Student Debt Front and Center at Consumer Federation of America Conference

Last week I attended the 31st annual Financial Services Conference of the Consumer Federation of America. It was time well spent, offering an opportunity to engage directly with consumer advocates.

The event brought together about 150+ consumer advocates, regulators and industry representatives to explore financial challenges facing consumers, including topics such as the Life Cycle of Student Loan Debt and Criminalizing Debt.

The conference opened with a keynote from Rep. Gregory Meeks (D-NY)

I recently heard Rep. Meeks speak at another event, the Online Lending Policy Summit and wrote about it. Though one speech was pre-election and one was post-election, his message to the two groups was similar.

In last week's remarks Meeks noted that Rep. Maxine Waters (D-CA) will be the first woman and first African American to chair the full Financial Services Committee in 150 years; he hopes to chair the Subcommittee on Financial Institutions & Consumer Credit. Meeks shared that his district is ethnically diverse, and is directly connected to Wall Street via the subway right across the street from his office. He said that the securities industry generates 20% of the taxes paid in New York -- funds which have paid for a lot of important infrastructure projects. He also said he views Wall Street as offering a viable path to wealth for many, so he is not interested in tearing it down, but rather he wants to ensure it is diverse, it deals fairly with consumers, and it creates opportunity for more people to experience it (for instance, by exposing kids to it).

“Align Wall Street with Main Street”

Rep. Meeks expressed this philosophy: “When Wall Street does well, my communicty does well. It cannot do well if it doesn’t do right by consumers.” Further, he added, “Access to financial abuse is not access to financial services. Look at who’s doing right and who’s doing wrong. Fix policy to ensure fair access and treatment.”

He offered three priorities of a Waters-led House Financial Services Committee:

1. Shore up the CFPB and especially its fair lending mandates.
   
   Meeks suggested that good actors should be interested in this. He said he supports Rep. Waters’ “Consumers First Act” which was introduced to reverse the actions by “he who shall not be named” to address the Bureau’s structure, restore the agreement with the Department of Education, establish independence from the White House, and limit the number of political appointees allowed.
   
   
2. Preserve and modernize the Community Reinvestment Act (CRA).
   
   [Editor’s note: Enacted by Congress in 1977 (12 U.S.C. 2901) the CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate.]
   
   
3. Encourage data control and privacy.
   
   He said consumers should be empowered to control the flow of their data. The United Kingdom leads the way on this. U.S. prudential regulators are behind. Meeks said he will introduce legislation regarding open banking and explore how to make it work. He offered an example of a community bank that became a community center rather than close down. This established trust within the community, built connection, and ultimately made it successful because people wanted to take out loans/do business with this bank that truly knows and supports the community.

Among other topics, there was a lot of discussion about education and student debt

A panel discussion between Celinda Lake, a Democratic party strategist, and Christine Matthews, of Bellwether Research & Consulting; moderated by Richard Dubois, the Executive Director of the National Consumer Law Center, shared voter attitudes about the economy and financial services.

A few things caught my attention:

• They noted that free college for all doesn’t test well with consumers.
• They mentioned that Maryland Governor Larry Hogan (a Republican) started a “SmartBuy” program to help first time home buyers with student debt, and that Ohio is looking at something similar. From the SmartBuy website: To qualify, homebuyers must have an existing student debt with a minimum balance of $1,000. Maryland SmartBuy financing provides up to 15% of the home purchase price for the borrower to pay off their outstanding student debt. Maryland SmartBuy 2.0 offers the same student debt relief of 15% of the home purchase price with a maximum payoff of $40,000. The full student debt must be paid off at the time of the home purchase, and homebuyers must meet all eligibility requirements for the Maryland Mortgage program.
• Nobody knows that the Dodd Frank Act is. Ms. Lake shared that, in her experience, people like give the impression that they are smart; when asked if they are familiar with something they don’t know about, they’ll make up an answer. She said in the case of Dodd Frank, people couldn’t even make something up.
• We need to do better at publicizing the voting record of Congress on financial issues. People are simply uninformed.

Former Secretary of Education Arne Duncan spoke about opportunity

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Duncan said, “Talent is much more evenly spread than opportunity.” He offered the following figures:

The average net worth of white families in America is $243,000. The average net worth of black families is $8,000. “That’s not a financial literacy gap; that’s an opportunity gap.”

If our young people manage to get a good education but are still living paycheck to paycheck, we haven’t broken the cycle of poverty. I’m a big believer in financial literacy, starting in kindergarten. I also encourage firms to hire low income people, because you break the cycle of poverty through job opportunities.

He suggested that what’s often lacking for kids likely to dropout of school is relevance. For instance, kids don’t see the relevance of algebra. He also said there is a huge disconnect between higher education and the business world.

Former CFPB Student Loan Ombudsman Seth Frotman spoke about his new venture

You may remember Seth Frotman who made a splash a few months ago by submitting a scathing resignation letter to Acting Director Mick Mulvaney. Well, just about three months later Frotman announced the launch of a new organization called the Student Borrower Protection Center. He was passionate and defiant.

“We [Democrats] should be asking ourselves how we got into this mess… we shouldn’t be complacent in our wins in Congress. There is no depth to which this administration will not take us.”

He challenged the room, “If we are going to do better for the 44 million [the number of Americans with student loan debt], we need to come up with better solutions.”

A few other statements caught my attention:

• We have a system that encourages debt financing without creating a system ready to handle it.
• This is not the sole doing of [Education Secretary] Betsy DeVos. These failures span parties and administrations.
• One million plus borrowers default each year.
• We’ve had a philosophy of getting students into school at all costs, regardless of the debt. How did this happen? We weren’t listening.
• The CFPB under Mick Mulvaney takes Betsy DeVos at her word when she says everything is okay.
• We have a system that treats student loan holders as second class citizens.
• You can’t rely on a system where student loan borrowers depend on an election. Some have been ripped off at every turn and never saw justice. You can’t trust these consumers to any one individual.
• We need to fight where the fights are -- in the state halls, not just the courts and Congress. States are on the front lines.

Frotman concluded with four points:

1. We need strong leaders at the top of state banking institutions.
2. We need more cops on the beat doing state-level consumer protection.
3. We need better federal law that empowers new cops on the beat whenever possible, and we need to re-write laws.
4. We need a new brigade of consumer protection advocates.

A panel discussion that followed Frotman’s speech included:

• Toby Merrill, Director of the Harvard Legal Services Center Project on Predatory Student Lending
• Martha Fulford, Senior Counsel for the National Student Legal Defense Network
• Anna Schwartz, General Counsel for Scratch, an app that helps students manage their student loan payments

They were each asked to share their highest priorities related to student debt.

Merrill said, "Unenforceable debt shouldn’t be paid. A big chunk of the $1.5 trillion in student debt is unenforceable; industry and government are the cause. We can’t leave a generation behind." Her bottom line: We should stop the flow of federal funds to for-profit colleges.

Fulford said her priority would be to fix the program for public service loan forgiveness.

Schwartz said that servicers should act in the best interests of clients; we want to see students have access to financial advice. She added that borrowers pay for servicing but don’t get to choose their servicer... It seems she’d like to see this change.

insideARM Perspective

All of this discussion about managing student loan debt occurs against the backdrop of the Department of Education working to develop its NextGen servicing system. Parts of this procurement are currently under protest.

The controversy surrounding its contracting of private debt collectors also continues in the background (there have been some new developments on that front, but more on that in another article coming soon). No doubt Wayne Johnson, Head of the Federal Student Aid (FSA) Office of Strategy and Transformation, would say that NextGen is being designed to address many of Seth Frotman's accusations.