, one of which had been terminated last year by the U.S. Department of Education. As noted in the “In the Agencies” section of this report, the IRS announced that private debt collectors will begin collecting tax debts next spring. Pioneer Credit Recovery, whose contract to collect student loans was terminated last year by the U.S. Department of Education because it provided inaccurate information to borrowers, is one of the companies the IRS will use.

In a response to the CFPB’s request for comment on its draft of a proposed rule on payday lending, People’s Action Institute and Americans for Financial Reform released Caught in the Debt Trap, a heart wrenching report that tells the real story about what business as usual means to thousands of borrowers around the country and called on the CFPB to ensure the final rule is strong enough to make a real difference.

The Center for Responsible Lending (CRL) along with other advocacy groups, also responded to the CFPB request for comments with a strongly worded letter.  NACBA supports the CRL letter and has submitted comments seeking a stronger payday and title loan rule from the CFPB.

Read all of our Weekly Washington Updates:

Washington Update I

Washington Update II

Washington Update III