Student Loans: Some Issues to Consider

Although these are not the only aspects of student loan policy that will come up in the next legislative session, these issues will drive the discussion regarding student loans.

Student loan debt is being reported as the next big “mortgage crisis” and private student loan lenders will likely be receiving the same congressional attention that private lenders did during the mortgage crisis.  Although allowing students to declare bankruptcy on their student loans would likely cause a wave of bankruptcies, this policy will still be up for debate.  It could very well serve as a bargaining tool for reaching a middle-of-the-road legislative alternative.  A recent Consumer Financial Protection Bureau report on student loans will not necessarily be the impetus for a legislative fix, but it will serve as the foundation for scheduling hearings and framing the debate.

How these two issues are framed will depend on the outcome of the election.  It is hard to draw any true conclusions on what the policy will end up looking like but they will be major discussion points when developing those policies.

The veterans’ issue is a hot one right now for student loans and will continue to be regardless of the outcome of the elections.  As troops are returning, more and more are taking advantage of their educational benefits.  The Consumer Financial Protection Bureau has a specific office set up for identifying consumer fraud  perpetrated against veterans.  Holly Petreaus, General David Petreaus’ wife, leads that office and her focus as of late has been a revaluation of the veteran student loan process and the targeting of veterans for loans from unscrupulous private lenders.

Game Changer

President Obama's recess appointment of Richard Cordray to run the Consumer Financial Protection Bureau is a bold political act, but its significance goes far beyond politics. I remarked today to a key Democratic strategists that this was a declaration of political war with the congressional Republicans. He responded that it's the President's response to a war begun by the Republicans. We both were correct, but the truly remarkable thing about what the President has done here is to strongly assert his constitutional executive power and to undermine the constitutional power of the Senate -- the body from which he rose to national prominence. That's not about Ds or Rs, but about the power of the office of the President of the United States. Decisions like the one the President made have ramifications far beyond the term of the current occupant of the office. They reverberate for years.

A Step Forward?

Unlike previous Congressional hearings, including one in which Representative Patrick McHenry (R-NC) famously called Elizabeth Warren “a liar”; last week’s Senate Banking Committee Hearing on President Obama’s nomination of Richard Cordray to direct the newly created Consumer Financial Protection Bureau, proved a much calmer affair. With the departure of Elizabeth Warren, who recently announced her candidacy for Senate, a more rational dialogue was able to occur regarding the new Bureau and its powers.

The Consumer Financial Protection Bureau (CFPB) was created last year through the Dodd-Frank Wall Street and Consumer Protection Act of 2010. And since its formation has been the subject of incredible partisan debate. Over the past year, Elizabeth Warren served as the Assistant to the President and Special Advisor to the Secretary of the Treasury, and was responsible for setting up the Agency, from scratch. Also credited with the idea for the CFPB, many were unable to separate Warren from the issues they took with the Agency’s structure and powers. The CFPB was officially launched in July 2011, and although having certain freedoms to move forward without the consent of Congress, many of the Bureau’s legislated powers will remain inactive until a Senate confirmed director is in place.

Republicans in the hearing did not take much issue with Cordray, but rather the structure of the agency. In fact, many viewers were almost surprised at what could be interpreted as vague support for Cordray and his background throughout the hearing. Since its inception, Republicans have pushed for a 5 member panel to replace a single director, claiming the CFPB lacks the proper oversights of a government agency. It appears the air has been somewhat cleared since the parting of Elizabeth Warren from the Bureau. However, it is almost impossible to think of a scenario in which the CFPB is able to become a legitimate agency without legislative fixes that are currently being pushed by Republicans. With “consumer protection” meaning many different things depending on one’s vantage point, it is hard to imagine a single person being permitted to determine what is harmful to consumers and the economy, and which should sacrifice for the sake of the other.

Howard Schweitzer Speaks at Capital Roundtable Masterclass on Dodd-Frank

On Thursday, February 10, 2011, Cozen O’Connor Public Strategies Principal Howard Schweitzer was a panelist at Capital Roundtable’s Masterclass, “Private Equity Investing in Regional & Community Banks -- How Investors Can Thrive From the Surge in Consolidations.”  Howard spoke on a panel regarding Dodd-Frank that was focused on the Consumer Financial Protection Bureau (CFPB).  The panel also included the recently departed Minority Chief Counsel for the Senate Banking Committee, a consumer financial protection attorney, and an investment banker.

The panelists agreed that the CFPB is likely to decrease the profitability of regional and community banks and that uncertainty with respect to the CFPB’s future activity creates significant compliance and regulatory risk for financial institutions.  Although the CFPB has limited supervisory authority over banks with assets of less than $10 billion, rules promulgated by the CFPB will still apply to these smaller banks.  Several of the panelists highlighted the Durbin Amendment, which drastically reduces debit card interchange fees, as a prime example of a Dodd-Frank provision that may pose a significant risk to banks’ profitability.

Howard, the former Chief Operating Officer of the Troubled Asset Relief Program (TARP), pointed out the irony of Dodd-Frank creating significant regulatory uncertainty and potentially forcing small banks out of business, just a short time after TARP invested hundreds of billions of dollars to stabilize the banking sector and keep banks in business.  He further noted that while Dodd-Frank was passed in light of banks being “too big to fail,” it may have created a segment of banks that are “too small to succeed.” 

Cozen O’Connor Public Strategies will continue to monitor the CFPB as Treasury prepares to transfer the Bureau to the Federal Reserve on July 21, 2011.  For more insight on the CFPB, visit