June 4, 2014
NCHER Spring Convention
John L. Culhane, Jr.
Ballard Spahr LLP
Consumer Financial Services
Higher Education
(215) 864-8535 culhane@ballardspahr.com
Stefanie Jackman
Ballard Spahr, LLP
Consumer Financial Services
Higher Education
(678) 420-9490 jackmans@ballardspahr.com
Copyright 2014 Ballard Spahr LLP. All rights reserved.

Copyright 2014 Ballard Spahr LLP. All rights reserved.

• Investigations generally go back 3-5 years
• Touch all areas of consumer financial services industry, including collections and student loans
• Technical compliance often not a focal point – focus more on UDAAP issues
• Often apply “new” or “aspirational” standards
• E.g., accept verbal disputes or DNC requests, no credit reporting after state SOL runs
• One consent order states that any violation of state law can constitute a federal UDAAP violation
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• Interest & fees (when charged, authority, how calculated)
• Workout options for consumers
Loan rehabilitation/settlement/forbearance options
• Consumer disclosures
• Collection efforts
• Credit reporting
• SCRA and other military benefits and protections
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• Third party oversight
• Report requests – data and numbers
• Policies and procedures
Written documentation
• Tone at the top
Internal controls and monitoring
Executive reporting
Follow up on initiative implementation
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• Imposition of mortgage servicing standards
• Cosigner release and other benefit programs
• Partial prepayments and payment allocation
• Treatment of so-called “good faith” payments
• Procedures related to cosigner death and bankruptcy
• SCRA rate reductions and other military benefits
• Delivery of federal student loan benefits
• Refinance or consolidation and loss of federal benefits
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Copyright 2014 Ballard Spahr LLP. All rights reserved.

• Contained 162 questions, grouped into 8 substantive categories
• Major themes –to address persist consumer protection problems, to provide definitive answers to questions raised by technological developments, to adopt national standards for first party collection, and to consider whether to implement a centralized document repository and a separate national debt collector registry
• Comment period ended February 28, 2014
• CFPB Semiannual Regulatory Agenda seems to signal release of a proposed rule by year end
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• FDCPA protections apply to first party collections
• Limits on time, manner, and method of communications (end of Foti, clarity on texts, etc.)
• Additional information in validation notice
• New disclosures (time-barred, servicemembers, debt transfers, convenience fees, non-debtor liability, etc.)
• Increased documentation requirements (to collect, validate, resolve disputes, etc.)
• Creation of national debt collector registry (but not a centralized document repository)
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• $70 million in consumer restitution; arising from payday lending, debt collection, and credit reporting agencies
• First Party Collections (Payday Lending)
Compliance management issues
Improper calls – call frequency and deceptive claims
Overly aggressive collection tactics – workplace visits
Third party collection calls – misrepresentations and unspecified conduct deemed to be harassing, oppressive or abusive
Failure to oversee service providers
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• Third Party Collections (Debt Collectors)
Compliance management issues
Intentionally and illegally misleading consumers about litigation – i.e., dismiss if consumer answers
Excessive, illegal calls – time and frequency issues
Failing to investigate credit disputes
•
Credit Reporting Agencies
Improper handling of disputes – i.e., not forwarding information to furnisher, ignoring telephone/email disputes
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• Alleged pattern or practice of SCRA violations:
Failing to lower rates after receiving written notice and qualifying active duty orders
Failing to make acceptable efforts to obtain qualifying active military duty documents from servicemembers who requested benefits but did not provide orders
Failing to notify servicemembers that they might be eligible for rate reductions when they provided their military documents for other purposes
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• Accept as written notice (request):
Military orders
Request for military deferment or forbearance
Submission through new online process
• Accept as military orders:
Letter from commanding officer with specified information
Results of search of DMDC database (required if notice and no orders; for positive result – send notice of right to dispute eligibility dates; for negative result – send notice requesting copy of documents establishing service)
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• Accept as written notice (request) actual knowledge from:
Communication through online portal
Oral communication to call center representative
Written communication to call center representative
Search of DMDC data base
•
Accept as military orders:
Letter from commanding officer
Certificate from DMDC data base
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• 2012 CFPB servicemembers report:
Servicemembers face serious hurdles in accessing their student loan benefits, including the 6% rate
• 2014 CFPB servicemembers report:
Servicemembers report that they are repeated asked to submit documentation not required by law
Recurring requests for orders containing an end-date, particularly with officers (officer orders are often indefinite)
Median amount of monetary relief from complaints through complaint portal - $2,038 (likely from rate reductions)
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• CFPB reaction to DOJ consent order (from the statement by Holly Petraeus) :
Servicemembers were “given the runaround” and were
“denied ... the interest-rate reduction[s] required by law” and “[t]his behavior is unacceptable”
-
The DOJ Consent Order “should serve as a warning not just to the student loan servicing industry, but to all institutions that provide or service loans to the military
.”
Federal regulators “will be vigilant about holding all financial institutions accountable for providing the protections that our servicemembers have earned”
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John Culhane
(215) 864-8535 culhane@ballardspahr.com
Stefanie Jackman
(678) 420-9490 jackmans@ballardspahr.com
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