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Senators urge CFPB to investigate student lenders’ bankruptcy compliance
On February 10, several U.S. senators sent a letter to CFPB Director Rohit Chopra claiming private student loan companies and servicers have “intentionally misrepresented to borrowers” their ability to discharge certain private student loans in bankruptcy. Citing a report from the Student Borrower Protection Center, the senators claimed that these private lenders “have intentionally perpetuated the false narrative that all student loans, including all private student loans, are nondischargeable in bankruptcy except in cases where borrowers meet a standard of ‘undue hardship.’” The letter stated, however, that rules related to the dischargeability of private student loans apply only to qualified education loans whereas private lenders and servicers “have long peddled a variety of private student loans that do not meet the definition of qualified education loans.” Citing a figure that estimated approximately $50 billion in private student loan debt held by some 2.6 million borrowers fell into this category, the senators stated that lenders included misleading language in their promissory notes while misrepresenting that students could not discharge their loans in bankruptcy, and collected debts that could have been legally discharged, including through the use of abusive measures such as pursuing legal action and making negative reports to credit bureaus. The senators urged the Bureau to investigate the report’s findings and take action to ensure private lenders and servicers comply with bankruptcy law.