The letters "CFPB" may not be much more than alphabet soup to your average student loan borrower. They stand for Consumer Financial Protection Bureau, a new-ish federal agency — created in 2011 — with a unique mission and a big effect on student lenders and for-profit colleges accused of defrauding or otherwise mistreating Americans.
But the U.S. Education Department has just called a halt to the enforcement collaboration between itself and CFPB. This move leaves 44 million student loan borrowers, owing $1.4 trillion in debt, with potentially less, or at least less-coordinated, oversight of their rights.
To understand why, let's look at how the CFPB got here, and how it does its work.
The Dodd-Frank Act, passed as part of the federal response to the 2007-08 mortgage crisis, established the CFPB to enforce consumer finance law.
Among its tasks, the bureau responds to consumer complaints about loans, mortgages and other financial products. To date, it has collected 20,000 complaints. Those gripes are key to the bureau's broader work, says Seth Frotman, CFPB's student loan ombudsman.
"We always encourage people to complain to us when they run into trouble with their student loan company," Frotman says. "Not only on behalf of yourself, but if you are encountering a situation, it's likely that somebody else is."
Complaints help the CFPB spot patterns that may be "systemic," he adds. The agency can launch investigations and sue companies for violating the law. It can also "supervise" a company, meaning CFPB staffers come on-site to ensure compliance.
This enforcement has helped get money back in the pockets of borrowers. In 2015, people who had attended the for-profit Corinthian Colleges got $480 million of student loans erased.
And on Monday, the CFPB announced a settlement with the National Collegiate Student Loan Trusts and its debt collector, Transworld Systems. CFPB says the companies were illegally suing people over private student loan debts for which the ownership couldn't be proven or when the debts were too old to collect. A total of 800,000 loans will be audited, and the companies will pay at least $21.6 million, in some cases directly to consumers.
Frotman argues that the CFPB is really the only sheriff directly tasked with watching the student loan servicer industry. These companies are not banks, but by handling student loan payments, they play a powerful role in the financial lives of millions of Americans.
For example, the CFPB is currently suing Navient, the largest student loan servicer. Again, looking at patterns of complaints, the CFPB alleges that too many Navient customers are running into problems that are costing them money and, in some cases, driving them into default.
Navient denies this. A spokesperson pointed me to its analysis of CFPB consumer complaints about the company. By its count, more than 90 percent relate to something other than servicer error. In a blog post, the CEO Jack Remondi says the real issue is "an overly complex student loan system in need of reform."
CFPB had two memorandums of understanding with the Education Department that allowed the two to share information and cooperate on enforcement. At the end of August, the Department of Education terminated those arrangements.
A letter from department officials called the CFPB "overreaching and unaccountable." Essentially, the Education Department argued that CFPB was one too many cooks in the regulatory kitchen, leading to confusing and inconsistent results for borrowers.
Navient's stock jumped around the time the letter appeared.
U.S. Rep. Virginia Foxx, the North Carolina Republican who chairs the House education committee, praised the move in a press release. The Education Department did not respond to requests for comment.
The CFPB's ombudsman would not comment to NPR on the implications of this move. He referred us to a public statement by the CFPB's director, Richard Cordray. "When all of us act together as partners ... we are generally more effective," Cordray said of the various agencies overseeing student loans.
Rohit Chopra, previously at CFPB, is now a senior fellow at the Consumer Federation of America, a consumer advocacy group.
He says ending the MOUs risks drowning effective enforcement in reams of red tape. "A major objective of the agreements was to reduce paperwork burden on companies subject to laws administered by both agencies," Chopra said. "When companies have to respond to multiple agencies with similar information, this is bad for the market and for taxpayers."
The move is not surprising coming from the Trump administration, which has taken many actions seen as friendly to the student loan industry.
In May, the top federal student aid official, an Obama appointee, suddenly resigned. His replacement, A. Wayne Johnson, was the CEO of a student loan company; he co-signed the letter canceling these MOUs. Education Secretary Betsy DeVos is being sued by several states for delaying a regulation designed to make it easier for defrauded borrowers to get their money back. Julian Schmoke Jr., the department's new chief of student loan enforcement, has worked for a for-profit college.
In the meantime, CFPB will continue with the regulatory mission that, its supporters say, no one else can do. Chopra argues that the Education Department isn't necessarily equipped to go it alone as a watchdog. It's charged only with enforcement of the Higher Education Act, not broader consumer protections as the CFPB is.