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Higher Education’s New Bold Sheriff

SCCE Higher Education Compliance ConferenceAustin, TX June 2013

Joel S. Mayer, Esq., CCEP

I AM A RECOVERING LITIGATOR

THE OPINIONS EXPRESSED HERE ARE PERSONAL TO ME AND DO NOT NECESSARILY REFLECT

THOSE OF THE NJ HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY, ANY

PREVIOUS EMPLOYER OR, MORE IMPORTANTLY, MY CHILDREN

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E-mail: jmayer@hesaa.org

Phone: (609) 588-3204

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1. Speed Date the CFPB (Introduction)

2. Outline Current Campus Initiatives◦ Potential Future Issues

3. Help Prepare for Examinations & Promote Positive Dialogue with Regulators & Prosecutors (state/federal)

4. Relax, Engage, Entertain & Solve Problems

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You have the right to an honest answer◦ If I don’t know, I’ll find out

You have the right to interrupt, heckle, protest (non-violently), and disagree

You have the absolute right to pester me for additional or more complete information after the session and after the conference

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Consumer Financial Protection Bureau

Established by the Dodd-Frank Act in 2010

Commenced operations July 21, 2011

Number One Goal:Prevent financial harm to consumers (students) while promoting good practices that benefit them

Extremely Broad Mandate

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Well Funded

Fastest growing federal regulatory agency

Recently hired 1700+ new examiners and attorneys ◦ PRIMARILY FOR THEIR ENFORCEMENT DIVISION◦ RELATIVELY INEXPERIENCED

Extremely Aggressive

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Banks

Mortgage Originators & Servicers

Credit/Debit Card CompaniesIncludes campus debit cards (meal plans/financial aid)

Institutions of Higher Education

Private Student Lenders & Servicers (including PSL debt collectors)

ESSENTIALLY ANY BUSINESS THAT EXTENDS CREDIT (Car Dealerships, Payday Lenders)

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FDCPA (Fair Debt Collection Practices Act)

TILA (Truth In Lending Act)

ECOA (Equal Credit Opportunity Act)

FCRA (Fair Credit Reporting Act)

GLBA (Graham Leach Bliley Act – consumer financial privacy)

19 AND COUNTING SEPARATE LAWS/REGULATIONS ALREADY UNDER THE CFPB UMBRELLA

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TO MAKE MARKETS FOR CONSUMER FINANCIAL PRODUCTS AND SERVICES WORK FOR AMERICANS – WHETHER APPLYING FOR A

MORTGAGE, CHOOSING AMONG CREDIT CARDS, OR USING ANY NUMBER OF OTHER CONSUMER FINANCIAL PRODUCTS” (THIS

INCLUDES PRIVATE STUDENT LOANS AND COLLEGE COST COMPARISONS)

THE CFPB IS ESSENTIALLY BECOMING THE PRIMARY CONSUMER (BORROWER/STUDENT) WATCHDOG AND VIEWS THEIR ROLE AS

PROTECTING NAÏVE OR LESS EDUCATED CONSUMERS FROM BEING TAKEN ADVANTAGE OF BY LARGE FINANCIAL INSTUTIONS, PRIVATE

STUDENT LENDERS, CREDIT CARD COMPANIES, COLLECTIONS AGENCIES AND INSTITUTIONS OF HIGHER EDUCATION

AN IMPORTANT MISSION AND VALUABLE FUNCTION BUT THEY’RE VERY AGGRESSIVE IN THEIR APPROACH. A DISPROPORTIONATE NUMBER OF

THEIR INQUIRIES RESULT IN FORMAL INVESTIGATIONS AND ENFORCEMENT ACTIONS

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THE CFPB HAS A NUMBER OF POWERFUL TOOLS AT THEIR DISPOSAL BUT PERHAPS THE MOST IMPORTANT AND

ADAPTABLE IS KNOWN AS “UDAAP”

UNFAIR DECEPTIVE ACTS and ABUSIVE PRACTICES

A VERY AMBIGUOUS STANDARD USED TO ANAYZE WHETHER OR NOT AN ENTITY’S MARKETING,

DISCLOSURES, PROMISES OR JUST ABOUT ABOUT ANYTHING ELSE HAS THE CAPACITY TO MISLEAD A LESS

SOPHISTICATED CONSUMER (STUDENT)

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Considered the top Legal & Compliance risk to covered entities

Business practices – especially the content of disclaimers – are viewed from the perspective of the “least sophisticated consumer”

Clear description of terms and fees relating to any credit/debit card and student loans is critical

Striking the correct balance between detail and simplicity is extremely difficult

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LAST YEAR THE CFPB LAUNCHED THEIR ONLINE COMPLAINT PORTAL AND THEY’RE AGGRESSIVELY SOLICITING THEM FROM

CONSUMERS/STUDENTS. THEY USE THOSE COMPLAINTS TO STUDY TRENDS, IDENTIFY AREAS FOR POSSIBLE FUTURE

INITIATIVES AND TARGET INQUIRIES, INVESTIGATIONS AND ENFORCEMENT ACTIONS. DATA COLLECTED THROUGH THE

PORTAL IS PUBLICLY AVAILABLE

AMONG THE AREAS NOW COVERED BY THE PORTAL ARE: MORTGAGES CREDIT/DEBIT CARDS (CAMPUS DEBIT CARDS) COLLECTIONS AGENCIES PRIVATE STUDENT LOANS

MORE PRODUCTS/SERVICES WILL BE ADDED IN TIME

http://www.consumerfinance.gov/complaint/

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CFPB examinations place great emphasis on the complaint handling process

Upper Management Involvement (Exec/Board/Trustees/Regents)

Must capture all complaints – not just those forwarded via the CFPB Portal◦ CFPB Portal◦ Governor’s Office Referrals◦ Legislative Referrals◦ Direct Borrower/Student Complaints (letters, e-mails,

telephone)◦ Includes Co-borrowers and Cosigners

WHAT IS A COMPLAINT?

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All complaints must be quickly investigated, responded to and resolved regardless of type and/or complexity

Portal complaints require timely responses to the CFPB and the borrower

Robust, clear, and consistently applied policies and procedures expected◦ THEY WILL ASK

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http://collegecost.ed.gov/shopping_sheet.pdf

http://www.consumerfinance.gov/paying-for-

college/

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Objective is to promote transparency and allow easier comparisons as between different colleges

Required Elements:1. Cost of Attendance (Tuition/Fees, Housing/Meals,

Books/Supplies, Transportation, “Other” costs)2. Grants & Scholarships (Federal, State, School)3. Work-Study (Federal, State, School)4. Loan Options (Federal Perkins, Direct)5. Other Money (Military Benefits, Private Student Loans, Parent

PLUS Loan, Payment Plan)

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Other required elements:

1. Graduation Rate (Percentage of full-time students who graduate within 6 years)

2. Loan Default Rate (Percentage of borrowers entering repayment and defaulting on their loan)

3. Median Borrowing (Aggregate for typical student and monthly payment on that total for a 10 year Federal loan term)

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Examinations and Enforcement Actions will escalate

Entire landscape of Higher Ed on radar –nonprofit, state affiliation irrelevant

Complaint Portal Data used to target exams Extremely expensive and disruptive◦ Money◦ Resources Systems Staff

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Remain at the edge of the radar by promoting:◦ RESPONSIBLE BORROWING/CHOICES◦ INFORMED BORROWING/CHOICES◦ BETTER CHOICES◦ BORROWER/STUDENT ENGAGEMENT BEFORE , DURING, AND AFTER SCHOOL (LOAN REPAYMENT)

MOBILE AND SOCIAL MEDIA

Remain vigilant in capturing, investigating & resolving complaints

Respond consistently, transparently & fairly Constantly evaluate and reevaluate UDAAP risks

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Medieval Compliance Program

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Compliance Calculus dictates that regulatory/congressional scrutiny, investigations

and enforcement actions will increase…

TAKE ADVANTAGE OF THE OPPORTUNITY

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INCREASED PRESSURES OR INCENTIVES TO INCREASE BUSINESS (ENROLMENT, GRANT

OPPORTUNITIES) +

AGGRESSIVE REGULATORY, INVESTIGATIVE, PROSECUTORIAL, CONGRESSIONAL , AND

PUBLIC SCRUTINY=

COMPLIANCE CHALLENGES

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Where’s the Devil?

Not necessarily in the details (that’s where the angels are probably hiding)

Because the initial focus of any complaint, inquiry or investigation leading to an enforcement action will be directed at the

appearance of impropriety (conflict of interest/data privacy breach), details which might otherwise prove the absence of

impropriety may become irrelevant or may be too costly to prove

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Calculus for Regulators & Prosecutors 101:o Delay = Suspiciono Suspicion = Negative Perception

Negative perception generates additional attention and the prospect of a wider inquiry

Avoid negative perception by encouraging transparency and showing that you and the institution have nothing to hideo What they see through is less likely to hurt you

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Don’t confuse respect with intimidationWelcome them with open arms (and open

books) Learn how they take their coffeeMake yourself indispensible Show pride in your work, your integrity, your

program and the work of your staff Beware of lawyers – be very aware of perception

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BENEFITS OF AN INQUIRY OR INVESTIGATION

Presence of regulators, investigators and prosecutors reminds everyone of the importance of compliance efforts

Permits compliance professionals to focus on compliance and improve programs

Encourages investment in compliance related systems, consulting services and third party solutions

Enhances the value of dedicated compliance professionals in the eyes of institutional leadership

Encourages the development of valuable contacts

Can provide a reputational boost to your institution

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