Posts tagged ‘student loans’

Are You Using Your Credit Reports Illegally?

I’m asking this question to highlight an enforcement action announced by the CFPB yesterday against several companies which, if the allegations are true, blatantly violated several sections of the Fair Credit Reporting Act (FCRA) by obtaining credit reports under false pretenses and passing them around like stewardesses passing  out airline peanuts. I want to highlight the case not only because of its accusations, but because I wanted to provide you an ever so gentle reminder to use your credit reports consistent with the reasons you obtained them in the first place.

15 U.S.C. 1681b(f) permits entities to obtain prescreened credit reports provided that the individuals who qualify under the criteria will receive a firm offer of credit. A “firm offer” is an offer that will be honored subject to certain exceptions. The bottom line is that credit reports are not to be used simply to facilitate marketing, but are instead to be used for legitimate underwriting purposes.

The lawsuit that the CFPB announced yesterday is against several companies, ranging from a mortgage broker to a student loan debt consolidator to a mortgage lender that apparent did not get this memo. For instance, Monster Loans obtained prescreened lists from Experian, ostensibly to offer mortgage loans. There would, of course, be nothing wrong with this if that was all that Monster Loans used these lists for. However, Monster Loans subsequently distributed these lists to third parties, including an entity that specialized in student loan debt consolidation.

Although I’m concentrating on the FCRA part of the complaint, the defendants are also accused of engaging in unfair and deceptive practices, and the Telemarketing and Consumer Fraud and Abuse Prevention Act by marketing these deceptive loan products over the phone. This allegation underscores, yet again, why it is so important for all institutions to understand TCPA and ensure proper compliance.

On that brief note, its time for you to receive my annual Super Bowl prediction, which as you all know, is considered tier-one capital for credit unions and their employees. I like the Seahawks to take on the Chiefs with the Seahawks winning in a dramatic last-second field goal by the score of 20-17. Peace out.

January 10, 2020 at 9:18 am Leave a comment

More HMDA Guidance Issued; Student Lending Requirements Take Effect

It’s getting more confusing keeping track of proposed amendments to HMDA than it is to keep track of the developments in the Trump impeachment inquiry. That being said, after 45 minutes, albeit with no coffee, I think I have it straight.

Yesterday, the CFPB finalized a regulation extending a partial exemption from HMDA reporting requirements for institutions that do not meet certain mortgage thresholds. Specifically, for open-end lines of credit, the rule extends for another two years, until January 1, 2022, the current temporary coverage threshold of 500 open-end lines of credit. For data collection years 2020 and 2021, financial institutions that originated fewer than 500 open-end lines of credit in either of the two preceding calendar years will not need to collect and report data with respect to open-end lines of credit.

In addition to this announcement, there are pending regulatory proposals for which comment is due by Tuesday, or forever hold your piece. One proposed rule would also extend to January 1, 2022, the current temporary threshold of 500 open-end lines of credit for open-end institutional and transactional coverage. Once that temporary extension expires, the proposed rule would set the open-end threshold permanently at 200 open-end lines of credit in each of the preceding two calendar years. The other is an Advanced Notice of Proposed Rulemaking. This will likely be the more significant of the two going forward. In the Dodd-Frank Act, Congress mandated that HMDA-reporting institutions collect several additional data points, and gave the CFPB the discretion to add other data field reporting requirements that it deemed to be appropriate. The Bureau took up this task with gusto. The ANPR is likely to be the first step by the Kraninger-led Bureau to scale back the reporting requirements imposed by King Cordray.

DFS Creates Student Loan Advisory Task Force

To mark the effective date of a new law imposing licensing and servicing standards on student loan providers, DFS Superintendent Linda Lacewell announced the creation of a student advisory board to advise the Bureau on consumer protection issues related to students. Remember that in addition to establishing baseline servicing requirements on student loan providers, the new law also imposes licensing requirements, but credit unions and banks are exempt from these regulations. Credit unions should notify the Department of their exempt status by email at SLSLicensing@dfs.ny.gov.

How Low Should Mortgage Rates Go?

Finally, here is a great article in today’s Wall Street Journal suggesting that mortgage rates should be even lower than they are based on traditional indicators, such as 10-year treasury notes, the fact that lenders haven’t cut rates more aggressively underscores how big an appetite there is among consumers to refinance their existing mortgages.

On that note, enjoy your weekend. If you’re like me, you’re already happy because you know you don’t have to waste your Sunday watching the Giants lose to the Patriots. You already wasted Thursday night. By the way, we now know how bad the Patriots can play and still easily defeat the Giants.

October 11, 2019 at 9:42 am Leave a comment

Here’s Something to Talk About Over Thanksgiving Dinner

This is my annual blog before I head down to God’s country to celebrate Thanksgiving. With the nasty tone politics has taken over the last few years, if your family is anything like the Meier family talking politics is now very dangerous territory so one of the purposes of this blog is to provide you with a non-political conversation starter that should get you through dinner still on speaking terms with your relatives. Another purpose of the blog is to provide you some useful information about your credit union business which  is probably why you read this in the first place.

Let’s start with the news you can use. I’ve just gotten through the New York Fed’s quarterly report on household debt and there is plenty of interesting factoids for you to consider if you’re in charge of plotting your credit union’s course for the next six months to a year.

For example, did you know that Aggregate household debt balances increased in the third quarter of 2018 for the 17th consecutive quarter, and are now $837 billion higher than the previous (2008Q3) peak of $12.68 trillion? I have to be honest with you, before I got into this business I never thought of increasing debt as a good thing. Then there is the news that delinquencies on household debt are beginning to increase   Aggregate delinquency rates worsened in the third quarter of 2018. As of September 30, 4.7% of outstanding debt was in some stage of delinquency, an uptick from 4.5% in the second quarter and the largest in 7 years.

Interestingly, it appears we really did learn some good lessons from the Great Recession. Mortgage originations were flat. The median credit score was 758.

Now here’s the part of the blog you can use for that dinner conversation. Many of you are probably going to be dealing with a kid home from college or a kid starting to think about going to college. According to the report, student loan debt increased by $37 billion in the third quarter, and stood at $1.44 trillion as of September 30, 2018.11.5% of aggregate student debt was 90+ days delinquent or in default in 2018Q3, a substantial increase from the prior quarter. Transition rates into delinquency worsened in the third quarter after a few quarters of relative improvement.

Is that four-year degree really worth the expense? Here’s a great blog that the Federal Reserve Bank did analyzing that precise question. Their conclusion was that, while you’re better off going to college, the economic benefit you derive from it is closely related to quality of school you go to and the major you choose. The researchers conclude that students or persons who attend selective colleges experience an 11% earnings premium compared with those who attend non-selective colleges.

Does a major make a difference? According to the research, STEM majors have the highest earnings premium followed by Business majors. If a school cohort increases its share of STEM majors (relative to Arts majors) by 10 percentage points, there is a 6 percent increase in that cohort’s earnings six years after enrollment. These findings are qualitatively similar for two-year colleges.

On that note, thanks for reading; enjoy your Holiday; stay calm and make sure there are plenty of leftovers for the 10p.m. sandwich.

November 19, 2018 at 9:13 am Leave a comment

Three Things to Ponder on a Friday Morning

CFPB Increases Scrutiny of Student Loan Auto-Default

The CFPB used this quarterly summary of examination findings to highlight what it considers to be the unfair and deceptive use of so called auto-default provisions in student loans.  As many of you know, private student loan contracts often have a relative as a co-signor or guarantor on the loan with the student.  Since at least 2014, the Bureau has been critical of loan provisions under which the bankruptcy or death of a co-signor puts even current student loans in default.  Since default typically results in the entire amount of the loan being due, these provisions can be a big deal.

According to the CFPB, these default loan clauses are illegal where they are ambiguous because reasonable consumers would not likely interpret the promissory notes to allow their own default based on a co-debtors bankruptcy.  This is an issue that the Bureau would be well advised to provide additional guidance on.  Co-signed student loans provide a mechanism for millions of students to off-set educational expenses.  If the CFPB takes too hard a line on this issue, it could make it more difficult for students to get these loans.

Other issues highlighted by the CFPB include illegal debt collection practices, violations of the Remittance Rule, and inaccuracies about deposit account information provided to credit reporting companies.

How Low Can They Go

Last night’s PBS Newshour highlighted the question of just how low interest rates can go.  The European Central Bank further lowered its already negative interest rates in a further attempt to spur lending.  The report also highlighted this hokey but entertaining interest rate ditty.  It’s worth a listen.

Talk About Bad Succession Planning

Since 2012, the Denver Broncos have been grooming Brock Osweiler to take over for the aging legend, Peyton Manning.  This year, they waffled on whether or not to hand the reigns over to Rock, who started seven games, or go one more round with Manning, whose tank was running below empty.  They did the safe thing, went with Manning, but now find themselves without a quarterback.  A clearly P.O.’d Brock has signed with the Houston Texans.  Let’s hope that not many credit union boards are making the same mistake.

March 11, 2016 at 9:05 am Leave a comment

CFPB: Bankruptcy Code Harms Student Borrowers

Is the Bankruptcy Code to blame for difficulties students experience modifying their private student loan obligations?  That is the implicit question posed by the CFPB in its annual report analyzing the student loan industry.  According to the report, which summarizes data from complaints received by the CFPB over the previous year, students seeking repayment options for private student loans are facing many of the same obstacles homeowners face after falling behind on their mortgages.

According to the report, since the Bureau began accepting private student loan complaints in 2012, the most common complaint comes from borrowers seeking to avoid default when they face financial hardship.  According to the Bureau, its findings suggest that lenders and servicers “have yet to address the need for loan workout in a fulsome manner.”

What would the CFPB do?  In 2005, one of the changes made to the bankruptcy code was to make private student loans non-dischargeable in bankruptcy.  At the time of this change, similar protections had already been granted to federally subsidized student loans.  The CFPB is recommending that Congress revisit the PSL exemption “to determine whether the special bankruptcy protection afforded to lenders should be limited to those who offer certain loan modification options.” Remember, the CFPB has already put in place a regulatory framework mandating that lenders work in good faith with homeowners who are struggling to make their mortgage payments.

The nation’s rising level of student loan debt is a serious and growing problem.  As I’ve pointed out in a previous blog, there is even growing evidence that student debt is holding back the housing recovery by making it more difficult for people to afford their first house.  What concerns me about the CFPB’s recommendation is that it adds fodder to an increasingly ideological and divisive debate about the root causes of student debt.

Let’s look at issues surrounding education finance.  But let’s not analyze the issue in isolation.  College tuition has skyrocketed and shows no signs of letting up.  Looking at the amount of debt being amassed in this country to get an education and focusing exclusively on lenders is tantamount to blaming the woes of the NY Jets on their quarterback, Geno Smith: it might be comforting, but there are some issues for which there are no easy solutions.

Well I’m off to enjoy my morning yogurt.  It’s going to taste extra good now that Governor Cuomo has signed legislation  naming it the official state snack.

October 17, 2014 at 8:24 am Leave a comment

Student Loan Nonsense

Sorry for the delay in the post this morning but my home computer may be headed for the eternal cloud.

Yesterday, Massachusetts Senator Elizabeth Warren introduced as her first piece of legislation a proposal that would allow undergraduate students to take out student loans at the same rate that banks borrowing on a short-term basis  from the Federal Reserve do (approximately 0.75% currently).  Without federal action, the interest rate for government subsidized student loans will rise to 6.8% on July 1, up from 3.8%.

No one wants to see rates spike in July and I doubt they will  but by implicitly  blaming the banking industry for student debt, Warren is conflating two hot button issues sure to appeal to her liberal base.  But like almost all demagoguery, it over simplifies  an extremely important issue in this country:  the sky rocketing cost of tuition.

Its like blaming the Titanic on an Iceberg and calling it a day. The legislation is a cheap shot that obscures the real problems facing America’s education system.  By some estimates, the cost of four-year college education has gone up 1,200 percent since 1982.  This makes the rise in health care costs look reasonable in comparison.  It is troubling that we have over $1 trillion in student debt in this country, but it’s troubling primarily because students are finding it more and more difficult to get the jobs that justify an investment in a college degree to begin with.

The CFPB held  a field hearing on student lending last evening   The previous research it has done on this issue indicates that it is concerned with the expanding use of non-government private loans by students who are eligible for government subsidies.  Here’s the problem:    Policy makers are doing nothing but throwing gasoline on the fire.  Without colleges taking a serious look at what it is they are charging their students, cheap student loans do nothing but indirectly subsidize colleges. 

To be sure part of the solution is to take a fresh look at how  student lending is structured in this country. For example, for decades  most credit unions have effectively been shut out of the lending market because of the privileged position given to banks holding government subsidized student loans. Perhaps we would be better off if the system fostered a greater range of financing options with less government interference.   I’m not holding my breath.

FinCEN releases BSA Stats

In the movie, The Lonely Guy, Steve Martin runs down his neighborhood excitedly proclaiming that his name is now in the phone book. 

I’m scared that I am getting too interested in the financial services industry because I actually couldn’t wait to skim through FinCEN’s annual report on SAR filing trends.  I will likely have some thoughts about the report to share in a future blog, but in the meantime for those of you who didn’t get the link, here it is:  http://www.fincen.gov/news_room/rp/files/sar_tti_23.pdf.

May 9, 2013 at 10:53 am 5 comments

3 Questions You Should All Be Able To Answer

imagesNCUA released a letter to credit unions yesterday detailing the supervisory focus for examiners in 2013.  You should definitely read it for yourself, but to me, it comes down to being able to answer three basic questions:  Do you know who you are dealing with?  Do you know what you are dealing with? and Have you hedged your bets in case things don’t go as planned?

For example, if you are embracing new technologies such as online banking and remote deposit, do you have internal controls in place “commensurate with the risk involved[?]”  Are you hedging your bets?  NCUA dropped the requirement for a formal interest rate risk policy for credit unions with $50 million in assets or less, but don’t fool yourself, interest rate risk is still a primary concern of regulators and they are going to expect you to demonstrate not only how you are managing those risks, but whether or not you have access to lines of credit in the event of an emergency.

By asking whether you know with whom you are dealing I am simply rephrasing NCUA’s concern that “some credit unions invest in less established or complex products such as student loans or investments associated with credit union funded employee benefits.”  NCUA will be making sure you have the expertise to deal with these products.  NCUA’s concern is similar to that of other banking regulators since credit unions often use vendors to introduce new products.  One of the easiest ways to address at least some of NCUA’s concerns is to show that you utilize a robust third-party due diligence program and to show that even when utilizing a vendor to invest in such programs, your staff has the expertise to know what it is these vendors are doing on behalf of the credit union.

On that note, have a nice weekend and for those of you inclined to bet give the points and take the money, San Francisco 31-10 over the Ravens.

February 1, 2013 at 7:27 am 1 comment

Why It’s Foolish To Over-protect Debtors or Be A Cowboys Fan

When it comes to collecting student loans, speak softly and carry a very small stick-at least if you’re in the Second Circuit.  That’s the lesson I would draw from a decision released on August 30th. 

The case involves a woman who filed for Chapter 7 bankruptcy in 2001.  At the time, she made no effort to claim that her student loans constituted an undue hardship and, as of 2008, they remained unpaid with accrued interest.  The Department of Education, which financed the loan, was owed over $3,000.  Collecto, a debt collection company, sent a letter to the debtor informing her in big bold letters that the student loan debt was not dischargeable in bankruptcy and providing several payment options.

The debtor responded not by making a good-faith effort to pay off the long-overdue loan, but by commencing a class-action lawsuit under the Fair Debt Collection Practices Act alleging that the letter was false, misleading or deceptive.  A lower court dismissed the lawsuit.  It reasoned that, while discharge of the debt was technically an option for the debtor, the numerous obstacles made this a practical impossibility.  Remember, the debtor in this case would have to petition to get the previous bankruptcy proceedings reopened and then prove at a  hardship hearing that paying off a $3,300 debt constituted a hardship, which would preclude her from “a minimal standard of living.”

On appeal, the Second Circuit ruled that the case could go forward.  It reasoned that the operative inquiry in this case is whether a hypothetical least sophisticated consumer could reasonably interpret the Collection Letter’s statement that “Your account is NOT eligible for bankruptcy discharge,” as representing, incorrectly, that the debtor is completely foreclosed from seeking bankruptcy discharge of the debt in question.  The circuit concluded that the answer was yes and the case can go forward.

In other words, debt collection efforts should not be based on your member’s specific circumstances, but on what legal rights, no matter how remote, a hypothetical dullard could possibly be dissuaded from abandoning by reading a collection notice. 

This decision reflects an increasingly counterproductive trend towards “protecting” debtor’s to such an extent that well-meaning statutes are morphing from legitimate tools to guard against collection abuses (we really don’t need to return to the day of the 9 PM phone call threatening the debtor with debtor’s prison) to tripwires preventing creditors from engaging in legitimate collection activities against debtors who are legally obligated to try to repay their loans.  Decisions like these simply make loans more expensive for the vast majority of members who make an effort to repay their obligations.

CFPB extends mortgage disclosures Reg comment period

The Bureau charged by Congress with the responsibility of saving the American homeowner from itself by the end of this year has extended to November 6 from September 7 the comment period  for regulations which, among other things, would change the definition of finance charges and lower the threshold for what constitutes a high-cost mortgage.  Like almost everything else that the Bureau has proposed recently, these proposals are going to have a major impact on credit unions providing mortgages and I suggest that you all take advantage of this reprieve to tell the Bureau what you think. The Association has posted its own survey and feedback would be appreciated.

My first (maybe second) bet-the-mortgage-special

Tonight the cycle of life continues as professional football begins again.  This year we have the added bonus of having the defending Super Bowl champion Giants take on “America’s-most-overrated-team,” the  Dallas Cowboys in the season opener.  ( I dislike the Cowboys for two reasons:  first Jerry Jones and second the number of Cowboy fans who don’t live anywhere near Texas. They all say they grew up watching the Cowboys, but I am still trying to figure out how they did this before Direct TV.  I still can’t find many people who grew up  watching the  Seattle Seahawks).

Anyway, with the start of the professional football season, here are my eagerly awaited, suitable as collateral,  football predictions:

Tonight:  give the points and take the money – Giants, 31/ Cowboys, 24

Super Bowl pick: Giants, 38/ Houston Texans, 24

 

 

 

September 5, 2012 at 7:03 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 755 other followers

Archives