On Thursday, August 31st, the U.S. Department of Education penned a letter to the Consumer Financial Protection Bureau (CFPB), informing the bureau that their information-sharing partnership has been terminated.
The letter, which was co-signed by Kathleen Smith, Assistant Secretary to the Office of Postsecondary Education, and Dr. A. Wayne Johnson, Chief Operating Officer for the Office of Federal Student Aid, was sent to the Director of the CFPB, Richard Cordray.
The letter informed the CFPB that the Department of Education would be ending two agreements with the regulation watchdog. These agreements pertain to the sharing of information between the two agencies. Such information is used for oversight of the private actors involved in federal student loan programs, especially student loan servicers.
Student loan servicers, such as Navient and Nelnet, are private companies that manage and collect student loan payments on a contract-basis with the federal government; more specifically, they are contracted through the Department of Education.
According to the Education Department’s letter, the CFPB did not inform the department of complaints from student loan borrowers within the 10-day window that is outlined in the agreements between the two entities. Further, the CFPB took its own action on those complaints rather than first turning the complaints over to the Department of Education. These actions were in direct conflict with stipulations of the agreements.
The two agreements between the Department of Education and the CFPB were signed in 2011 and 2014. In 2011, the “Memorandum of Understanding (MOU) Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” was put into effect. In 2014, the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau” was agreed upon by the Education Department and the CFPB.
MOUs are defined as formal agreements between two or more parties that are not legally binding contracts. Although they are not legally binding, MOUs carry a level of respect and seriousness that make them more concrete than a gentlemen’s agreement. According to the letter, both MOUs will officially terminate 30 days after August 31st.
In the letter sent to Director Cordray, the following was said: “The Department’s mission is to serve students and borrowers, but the CFPB’s actions have undermined that mission by violating the intent of the MOUs.”
Continuing further in the letter, the Department went on to stress its “role to work with federal student borrowers to ensure that their issues are addressed within the rules applicable to its program.” Then, the letter directly referenced the CFPB’s actions against private student loan servicers without first properly communicating with the the Department of Education.
In recent times, the CFPB has been quite active in dealing with private student loan companies and student loan servicers. In late August, LendEDU reported that the CFPB is seeking $183.3 million in student loan debt relief for 41,000 private student loan borrowers that fell victim to a predatory lending scheme conducted by Aequitas Capital Management, Inc.
Earlier in March, Navient fought back against a lawsuit that was filed by the CFPB earlier in the year against the student loan servicer. The CFPB accused Navient of cheating student debtors out of billions by creating obstacles for loan repayment which resulted in higher interest rates and loan balances. Navient responded by saying they followed all rules outlined by the Department of Education, and that the CFPB was overstepping their boundaries and inventing their own rules.
Author: Andrew Rombach
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