Seth Frotman Resigns from Consumer Financial Protection Bureau

Inside Subprime: Aug 28, 2018

By Ben Moore

Seth Frotman, the former student loan ombudsman for the Consumer Financial Protection Bureau, resigned from his position on Monday of this week in a very public resignation letter which was addressed to the bureau’s acting director, Mick Mulvaney. For the past three years, Frotman served as the student loan ombudsman for the bureau, a position that was created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Acct. Frotman was in charge of reviewing consumer complaints from student loan borrowers in regards to predatory practices from lenders and debt collectors. Prior to this position, Frotman worked as part of the Treasury Department’s implementation team, before moving to the Office of Servicemember Affairs, which worked to protect loan borrowers from predatory payday loans under the Military Lending Act (which has seen a decline in supervision since Mulvaney took charge of the bureau).

Frotman’s resignation comes during a tumultuous year for the CFPB – a year in which Trump and his administration have made moves to limit the power of the Bureau as well as Frotman’s previous position. Frotman’s resignation letter claims that Mulvaney’s leadership over the bureau has seen the CFPB “abandon the very consumers it is tasked by Congress with protecting” and “instead, [Mulvaney] used the Bureau to serve the wishes of the most powerful financial companies in America. Frotman’s resignation letter also accused CFPB leadership of hiding information that revealed that many of the largest banks in the country were “saddling [students] with legally dubious account fees.”

Since inception, the CFPB has dealt with more than 60,000 complains from student loan borrowers, and subsequently refunded more than $750M, with Frotman being critical in leading those efforts. However, the bureau’s ability to serve loan borrowers waned this year. In August of 2017, the U.S. Department of Education made the decision to cease providing information with the bureau due to the CFPB being “overreaching and unaccountable”, claiming the bureau is the source of confusion between loan borrowers and lenders. Then, in May of this year, Mulvaney asked that the Office for Students and Young Consumers be moved into the CFPB’s financial education office, which was interpreted as a “shift in mission from investigating to information-sharing.” The director of financial services at Consumer Federation of America saw this move as “an appalling step in a longer march toward the elimination of meaningful American consumer protection law.”

Mulvaney was asked to run the CFPB while simultaneously serving as the director of the Office of Management and Budget. Before taking the position, he had previously referred to the CFPB as “a joke” due to his belief that the bureau was acting “above the law” and bypassing Congress. Frotman’s letter claims that the bureau cannot act independently under Mulvaney’s leadership, with Mulvaney and his leadership team purposefully blocking the bureau’s communications to student loan borrowers.

In response to Frotman’s resignation, which consumer advocate groups are seeing as a sign that Mulvaney and the bureau are siding with “financial industry interests” over vulnerable groups such as students, the CFPB released this statement: “The Bureau does not comment on specific personnel matters. We hope that all of our departing employees find fulfillment in other pursuits and we thank them for their service.”

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