InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel
On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.
VA announces updates to loan repayment relief for borrowers affected by Covid-19
On February 9, the Department of Veterans Affairs (VA) issued a circular to consolidate updates related to VA’s disaster modification and loan deferment options. Effective February 9, the circular reiterates the options for disaster modifications and loan deferment and extends the options available for borrowers affected by Covid-19 through May 31, 2024. According to the circular, a servicer can provide a VA disaster modification without VA preapproval until May 31 regardless of the borrower’s enrollment in a Covid-19 forbearance plan, or Covid-19’s impact on the default. Additionally, the VA is allowing for disaster extend modifications to extend the loan’s original maturity date by up to 18 months, instead of the standard 12 months, if the loan is modified not later than May 31. Further, subject to certain requirements and restrictions, the circular also granted servicers flexibility to offer loan deferment when borrowers have missed payments due to the pandemic, regardless of CARES Act forbearance.
Biden Administration, DOE withhold payments to student loan servicers
On January 5, the Biden Administration and the U.S. Department of Education (DOE) announced they are withholding payments to three student loan servicers as part of their efforts to strengthen protections for student loan borrowers and ensure accountability among servicers. The three servicers were found to have collectively failed in sending timely billing statements to a total of 758,000 borrowers during their first month of repayment. Consequently, the DOE is withholding $2 million from one servicer, $161,000 from the second, and $13,000 from the third servicer based on the number of affected borrowers.
U.S. Secretary of Education Miguel Cardona emphasized that the DOE “will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first.” During this period, borrowers will not be required to make payments, and any accrued interest will be adjusted to zero. Additionally, the months spent in administrative forbearance will count toward forgiveness programs like Public Service Loan Forgiveness or income-driven repayment forgiveness. The DOE aims to ensure that borrowers are not negatively affected by these errors.
Furthermore, to protect borrowers from penalties due to late or missed payments during the repayment transition, the DOE recently sent a letter to credit reporting agencies and credit scoring companies to remind them that borrowers’ current payment behavior may not accurately reflect their ability or willingness to make payments.
DOE moves to empower student loan oversight for better borrower support
On November 9, the DOE announced it is outlining a framework for how it will increase borrower support and ensure student loan servicers are accountable for errors. Richard Cordray, Federal Student Aid (FSA) Chief Operating Officer, noted, “The landscape of loan servicing has substantially changed since the Department began collaboration with multiple servicers in 2009. FSA is dedicated to evolving servicing contracts to meet borrower requirements. As we approach the Direct Loan program’s unprecedented return to repayment, our upcoming transition to new contracts in 2024 will bring updated servicer obligations and increased avenues to ensure borrowers receive adequate support.”
The DOE has implemented various strategies to bolster oversight and monitoring of servicers:
- Direct Servicer Monitoring: FSA staff actively evaluate the quality of customer service provided by loan servicers, which involves scoring interactions between servicers’ representatives and borrowers, reviewing calls and chats, and conducting secret shopper calls to assess the accuracy of servicers’ responses to borrower inquiries.
- Partnership with Federal and State Regulators: The DOE collaborates with agencies like the CFPB and state attorneys general responsible for enforcing consumer financial laws. Updates in the interpretation of federal preemption provide clear guidance for the ability of states to enforce state consumer protection laws and allow for coordination between the DOE and state partners.
- Utilizing Borrower Complaints: The DOE leverages complaints filed through the FSA’s Office of the Ombudsman, which collaborates with the oversight team to discern if complaints signal wider servicer issues. The DOE also monitors social media and news stories to identify broader patterns of complaints, which allow the DOE to discern isolated instances from systemic errors affecting multiple borrowers. These listening tools serve as mechanisms for borrowers to report issues impacting their repayment directly.
The DOE and the Biden administration wield several measures to ensure servicers meet their obligations and maintain standards. The announcement highlighted that the DOE could withhold payments from servicers failing to serve borrowers adequately, as exemplified by the recent $7.2 million withheld from a Missouri servicer for delayed billing statements to 2.5 million borrowers. The DOE also has the authority to suspend or re-allocate borrowers to other servicers, which impacts the financial compensation of underperforming servicers. In addition, Contractor Performance Reports assess servicer performance and influence future contract awards, while Corrective Action Plans demand remedies for servicing errors to ensure borrower satisfaction and prevent reoccurrence. The DOE also safeguards borrowers from servicer errors by instructing servicers to grant affected borrowers a temporary administrative forbearance during error resolution. Additionally, the DOE directs servicers to count these periods as qualifying for loan forgiveness and adjusts accrued interest to zero when errors might impede borrowers’ progress toward forgiveness.
Finally, the DOE mentioned it is gearing up to transition to the USDS, a new loan servicing system, by spring 2024. This shift aims to enhance accountability, transparency, and performance evaluation for over 37 million federally managed student loan borrowers with a focus on rewarding good performance and ensuring servicers meet higher standards. By incentivizing servicers to maintain borrowers’ repayment status and improving tracking mechanisms, the DOE will prioritize borrower success and aim for a smoother repayment experience.
FHFA revises policies for Covid-19 forbearance on GSE mortgages
On October 16, the Federal Housing Finance Agency (FHFA) announced it will revise how Fannie Mae and Freddie Mac (GSE) single-family mortgages are treated for borrowers who have entered Covid-19 forbearance under the GSEs’ representations and warranties framework. Under the revised policies, loans for which borrowers elected Covid-19 forbearance will be treated similarly to loans for which borrowers obtained forbearance due to a natural disaster. The GSEs’ current representations and warranties framework for natural disaster forbearance allows for consideration of the period during which a borrower is in forbearance as part of their demonstrated satisfactory payment history for the initial 36 months after the loan's origination. This framework will now be extended to loans with Covid-19 forbearance. FHFA Director Sandra L. Thompson said, "Servicers went to great lengths to implement forbearance quickly amid a national emergency, and the loans they service should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic."
The updates will be effective on October 31.
CFPB announces consumer reporting rulemaking
On September 21, the CFPB announced the beginning of its anticipated rulemaking regarding consumer reporting, including a proposal to remove medical bills from credit reports. This announcement builds upon a hearing the CFPB held in July 2023 on medical billing and collections, highlighting its range of negative impact on marginalized communities (covered by InfoBytes here). In the CFPB’s announcement, Director Rohit Chopra emphasized the inconsequential “predictive value” of medical bills in credit reports despite their prevalence in American households, thus the agency's goal is to alleviate the burden on individuals facing medical debt. The Bureau’s press release highlighted components to its outline of proposals and alternatives under consideration, such as (i) prohibiting consumer reporting companies from including medical bills in consumers’ credit reports; (ii) prohibiting creditors from relying on medical bills for underwriting decisions; and (iii) prohibiting debt collectors from leveraging the credit reporting system to pressure consumers into paying their debts. The rule would not prevent creditors from accessing medical bill information, such as validating need for medical forbearances, or evaluating loan applications for paying medical debt.
In addition to the proposed removal of medical debt from consumer reports, the Bureau’s outline includes other notable proposals regarding consumer reports. The Bureau’s proposals include:
- As previously covered by InfoBytes, applying the FCRA to data brokers by altering the FCRA definitions of “consumer report” and “consumer reporting agency”, to “address whether and how the FCRA applies to newer actors and practices in the credit reporting marketplace, including questions such as coverage of data brokers and certain consumer reposting agency practices regarding marketing and advertising.” In particular, the Bureau is also considering a proposal that would provide that data brokers selling “consumer reports” containing consumers’ payment history, income, and criminal records would be considered a consumer reporting agency. The Bureau is also exploring clarifications on when data brokers qualify as consumer reporting agencies and furnish consumer reports.
- Clarifying whether “credit header data” qualifies as a consumer report, which could limit the disclosure or sale of credit header data without valid reasoning.
- Clarifying that certain targeted marketing activities that do not directly share information with a third party nevertheless are subject to the FCRA.
- Proposing a definition of the terms “assembling” and “evaluating” to include intermediaries or vendors that “transmit consumer data electronically between data sources and users.”
- Clarifying whether and when aggregated or anonymized consumer report information constitutes or does not constitute a consumer report. Specifically, the Bureau contemplates providing that a data broker’s sale of particular data points such as “payment history, income, and criminal records” would “generally be a consumer reports, regardless of the purpose for which the data was actually used or collected, or the expectations of that data broker
- Establishing the steps that a company must take to obtain a consumer’s written instructions to a obtain a consumer report.
- Addressing a consumer reporting agency’s obligation under the FCRA to protect consumer reports from a data breach or unauthorized access.
District Court dismisses suit challenging Biden’s student debt relief plan
On August 14, the U.S. District Court for the Eastern District of Michigan dismissed without prejudice a lawsuit filed against the federal government aimed at blocking the Biden administration’s effort to provide debt relief to student borrowers (covered by InfoBytes here). U.S. District Judge Thomas L. Ludington held that the plaintiffs lacked standing because they failed to plausibly demonstrate how the government’s plans would impact their efforts to recruit participants as qualified employers under the Public Service Loan Forgiveness program. The court detailed that “[Plaintiffs] merely make vague and conclusory statements that some ‘undisclosed’ number of borrowers will receive credit toward loan forgiveness for some periods of forbearance” but “do not allege that any current employee received Adjustment credit.” Furthermore, any such “hypothetical injur[y]” would be traceable to “Plaintiffs’ own employees or prospective employees, not the Adjustment.” Because there was no standing, the court dismissed the complaint without prejudice and denied the plaintiffs’ motion for a temporary restraining order and preliminary injunction as moot.
Plaintiffs file suit challenging Biden’s latest student debt relief plan
On August 4, two nonprofit entities filed a lawsuit against the federal government aimed at blocking the Biden administration’s recent effort to provide debt relief to student borrowers. The administration’s efforts were implemented in response to the Supreme Court’s June 30 decision striking down the DOE’s student loan debt relief program that would have canceled between $10,000 and $20,000 in debt for certain student borrowers (covered by InfoBytes here). The lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, targets the administration’s efforts to credit borrowers participating in the Public Service Loan Forgiveness (PSLF) plan and Income-Driven Repayment (IDR) plan by providing credit for periods when loans were in forbearance or deferment, which would affect more than 804,000 borrowers, forgiving approximately $39 billion in loan payments, according to the DOE.
As an initial matter, plaintiffs assert that they are injured by the administration’s actions because, as 501(c)(3) nonprofit organizations, they benefit from the PSLF program by allowing them to “attract and retain borrower-employees who might otherwise choose higher-paying employment with non-qualifying employers in the private sector.” Thus, according to plaintiffs, cancellation of PSLF loans would reduce the incentive for borrowers to work at public service employers and the decision “unlawfully deprives [PSLF] employers of the full statutory benefit to which they are entitled under PSLF.”
Plaintiffs accuse the administration of putting the plan on an “accelerated schedule apparently designed to evade judicial review.” The plaintiffs assert that the DOE lacks authority to classify “non-payments as payments,” and that the statutes for the PSLF and IDR programs require actual payments to qualify for forgiveness under each plan. The suit brings four claims against the administration: (i) violation of the Appropriation Clause of the U.S. Constitution by canceling debt that Congress did not authorize; (ii) violation of the Administrative Procedure Act (APA) by issuing a final agency decision without appropriate statutory authority; (iii) violation of the APA by taking an arbitrary and capricious agency action by failing to “explain why [DOE] has changed its policy from not crediting non-payments during periods of loan forbearance to crediting such payments for purposes of PSLF and IDR forgiveness” and “entirely fail[ing] to consider the cost to taxpayers of crediting periods of forbearance toward PSLF and IDR forgiveness,” among other reasons; and (iv) violation of the APA by failing to undertake notice-and-comment procedures in implementing the changes.
District Court orders individual to pay $148 million in student debt-relief scam
On July 7, the U.S. District Court for the Central District of California entered a final judgment and order against an individual defendant accused of operating and controlling a deceptive student loan debt relief operation. As previously covered by InfoBytes, in 2019, the CFPB, along with the Minnesota and North Carolina attorneys general and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation for allegedly deceiving thousands of student loan borrowers. The Bureau and the states alleged that since at least 2015, the debt relief operation violated the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), FDCPA, and various state laws by charging and collecting over $95 million in illegal advance fees from student loan borrowers. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting the purpose and application of the fees they charged and the nature and benefits of their services. Specifically, the debt relief operation allegedly failed to inform borrowers that, among other things, (i) they would request that the loans be placed in forbearance and interest would continue to accrue during the forbearance period, thereby increasing the borrowers’ overall loan balances; and (ii) it was their practice to submit false information about the borrowers to student loan servicers to try to qualify borrowers for lower monthly payments. The individual defendant was accused of owning, controlling, and managing the student loan debt relief operation, materially participating in the operation’s affairs, and providing substantial assistance or support while knowing or consciously avoiding knowledge that the operation was engaging in illegal conduct.
The individual defendant was held liable, jointly and severally, in the amount of approximately $95,057,757, for the purpose of providing redress to affected borrowers. Because the individual defendant was found to have recklessly violated the TSR and the CFPA, the court also imposed second-tier civil monetary penalties of $147,985,000 to the Bureau, of which $5,000 will be paid to each state. The final judgment also imposes various forms of injunctive relief, including permanent bans on engaging in consumer financial products or services and violating the TSR, CFPA, and similar laws in Minnesota, North Carolina, and California. The individual defendant is also prohibited from disclosing, using, or benefiting from customer information obtained in connection with the offering or providing of the debt relief services, and may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase” a debt relief service from any of the defendants.
Florida enacts commercial financing disclosure requirements
On June 23, the Florida governor signed HB 1353 (the “Act”), creating the Florida Commercial Financing Disclosure Law and imposing several requirements on commercial financing providers and brokers. The Act defines a “provider” as “a person who consummates more than five commercial financing transactions with a business located in [Florida] in any calendar year.” The definition “also includes a person who enters into a written agreement with a depository institution to arrange a commercial financing transaction between the depository institution and a business via an online lending platform administered by the person.” The Act clarifies, however, the “fact that a provider extends a specific offer for a commercial financing transaction on behalf of a depository institution may not be construed to mean that the provider engaged in lending or financing or originated that loan or financing.” A “commercial financing transaction” is defined broadly and means a secured or unsecured commercial loan, an account receivable purchase transaction, or a commercial open-end credit plan.
The Act establishes parameters for qualifying commercial transactions and outlines numerous exemptions, including federally insured depository institutions; transactions secured by real property, a lease, or a certain purchase money obligations; transactions of at least $50,000 where the recipient is a motor vehicle dealer or rental company (or an affiliate of such company); providers licensed as money transmitters in any state; and commercial financing transactions greater than $500,000.
Specifically, at or prior to consummation of a commercial financing transaction, a provider must (i) disclose the terms of the transaction as specified within the Act; (ii) outline the manner and frequency of the payments, including a description of the methodology used to calculate any variable payment amount and the circumstances that may cause a payment amount to vary; and (iii) disclose any costs or discounts associated with prepayment. Disclosures must be in writing and may be based on an example of a transaction that could occur under the agreement. The Act further specifies that only one disclosure is required for each commercial financing transaction. Subsequent disclosures are not required as a result of a modification, forbearance, or change to a consummated commercial financing transaction.
The Act also defined a “broker” as “a person who, for compensation or the expectation of compensation, arranges a commercial financing transaction or an offer between a third party and a business in [Florida] which would, if executed, be binding upon that third party.” The definition excludes “a provider and any individual or entity whose compensation is not based or dependent upon the terms of the specific commercial financing transaction obtained or offered.” In addition, the Act outlines prohibited conduct and establishes unique broker requirements. Specifically, a broker may not “[a]ssess, collect, or solicit an advance fee from a business to provide services as a broker” (a business may pay for actual services required to apply for a commercial financing transaction), and may not make any false or misleading representations when engaging in the offering or sale of its brokering services.
The Act explicitly prohibits a private right of action, but instead grants the Florida attorney general exclusive enforcement authority. The AG may seek fines of $500 per incident (not to exceed $20,000 for all aggregated violations). Fines will increase to $1,000 per incident (not to exceed $50,000 for all aggregated violations) for continued violations following receipt of written notice or a prior violation.
The Act takes effect on July 1.