Safeguard Consumer Rights

Defunding protection bureau endangers student borrowers

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Infographic by Kelly Leung and Dagmar Kuta
Infographic by Kelly Leung and Dagmar Kuta

If President Donald Trump gets his way, the watchdog agency entrusted with protecting student loan borrowers from unscrupulous loan servicers could lose its teeth — and its ability to protect consumers.

The Consumer Finance Protection Bureau (CFPB) is a government entity designed to protect citizens from abuse by loan servicing agencies.
In September, the CFPB fined Wells Fargo $100 million after it had created millions of accounts without customer authorization, opening our eyes to the injustices dealt to millions of consumers by the banking giant.

Specific changes have not been spelled out by the government, and the debate centers on leadership. Opponents of the CFPB argue its leadership design is unconstitutional because it places too much power in the hands of one director. Potential changes include replacing the current director, cutting funding to the agency, moving leadership to a five-person committee and even getting rid of the agency entirely. This possibility is unacceptable.

The CFPB provides an invaluable service to consumers and is the only thing standing between greedy corporate entities and consumers, many of whom are students.

Two-thirds of all college students graduated with student loan debt in 2016. Over one million students will graduate this year with a bachelor’s degree, a lot of debt and an unsympathetic government. The CFPB is necessary to protect these student borrowers.

Just last month, the CFPB filed a lawsuit against Navient, the largest student loan servicer in the country, for cheating borrowers out of lower repayment plans they were eligible for. Eager to push borrowers toward more costly plans, Navient “chose to shortcut its obligations as a servicer in favor of making its job easier, quicker and less costly,” said CFPB director Richard Cordray in a statement.

These shortcuts include pushing consumers toward deferring or defaulting on their loans. Defaulting makes the borrower liable for full repayment, effective immediately, while deferring stalls payments as interest stacks up.

Over 14,000 consumer complaints were filed with the CFPB against Navient’s immoral business practices, which include holding lump-sum payments to charge on a monthly basis, accruing interest in the meantime and applying payments toward loans besides those specified.

Navient services about one in four student loans and about $300 billion in student loans, and is one of nine loan servicing companies paid by the government to collect loan payments. Navient split from Sallie Mae, a private student loan company, in 2014.

Now, an executive order President Donald Trump signed on Feb. 3 threatens to defund the watchdog agency and others like it. Trump’s order, “Core Principles for Regulating the United States Financial System,” is designed to lay the groundwork for significantly scaling back the Dodd-Frank Act, put in place by Obama after the 2008-09 financial crisis. The Dodd-Frank Act encompasses numerous regulations and agencies, including the CFPB.

Further, several bills proposed last week would alter or eradicate the CFPB. Perhaps most to the point are bills introduced by Sen. Ted Cruz and Rep. John Ratcliffe that would simply “eliminate the Bureau of Consumer Financial Protection.” No alternatives, no replacements, no more CFPB.

Dismantling or defunding the CFPB will put consumers further down the well of financial insecurity. Because the CFPB is the only “watchdog” looking out for student loan scams and cheats, its disappearance would give free reign to loan servicing companies, which have a primary goal of making money instead of helping the consumer.

The CFPB advocates for borrowers, limiting monthly repayment amounts to reflect each borrower’s income and providing straightforward, plain-language advice and guidance for consumers. The bureau has recovered over $10 billion for consumers since its inception in 2011. If the CFPB goes, so do those protections.

The CFPB has been a target for Republican politicians for years, as its unique design avoids interference from surrounding agencies. Its funding comes from the Federal Reserve, unlike many agencies which get funding from Congress, and its head is just one person, who serves a five-year term, as opposed to a five-person committee.

Students aren’t the only ones being helped by the CFPB. In addition to loans, the CFPB helps regulate mortgage interest and terms, has recovered millions from fraudulent lenders, limits extra charges on debit and prepaid cards and has gone after credit card companies for $1.5 billion in excessive charges.

If the CFPB is defunded or eliminated, there will be no agency to hold these companies accountable. More than 42 million student loan borrowers will be at the mercy of loan servicing companies that have no real regard for the little guy, and the student debt crisis could get much, much worse. As students graduate and head into the workforce, the CFPB must be allowed to continue to help them through the financial struggles that plague every American.