By AnnaMaria Andriotis And Alan Zibel
WASHINGTON-- Rohit Chopra, the nation's student-loan watchdog,
delivers his message to lenders through blog posts, letters and
public reports. And that isn't sitting well with the industry.
Mr. Chopra, the 32-year-old ombudsman for the Consumer Financial
Protection Bureau, is using his public stage to push student-loan
companies into improving their treatment of borrowers.
But his style of applying pressure through public means--a big
departure from the more measured style of other financial
regulators--is causing friction.
The ombudsman position at the CFPB was created at the behest of
Sen. Sherrod Brown (D., Ohio) and other lawmakers to represent the
interests of private student-loan borrowers, who those legislators
saw as especially vulnerable to abuses. In this role, Mr. Chopra
tracks trends and problems in the student-loan market, recommends
policy changes to Congress and other federal agencies and serves as
an internal CFPB expert on student-loan issues.
The disputes between the lending industry and the CFPB have
included heated private phone calls and email exchanges, according
to a person familiar with the communications. In recent weeks, that
friction has trickled into the public eye.
"There's more tension between banks and those in the CFPB's
student-lending division than in all other areas of the CFPB
combined," said Richard Hunt, president of the Consumer Bankers
Association, a trade group that has many private student-loan firms
as members.
After the regulator released a report criticizing the private
student-loan industry in October, Mr. Hunt turned to Twitter,
writing a series of tweets asking why the CFPB "turn[s] a blind
eye" to federal loans with high default rates, concluding a tweet
with "#silencedeafening."
The CFPB has been at odds with private student lenders on
several issues, including whether the industry is playing down
borrowers' default rates and doing enough to help those struggling
with student debt. Lenders have countered that the bureau is making
them a scapegoat and that federal-loan defaults are a far larger
problem in the student-loan industry.
Mr. Chopra's hard-charging style dates to his time as
student-body president of Harvard more than a decade ago, where he
earned a reputation for being a fierce advocate not afraid to clash
with faculty interests. "A kind of adversarial relationship is
necessary," he said in an 2003 interview with the Harvard Crimson,
the student newspaper. As CFPB ombudsman, Mr. Chopra has called out
private lenders who he says have saddled borrowers with
high-interest loans and, until recently, been mostly reluctant to
modify or refinance them.
In an interview with The Wall Street Journal, he said relieving
students of their debt burdens has broad implications because it is
"holding so many of them back."
Mr. Chopra later added in an emailed statement: "In my job,
every day I get calls, emails, letters from people who are drowning
in debt. I hear the panic in their voices as they worry about their
financial future. They aren't numbers on a spreadsheet. I want to
help make things better for them."
At the core of the debate is a disagreement over where the
largest problems in the student-loan industry reside. There is more
than $1.3 trillion in outstanding federal and private student
loans, according to the Federal Reserve. Federal loans account for
approximately 92%, and private loans make up the remaining 8%,
according to MeasureOne, a San Francisco-based firm that tracks the
student-loan market.
Mr. Chopra, who also holds an M.B.A. from the University of
Pennsylvania's Wharton School and worked for consulting firm
McKinsey & Co., expressed his frustration with private
student-loan performance figures on an October call with reporters.
On the call, he presented findings from a report the bureau was
about to release on student loans. "Some analyses have sought to
paint a picture of a peachy-keen market" for private student loans
by comparing two different kinds of measurements, he said.
Private lenders report performance on a shorter-term basis,
while the federal government's calculations include a measure of
defaults over three years--a measurement that is inevitably higher.
Comparing these figures is "like saying your 8-year-old son is
bigger than his 6-foot-tall brother, comparing apples and oranges,"
Mr. Chopra said on the media call. Lenders say they measure private
student-loan performance as they do most other consumer loans.
The tension illustrates how some financial-industry players have
struggled to adjust to a tougher postcrisis regulatory climate and
how the CFPB has asserted itself as an overseer--and critic--of
industry practices. Student lending is the only consumer-lending
sector that has its own ombudsman in the CFPB, which was created by
Congress in the 2010 Dodd-Frank financial-overhaul law.
The relationship between the CFPB and some private student
lenders has been sour at least since 2013, when the largest private
student lenders partnered with data firm MeasureOne, which began
releasing industry reports on loan performance and market size.
In October, Mr. Chopra sent an email to a Wells Fargo & Co.
lawyer and the head of student lending at PNC Financial Services
Group Inc., who head up the education-funding committee at the
Consumer Bankers Association.
Mr. Chopra expressed concern about a website the trade group
launched in September that compares private and federal student
loans, according to a separate party who later viewed the email and
shared it with The Wall Street Journal. Mr. Hunt's group in
September launched the website www.privatestudentloanfacts.com to
counter what it calls "myths" about the industry put out by the
regulator and others.
The site states that private student loans have an average
default rate of under 3%, compared with more than 13% for federal
loans, which make up the vast majority of new loans being made
today. That's the comparison Mr. Chopra has criticized and lenders
defend.
In November, after months of pressure in the industry from the
CFPB, Wells Fargo & Co., the second-largest private student
lender by origination volume, announced it would lower interest
rates for all eligible borrowers for the first time starting that
month and said it plans to extend repayment periods starting in
February. Discover Financial Services Inc., the third-largest
student lender, is planning to begin modifying loans early next
year. SLM Corp, better known as Sallie Mae, is the largest private
student lender and began offering loan modifications in 2009.
Wells Fargo said it had been working on modification options for
more than a year and that its executives were disappointed that the
CFPB came out with a broad criticism of the industry's lack of
modification options in its October report. The bank said it had
informed the bureau that it was close to launching a national
modification program that had been in a pilot phase since May.
"There's a reason why we've been working on it for so long,"
John Rasmussen, head of education financial services at Wells
Fargo, said in November. "This is not just something you pull off
the shelf."
The CFPB says it has been raising the issue of loan
modifications since 2012.
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