The Wall Street Journal reported last week on the Consumer Financial Protection Bureau’s focus on problems in the student loan market. The article highlighted the work of Rohit Chopra, “the nation’s student-loan watchdog.”
Apparently, Mr. Chopra’s work is not “sitting well with the industry.” This is a good sign for borrowers that the CFPB is doing its job to make consumer financial products and services work for Americans. As we have written in prior posts, the CFPB exists largely because the lending industry (including many current private student lenders) engaged in widespread predatory practices that buried many consumers in debt. These lenders now do everything they can to change the conversation. They talk about these loans from the past as ancient history. Sometimes they make excuses and move on. The problem is that they left so much destruction along the way. It is not ancient history for our clients and others like them with ruined credit histories and shattered dreams. The companies must not be allowed to move on without doing their part to help troubled borrowers.
This is a major reason why the CFPB is so important. Mr. Chopra and others at CFPB have repeatedly warned that without proper regulation, student lenders could repeat past mistakes. CFPB staff have repeatedly raised the need to provide relief for borrowers. Perhaps this is why, according to Richard Hunt, president of the Consumers Bankers Association, there is more tension between banks and those in the CFPB’s student lending division than in all other areas of the CFPB combined.
The industry’s main defense is apparently that there are problems in the federal student loan side too. The CFPB regulators know this and often point this out. This is not an excuse in any case for private lenders to avoid providing relief for struggling borrowers. Some companies have recently announced new modification programs. For example, the Washington Post recently reported that Wells Fargo and Discover are offering new options. This seems encouraging, but we need more information about who can apply for these modifications and the type of relief offered.
While modifications are critical for many borrowers, they are not a substitute for bankruptcy relief. Too many borrowers are still stuck with predatory loans from the past, These predatory loans were unsustainable and unaffordable for a vast number of vulnerable borrowers. “Unsustainable” in human terms means individuals who pursue their dreams of upward mobility, only to find that these dreams are shattered due to unaffordable debt loads that they will never be able to repay. These borrowers should have access to bankruptcy to get a true fresh start.
In the meantime, borrowers are fortunate to have Mr. Chopra and the CFPB fighting for fairness and transparency in student lending.