Yesterday, the U.S. Department of Justice, U.S. Department of Education (USDOJ release) and the Federal Deposit Insurance Corporation (FDIC) (FDIC release) slammed the behemoth student loan company Sallie Mae and a spinoff known as Navient for violations of the Servicemembers Civil Relief Act (SCRA) and Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts and practices. After I explain the case, I also want to highlight a very important speech delivered by CFPB Director Richard Cordray last week, including his remarks on how consumer complaint data is helping drive the CFPB's actions, including its work that helped lead to these settlements by other agencies.
Between the USDOJ and FDIC settlements, Sallie Mae and Navient were ordered to pay a total of $6.6 million in civil penalties and a total of $90 million into a compensation fund and direct restitution to servicemembers and veterans. The settlement also requires improved practices going forward. It also orders the firms to fix any negative credit reports.
From the USDOJ release:
“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” said Attorney General Eric Holder. “That is the least we owe our brave servicemembers who make such great sacrifices for us. But as alleged, the student lender Sallie Mae sidestepped this requirement by charging excessive rates to borrowers who filed documents proving they were members of the U.S. military."
It's very clear that CFPB research based on complaints to the CFPB's public Consumer Complaint Database helped build the case against Sallie Mae et al. In October 2012, the CFPB's Office of Servicemember Affairs and its Student Loan Ombudsman had released a joint report "The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform," warning that:
"The student loan servicing complaints and stories received by the Consumer Financial Protection Bureau (CFPB) raise concerns that problems confronted by military borrowers are not confined to the mortgage market. [...] We have received complaints from servicemembers stating that they were guided into military deferments or forbearances and were unaware that upon the completion of their active-duty service their total loan debt would balloon due to the accumulation of unpaid interest. [...] We have received complaints from servicemembers, on active duty for multiple years, who reported that they were told that their interest-rate cap would expire annually, and were subsequently required to submit additional orders in order to retain this benefit."
Holly Petraeus, Director of the CFPB's Office of Servicemember Affairs, pointed out yesterday:
"Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable. And it’s particularly troubling from a company that benefits so generously from federal contracts."
Stopping behavior that is unacceptable is what the CFPB was built for. Ideally, other providers will learn from these actions and re-align their own practices without an enforcement action.
Last week, at the Federal Reserve Bank of Chicago, CFPB director Richard Cordray gave what many think was an important speech describing how the CFPB is working to protect consumers and make markets work.
"We have been charged by Congress to assure that the markets for all of these consumer financial products are fair, transparent, and competitive. We expect a marketplace where companies are honest and clear so that consumers know the key terms and conditions of financial products up front, including pricing. We expect a marketplace where quality customer service is standard. And we expect a marketplace where financial products are designed to help consumers, not harm them. As former Solicitor General Charles Fried has aptly observed, “Lying, cheating, and stealing are not traditional American virtues.” At the Consumer Bureau, we believe they never have been and they never should be. Instead, we see candor, responsibility, and accountability as distinct American virtues."
In that speech, Director Cordray specifically talked about how the public consumer complaint database is helping the bureau do its job:
"These complaints cover a wide range of financial products and services. Each perceived grievance is a chance for us to get a better handle on something that is troubling a consumer and seek to address it successfully. That may mean getting some or all of the consumer’s money back. [...] From an analytical perspective, some might deride consumer complaints as mere anecdotes. And it is certainly true that not every complaint makes out an actual violation of the law. But the aggregation of individual data points begins to create a broader pattern yielding more meaningful data. Thus far, we have received more than 350,000 complaints from consumers, and we have worked directly with companies to address these complaints appropriately. At this heavier volume, notably, is where some magic begins to occur. [...] Each consumer’s voice counts and the chorus of many voices can change practices at these large financial companies."
I'd encourage anyone to read Director Cordray's entire remarks. He talks about a lot more than complaints and data, including about the importance of the CFPB's first-ever regulatory authority over the entire bank and non-bank marketplace:
"A conscious focus on consumer compliance management is now tending to converge across the bank/nonbank divide. And that is the right way to look at things from the consumer perspective also – it should not and typically does not matter to individual consumers whether they are being mistreated by a chartered entity such as a bank, a credit union, or a thrift, or instead by any kind of nonbank corporation, partnership, or other type of venture."
His concluding remarks again point to the goal of making markets work:
"Let me conclude by saying that good regulation is not about impeding market forces; it is about channeling those forces to make the marketplace work better. Good regulation supports strong markets that are more likely to deliver value to consumers over time."
U.S. PIRG Education Fund has compiled a series of five reports that analyze the complaints in the CFPB’s public Consumer Complaints Database. The reports have analyzed bank account, private student loan, credit reporting, credit card and debt collection complaints. We've also put together a webpage of Top Ten CFPB Resources for Consumers.