Ask anyone on the street how many people lurking in the halls of Congress are cronies and they would likely answer, “All of them.” And, while that might sound like a ridiculous answer, the not-so-secret one is that … cronies really are everywhere.
However, what I have found is the worst cronies are the ones who claim moral authority! And, because of that they deserve special attention.
So, let’s go crony hunting.
About 44.2 million Americans have student loan debt. The nation’s largest owner of private student loans is the National Collegiate Student Loan Trusts, a group of 15 trusts that hold 800,000 loans totaling about $12 billion, about $5 billion of which is in default. The usual way to recover these monies is litigation because private loan lenders do not have the same enforcement mechanisms as federal lenders (like garnishing wages), so filing a lawsuit against the borrower is the only option for a recovery of unpaid loans, and the NCSLT has filed many lawsuits to do so.
I have written a lot about defending patents and Intellectual Property — and the methods of defending Intellectual Property are the same.
However, the usual process hit a snag last year, when several of those lawsuits went against NCSLT because they didn’t have proper titles to the loans and/or the ownership records were incomplete, meaning that its aggressive pursuit of recoveries through litigation may not have been justified. And last year, the articles started piling up, focused on the collection practices of investors that hold private student loans.
Billions of dollars at stake, public perception changing, and the moral hook of education. The perfect storm for a crony.
And a perfect storm it was. The cronies pounced and the result was a “Consent Agreement” out of Richard Cordray’s Consumer Financial Protection Bureau. It gave an unbelievable amount of power to hedge funder Donald Uderitz. The agreement was finalized in September 2017 forcing an audit on all of NCSLT’s 800,000 loans to see which can be pursued and which can’t. Which may not be a bad thing by itself, but the agreement doesn’t stop there — the CFPB also made a deal with Uderitz to transfer servicing powers on the loans to VCG (Uderitz’s company) in return for fines on some trustees and servicing companies. Uderitz/VCG will make piles and piles of money servicing and administering this debt.
The consent agreement undermines the student loan market, and it will ultimately limit the number of loan carriers in the marketplace, with those carrying student loans doing so at higher interest rates. Student loan lenders not being paid has significant consequences for the future of student loan funding, not only in terms of consumer options and lending rates, but also for the securities market and the American economy as a whole.
I am one of those of students who relied almost 100 percent on student loans to pay for college. Higher rates and fewer lenders might have deprived me of my future.
And, I get the outrage with NCSLT. But stripping their rights and giving them to someone else is not the answer. Furthermore, it might appear wiping out student debt based on possible administrative error is a good thing — but that is far from the truth. What the CFPB has done is give Uderitz “lucrative responsibilities using extrajudicial means.”
Fancy words to say “cronyism.”
Fortunately, we can reverse this. In November 2017, President Trump named Mick Mulvaney the acting Director of the CFPB. Mulvaney, also director of the White House Office of Management and Budget, has already signaled welcome and appropriate changes at the CFPB. As Mulvaney has said, “The days of aggressively ‘pushing the envelope’ of the law in the name of ‘the mission’ are over.”
This means changing the structure of the CFPB, if not eliminating it altogether. Under Richard Cordray, neither the director nor the board was directly accountable to either the White House or Congress. This “independence” meant that Cordray was able to exceed the CFPB’s authority, especially its jurisdictional limits, specifically on the issue of private student loan servicing.
Acting CFPB Director Mulvaney is the only person who can do anything at this point, and he needs to step in to remove the cronies from the CFPB as well as make sure that the “consent agreement” is withdrawn. This would be a huge win for the Trump administration, who would be seen as a champion of ending crony capitalism at its worst excesses. Rather than extra-judicial actions based on political favors, real decisions made by quantitative rigor should determine levels of, and approaches to, enforcement.
Shhhhh. We’re hunting cronies.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
