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FROM CAVEAT EMPTOR TO CAVEAT VENDITOR CONSUMER FINANCIAL PROTECTION AND THE COLLEGE STUDENT DIANA MATEER, UAT Slide 2 EDS NEW PARTNER-- THE CFPB o Consumer Financial Protection Bureau (CFPB) o Established as part of Dodd-Frank Wall Street Reform and Consumer Financial Protection Act passed in July 2010 o Watchdog partner of other agencies o Response by President Obama and Congress to : -- Role of uninformed consumers in financial crisis -- Need to monitor actions of providers of financial products and services, and that includes higher education institutions! Slide 3 A BRIEF HISTORICAL PERSPECTIVE o The movement from caveat emptor to caveat venditor -- College students became a consumer class of interest *Private student loan customers *Users of taxpayer dollars *Buyers of higher education services o Perceptions that students need consumer protections in part because: --Predatory schools and lenders exist ---First generation college students cant rely on family experiences to help them choose ---Veterans are vulnerable ---People may be misled when looking for a quick fix to unemployment Slide 4 ENTER THE CFPB. o Entire sections of CFPB legislation devoted to private loans --Private Student Loan Ombudsman (Rohit Chopra) --Authority to regulate private student loans *Rulemaking *Program review of private student loan lenders o Another section of legislation devoted to veterans services --Office of Service Member Affairs directed by Holly Patraeus o Veterans Principles of Excellence --CFPB consults on enforcement of principles and institutional compliance with them o Know Before You Owe --Philosophy of comparison shopping ---Establishes partnership between CFPB and ED Slide 5 THE CFPB AND PRIVATE STUDENT LENDING o Born from concern that many students do not exhaust federal aid eligibility before turning to private education loans --Studied this premise in CFPBs first private loan report o Private loans are hard for students to compare and keep track of --Private loans not on NSLDS o Students need an advocate (private loan ombudsman) and a formal complaint mechanism --CFPB established both o Private lenders need to be monitored to assure compliance with existing consumer lending laws -- CFPB has this authority o Students need help getting a clear picture of their total student loan repayment --Student Debt Repayment Assistant Slide 6 CFPB AND ED ISSUE PRIVATE LOAN REPORT o Required report to Congress issued in July 2012 -- Studied the borrowing boom from 2004-2008 *Compared lending practices to subprime housing market *Characterized by direct-to-consumer marketing *Non-bank lenders grew fast, and died even faster o Joint recommendations for private loans made by CFPB and ED -- Mandatory school certification -- More debt management and mitigation options -- Change definition of private loan -- NSLDS type of private loan tracking system Slide 7 ANOTHER REPORT ISSUED BY CFPB IN 10/12 o Ombudsman reports 2,900 complaints received since March 2012 -- 65% related to servicing (billing, deferment/forbearance, credit reports -- 30% problems when unable to pay (default, debt collection) -- 5% loan origination & marketing (difficulty applying, borrower confusion) o Fast-forward to March 2013 -- Consumer Financial Protection Bureau proposes rule to oversee nonbank student loan servicers (both federal and private larger participants that handle more than 1 million borrower accounts) -- NPRM proposes that CFPB oversee servicer activity for compliance with federal consumer financial laws tio curtail confusion, dead-ends, and run-arounds Slide 8 CFPBS OFFICE OF SERVICE MEMBER AFFAIRS o Service Members and Veterans are protected class under CFPB -- Service members subject to sudden deployment -- They are frequently relocated -- They have emergencies that lead to unplanned and unique financial issues o They deserve consumer protection to -- Honor their service commitment to country -- Protect their government funded benefits Slide 9 VETERANS PRINCIPLES OF EXCELLENCE o Executive Order signed by President Obama in April Aimed at Schools -- Service members, veterans, and their families are targets for deceptive, aggressive tactics by some education institutions * They have easy access to funds for education costs from VA benefits * VA benefits count toward the 10% in 90-10 rule *Hard time exercising student loan repayment protections o Institutions voluntarily committed to sign Principles of Excellence -- Institutions that signed listed on VA web site Slide 10 CFPB & ED TEAM UP TO CREATE FINANCIAL AID SHOPPING SHEET! Slide 11 FINANCIAL AID SHOPPING SHEET o Model of what all financial aid award offers should be -- Standard format -- Comparison data for institutions (provided by ED 1/18) *Graduation rate *Default rate *Median borrowing & monthly payment, link to loan repayment information o More than 700 institutions representing more than 1.8M undergraduate students to use in 2013-14 o If you signed Veterans Principles of Excellence, you must use for military students Slide 12 USE OF SHOPPING SHEET o Marketing Tool o Add-on to Net Price Calculator o Replacement to Financial Aid Award Offer o Supplement to Financial Aid Award Offer Do you plan to use the Shopping Sheet at your school, and if so, how Slide 13 QUESTIONS