Worries That A Federal Student Loan Watchdog Will Be Muzzled

May 9, 2018
Originally published on May 10, 2018 9:25 am

It's a single line in an email:

"The office of 'Students & Young Consumers' ... will be folded into the office of 'Financial Education.' "

Words sent Wednesday morning by the Consumer Financial Protection Bureau's acting director, Mick Mulvaney, announcing various staffing changes at the bureau.

Why did this bureaucratic-sounding announcement trigger a sheaf of critiques from consumer groups, California's attorney general and at least two U.S. senators?

Because student loans just crossed the $1.5 trillion mark. They are the biggest category of borrowing after mortgages. And since 2012, when college students are mistreated or misled, the CFPB's Student and Young Consumer division has been there to help:

  • They helped tens of thousands of active-duty military service members who were being overcharged for student loans, got the Justice Department involved, returned $60 million to the service members, and got the industry to change its practices.
  • They have collected and analyzed hundreds of thousands of student complaints.
  • They've recovered more than $750 million total on behalf of defrauded students.
  • They were instrumental in the shutdown of the for-profit ITT Tech and Corinthian Colleges, both accused of predatory practices.
  • In January of last year, CFPB sued Navient, the nation's largest student loan company.

Students and Young Consumers, until recently, was a parallel program office to the office of Financial Education, so this reorganization looks an awful lot like a demotion. Former and current staffers at the bureau, who declined to use their names for fear of losing their jobs, tell NPR they believe this is a move to weaken their ability to protect student loan borrowers and other young people.

A former senior CFPB attorney agrees. "This is an appalling step," says Christopher Peterson, a law professor at the University of Utah and a former enforcement lawyer and special adviser at the CFPB. "This has been an office that's been out there protecting consumers when student loan debt collectors, predatory schools, and other companies have been violating the law."

The CFPB's spokesman John Czwartacki told NPR: "This is a very modest organizational chart change to keep the Bureau in line with the statute but the office is still operating within the same division. The work of the office continues, personnel are all on the job and working on the same material as they were before. The bottom line is there is no functional or even practical change."

But current and former staffers worry that's not true. They think this is a move to block the student loan office from continuing to root out wrongdoers, fix problems, and claw back money for student loan borrowers who've been treated unfairly.

Consumer groups plan to protest outside the bureau later today.

Here's a recap of the context. President Trump named Mulvaney, who is still the director of the Office of Management and Budget, concurrently to this post at CFPB last fall. The only problem was, Obama appointee Richard Cordray had already named his deputy, Leandra English, to be his successor. In fact just last month the two were in court fighting about it. As a U.S. Representative, Mulvaney criticized the agency and voted both to muzzle it and to get rid of it entirely. Also last month, he faced off against Sen. Elizabeth Warren, D-Mass., in a banking committee hearing; she blasted him for his lack of regulatory verve since assuming the post, saying, "You are hurting real people to score cheap political points."

Meanwhile, it's getting lonely out there for those trying to hold shady lenders, servicers and colleges accountable.

"Now, I'm less convinced that there's going to be somebody in Washington who is paying attention to whether or not these businesses are doing what they're supposed to," says Peterson.

The Department of Education stopped cooperating with CFPB on student loan enforcement last fall, and in March, the department issued guidance telling states to back off too.

This story has been updated with the CFPB's response.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

RACHEL MARTIN, HOST:

If you've got student loans, you might want to listen closely to this next story. The Trump administration is diluting the power of a federal office that's supposed to look out for people with student loans. It's called the office of Students and Young Consumers. And over the years, it has helped return close to a billion dollars to student loan borrowers who were wronged. Critics worry that this new move will make it hard, if not impossible, for the agency to keep doing that work. NPR's Chris Arnold joins us now. He has obtained an internal government memo outlining this change. Hey, Chris.

CHRIS ARNOLD, BYLINE: Hey, Rachel and David.

MARTIN: So this involves the Consumer Financial Protection Bureau, which has a new boss who has been really controversial. And now we've got this memo. What's going on here?

ARNOLD: Right. So this is an ongoing story of the president finding basically the person who disliked this bureau the most and putting that person in charge of running it.

MARTIN: (Laughter).

ARNOLD: We're talking about former representative - or former Congressman Mick Mulvaney.

MARTIN: Right.

ARNOLD: He was a Republican, sponsored legislation to abolish this bureau when he was in Congress. And he and other Republicans feel like, look, it's too powerful, it's been too aggressive. And since he's come on board, he's taken a series of steps to sort of water down its mission.

MARTIN: Right.

ARNOLD: And in this latest move, he's taken the unit at the bureau that works to protect student loan borrowers and essentially given it a demotion. So it's now under the control of a different division that does financial education, and that division doesn't go after wrongdoers and doesn't do the kinds of things that it was doing before.

MARTIN: OK. So what does that mean for people who have student loans? I mean, you say it's been a demotion for this particular agency. What's that going to mean in practice?

ARNOLD: Right. I mean, it may not sound like the most terrible thing in the world, but this is why people are upset. And this has been a very active office in the past. For example, tens of thousands of active military service members were being overcharged on their student loans. And this office looked into this. It got the Justice Department involved. And it clawed back $60 million that got returned to service members.

MARTIN: Wow.

ARNOLD: And not only that, it changed industry practices so that this would stop happening. It also had a hand in other lawsuits and settlements - were giving more than $750 million back to people who had been wronged with student loans. And so the worry is that this watchdog will now be told, you know, why don't you stick to printing out pamphlets about financial education for students and stuff and stop doing all these other things?

MARTIN: So just distribute educational materials and don't go after the bad guys.

ARNOLD: Right. And I talked to former Congress - or former Consumer Protection Bureau lawyer Christopher Peterson. Here's what he had to say about this move by Mulvaney.

CHRISTOPHER PETERSON: This is an appalling step. This is a limitation of one of the most important and effective offices looking out for student loan borrowers all across America.

MARTIN: So then you've got to ask the question, why would they do this? I mean, what is Mick Mulvaney saying as the justification for this?

ARNOLD: Well, in a statement, his press person says this is just a, quote, "modest organizational chart change" and that there is, quote, "no formal or even practical change." So basically nothing to see here, nothing to be concerned about. But current and former staffers at the bureau and people with consumer groups, they all say we're not really buying that. And they say, look, Mulvaney's already changed the mission statement of the bureau. He's said he's going to make it a much less aggressive regulator. They see this as part of that, and they say, look, we just crested the $1.5 trillion mark for student loans. That's twice what it was a decade ago. This isn't the time to weaken this office, whose only mission it is to protect the rights of student loan borrowers. There'll be out today at the bureau. So we'll be watching to see what happens next.

MARTIN: All right. NPR's Chris Arnold for us this morning. Thanks so much, Chris.

ARNOLD: You're welcome.

(SOUNDBITE OF ELSE'S "AMBRE") Transcript provided by NPR, Copyright NPR.