Banking & Credit

White House and CFPB Scrap Plans for New Student Loan Consumer Protections

New CFPB Rulemaking Plan Shows Agency Shift from Standing Up for Students to Catering to Corporations

Washington D.C. On the same day that the Consumer Financial Protection Bureau (CFPB) announced it had shuttered the Bureau’s student protection unit, the White House Office of Management and Budget (OMB) disclosed that Acting CFPB Director Mick Mulvaney has suspended a longstanding plan to write new rules for student loan debt collection companies.  The Bureau’s decision to mothball planned student loan borrower protections was not publicly announced, but appeared without comment in changes to the status of the Bureau’s rulemaking to “inactive” on the unified regulatory agenda website maintained by OMB. Acting CFPB Director Mulvaney is also simultaneously serving as the White House’s Director of OMB.

This change in direction comes amid growing concern that the federal government has turned a blind eye to widespread failures in the $1.5 trillion student loan industry. In the same move, the CFPB indicated a clear shift away from its core consumer protection mission–listing a new plan to pull down “outdated, unnecessary, or unduly burdensome regulations” under the Bureau’s purview. In 2015, the Bureau announced plans to write “industry-wide rules to increase borrower protections” as part of a series of initiatives to address “widespread failures” across the student loan servicing industry.

The Bureau’s now discarded rulemaking included plans to adopt rules that would have:

  • Created consistent industry-wide standards for the entire student loan debt collection industry;
  • Established new provisions to hold debt collectors accountable to student loan borrowers if errors occur or if collectors break the law;
  • Provided student loan borrowers with access to clear, timely information; and,
  • Improved publicly available data to support research and policy-making.

This is the latest in a series of regulatory and enforcement moves that indicate how the Trump Administration plans to direct the Consumer Bureau to prioritize corporations over consumers.

“In this step, the Trump Administration is scrapping the CFPB’s plans to clean up widespread mistakes, deceptive practices, and confusion in student loan debt collection,” said Christopher Peterson, Director of Financial Services and Senior Fellow at the Consumer Federation of America.  “The White House is making an affirmative decision to withhold needed assistance to 44 million student loan borrowers.”

The Trump Administration is Erecting Barriers to Opportunity for Millions of Young Consumers

Currently American families owe $1.5 trillion in student loan debt—a burden that has tripled in the past decade.  Americans owe more in student loan debt than any other type of consumer debt other than home mortgages.

“Problems in student lending can be especially problematic for struggling families, because unlike most debts, student loans are usually not dischargeable in bankruptcy.” explained Peterson “Student loans follow borrowers for life.”

Distress in the student loan market is widespread. More than 11 million Americans are past due or in default on a student loan, despite the availability of income-driven repayment options for the vast majority of borrowers. For the last 3 years, one borrower has defaulted on a federal student loan every 28 seconds.  Student debt distress damages borrowers’ credit, denies access to major economic milestones like homeownership, and drives economic and racial inequality.

Concerns over student loans is not a partisan issue. Republican Federal Reserve Chair Jerome Powell has noted that student debt could slow economic growth and cause long-term negative effects on borrowers.

As student loan borrowers suffer from widespread mistakes, misleading practices, and systemic failures in the student loan industry, the Trump Administration has taken a series of aggressive actions to pull back consumer protectionsobstruct independent oversight, and ensure that the largest student loan companies are never held to account for predatory practices. These actions come as the Administration readies the rollback of rules to hold the for-profit college industry accountable, deny debt relief to defrauded student loan borrowers,  and bar the courthouse doors to students and consumers ripped off by predatory actors.

“The rules that would have protected 44 million people struggling to repay historic levels of student debt from deceptive practices and capricious mistakes are critical to America’s future,” said Peterson. “The American public needs to stand up for itself by insisting that our government and financial services leaders provide reasonable consumer protections.”

Contact: Christopher L. Peterson, 202-387-6121 x1020