Students, Loan Servicers, and the Servicemembers Civil Relief Act

Over the past two years, mortgage loan servicers have faced an onslaught of regulatory scrutiny, enforcement actions and targeted litigation. The Department of Justice, state attorneys general and the federal banking regulators have extracted tens of billions of dollars in settlements, borrower compensation and independent consultant fees from the mortgage servicing industry. With consent orders signed and settlements drawing to a close, regulators are sharpening their focus on other areas, and it appears student loan servicers are high on their current priority list.

Certainly there are parallels between the two industries. Student loans make up an increasingly large portion of a typical family’s outstanding debt. Between 2004 and 2012, the average student loan balance per borrower nearly tripled — in fact, student loan debt is the only type of debt that actually increased during the recession. Nationwide, student loan debt is $1.2 trillion and is second only to mortgage debt on consumers’ balance sheets. The sharp increase in home mortgage default rates has drawn federal scrutiny and spurred several recent mortgage actions. Also, as the default rate on student loans ticks up, a similar wave of enforcement actions is likely for student loan servicers. And a core area of focus — as was true with the mortgage servicing settlements — is sure to be the Servicemembers Civil Relief Act.

Originally published by Thomson Reuters; reprinted with permission. Reprinted in the Consumer Financial Services Law Report (January 17, 2014).