Wednesday, September 5, 2018

CFPB Ombudsman Quits Over Student Loan Regulation

CFPB Ombudsman Quits Over Student Loan Regulation

The Consumer Financial Protection Bureau’s (CFPB’s) Student Loan Ombudsman, Seth Frotman has had enough of the political maneuvers affecting the way he does his job overseeing student loan regulation. On August 27, 2018, Frotman resigned from the CFPB. His resignation letter shows how the organization has changed under the Trump administration.

Frotman Resigns from CFPB Saying It Is Failing Student Borrowers

Seth Frotman has been with the United States Consumer Financial Protection Bureau since the beginning. He moved from the Treasury Department shortly after the CFPB was founded through the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. He began as senior advisor to Holly Petraeus in the Office of Servicemember Affairs. Petraeus calls Frotman “a true public servant.”

Frotman’s work with the CFPB has always involved student loan regulation. In his role under Petraeus, he helped military service members and veterans get relief from predatory lending under the Military Lending Act. For the last three years, he has served Assistant Director and Student Loan Ombudsman. 

CFPB’s History of Strong Student Loan Regulation

Since 2011, the CFPB, and specifically Frotman’s Office for Students and Young Consumers has reviewed over 60,000 student loan complaints. The office has investigated and filed enforcement actions resulting in over $750 million in damages repaid to borrowers. It has filed lawsuits against for-profit colleges including ITT Tech and Corinthian College, and has brought enforcement of student loan regulation against lenders like Navient.

Trump Administration, Mick Mulvaney Curb CFPB Enforcement

The CFPB was created early in the Obama Administration. During President Barack Obama’s term in office, it was instrumental in cracking down on predatory lending strategies and protecting students and consumers from unfair business practices. But since the Trump Administration named Mick Mulvaney as Acting Director of the Bureau, Frotman says the agency’s priorities have changed. His scathing resignation letter accuses Mulvaney and the Trump Administration of:
  •  Undercutting enforcement of the law
  •  Undermining the Bureau’s independence
  • Shielding bad actors from scrutiny
His letter says:
“Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting. Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”

Obstruction, Secrecy, and Red Tape Control CFPB Actions

It is easy to see where Frotman is coming from. Before coming to the CFPB, Mick Mulvaney had called the Bureau “a joke … in a sick, sad kind of way.” Since assuming the position of Acting Director he and the Trump Administration have pushed the student loan office to the side. Then in May 2018, Mulvaney announced that the Office for Students and Young Consumers would be folded into the education office, further removing it from its role in student loan regulation.

The Trump Administration has also sought to protect lenders, instead of students. In February 2018, Education Secretary Betsy DeVos argued student loan servicers should be protected against state consumer protection laws. In August 2017, the Department of Education stopped sharing information with Frotman’s office, making it harder for the CFPB to detect violations of student loan regulations.

Frotman also accuses Mulvaney and CFPB leadership of concealing a report showing that some of the nation’s largest banks were saddling students with “legally dubious” account fees. The report was suppressed even after Mulvaney was pressed by Congress to bring the information to light. 

Frotman Says Americans Need a Strong, Independent Consumer Protection Agency

Frotman concludes:
“American families need an independent Consumer Bureau to look out for them when the lenders push products they know cannot be repaid, when banks and debt collectors conspire to abuse the courts and force families out of their homes, and when student loan companies are allowed to drive millions of Americans to financial ruin with impunity.”
The CFPB under the Trump Administration has other priorities. The shift has been severe enough to push Frotman from his post and force him to resign, an act Petraeus calls “the purest of motives: He wants to help student borrowers.”

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PC, in Birmingham, Michigan. She helps students and borrowers fight back against predatory lending and violations of student loan regulations. If you are being harassed by debt collectors, contact The Liblang Law Firm today for a free consultation.

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