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CFPB updates Covid-19 student loan debt relief guidance for borrowers
On April 9, the CFPB released updated guidance for student loan borrowers during the Covid-19 pandemic. As previously covered by InfoBytes, the Bureau first released student loan borrower information on March 27, which covered debt relief provided by the CARES Act, including the automatic freeze on student loan payments until September 30 for those with federally held loans. Servicers will send required notices detailing the payment freeze to borrowers by the middle of April. The guidance notes that some federal student loans—including some Federal Family Education Loans—may be held by commercial lenders. These loans and other privately held loans do not qualify for automatic suspension of payments, and the Bureau encourages borrowers to contact their servicers for debt relief options such as deferment or forbearance if borrowers have difficulty making payments at this time. Borrowers with Perkins loans may also request loan forbearance from the borrowers’ institution for up to three months without submitting documentation.
California DBO sues student loan servicer to compel production of borrower records
On April 2, the California Department of Business Oversight (DBO) announced a lawsuit against one of the nation’s largest student loan servicers seeking an order requiring the production of documents related to the servicer’s administration of the Teacher Education Assistance for College and Higher Education (TEACH) grant program. According to the press release, DBO began an examination in January under the California Student Loan Servicing Act (Act) to determine whether the licensed servicer is improperly converting California teachers’ TEACH grants into loans with back interest. In its complaint, DBO states that the servicer’s refusal to produce records concerning its “handling of the TEACH program reconsideration process” is based on arguments that California law is preempted by the federal Higher Education Act, and that student borrower records are “legally owned” by the Department of Education and cannot be released under the federal Privacy Act of 1974. Because of the servicer’s refusal to produce the records, DBO claims that the servicer “has failed to satisfy its statutory duties,” and has “unduly restrained” DBO’s ability to both oversee the administration of student loan servicing in the state and protect California student loan borrowers. DBO seeks a preliminary and permanent injunction, as well as a declaratory judgment against the servicer to compel compliance with the Act.
Lawmakers want accountability for colleges receiving CARES Act funds
On April 8, Senators Elizabeth Warren (D-MA), Dick Durbin (D-IL), Sherrod Brown (D-OH), and Richard Blumenthal (D-CT) sent a letter to the Department of Education urging the Department to focus the CARES Act funding for institutions of higher education on public and nonprofit schools. In addition, the lawmakers call for “strong accountability polices” if for-profit colleges are eligible for the funds. The recommended policies “to protect students and taxpayers” include: (i) requiring that all funding must be used for “student instruction, emergency financial aid to students, and student support services”; (ii) preventing for-profit colleges from using the funds for executive compensation and freezing executive compensation; (iii) preventing publicly-traded for-profit colleges from buying back their stock; (iv) preventing for-profit colleges from using the funds for recruiting, marketing and advertising; (v) preventing for-profit colleges that receive funds from receiving other CARES Act funds; (iv) “[c]onsider[ing] CARES Act funding as federal funding for 90/10 compliance”; and (v) requiring that Congress receive a report detailing “how for-profit colleges used the funds.” The letter requests replies to the questions by April 21.
Virginia outlines private student loan provider disclosure requirements
On March 23, the Virginia governor signed HB 743, which outlines disclosure requirements for private student loan providers to follow before issuance of a qualified education loan. The disclosure must contain contact information for the state’s Office of the Qualified Education Loan Ombudsman, as well as “a summary of the student loan information applicable to private education loans.” HB 743 further states that this disclosure may be “made in in conjunction with or incorporated into another disclosure” provided it is sent to a borrower prior to the issuance of a loan. The act takes effect July 1, 2021.
FTC and student loan debt relief operation agree to permanent injunction
On March 30, the FTC announced a settlement with three student loan debt relief companies and their owner for violating the FTC Act and the Telemarketing and Consumer Fraud and Abuse Act by allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges that the defendants, among other things, (i) falsely promised consumers that they could permanently lower or eliminate student loans by enrolling in an income-driven repayment plan for an upfront fee; (ii) offered consumers incentives for positive reviews; (iii) failed to advise consumers to state that they were offered payment for reviews, and failed to disclose that consumers were paid when responding to reviews; and (iv) incorrectly advised consumers on how to report family sizes on applications for student loan debt relief, or falsified consumers’ family size without their knowledge.
According to the FTC, the defendants agreed to a pending stipulated final order that would, among other things, permanently ban the defendants from providing unsecured debt relief services and from making misrepresentations or unsubstantiated claims related to any products and services. However, the defendants will be allowed to continue to assist existing consumers prepare and submit applications to the Department of Education as part of the yearly recertification process, provided the consumers have provided an opt-in confirmation. The stipulated order also requires the defendants to pay $350,000, with the total judgment of approximately $23.9 million suspended due to inability to pay.
Special Alert: CARES Act places significant burdens on servicers of consumer debt but provides some relief to depositories
President Trump late last week signed the Coronavirus Aid, Relief, and Economic Security Act that attempts to soften the negative economic effects of the Covid-19 pandemic on consumers, including by suspending payments for certain student loan borrowers and enabling mortgage loan borrowers to easily obtain temporary forbearances. The act also provides certain limited regulated relief for banks and credit unions.
This Special Alert summarizes the provisions providing relief to borrowers with federal student loans and the provisions of Title IV that dictate the manner in which servicers and collectors report borrowers to consumer reporting bureaus; provide forbearance, foreclosure, and eviction relief throughout the housing market; and provide limited regulatory relief to depository institutions.
Buckley issued a separate Special Alert on the Small Business Administration-related provisions contained in Title I of the act and will be covering separately the new Special Inspector General’s office created by the act, False Claims Act considerations, and other liability risks that we expect to arise.
CFPB issues guidance to student loan borrowers on Covid-19 debt relief
On March 27, the CFPB issued guidance on the student loan provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Pursuant to the Act, borrowers with federally held student loans will automatically have their loan principal and interest payments paused until September 30. Borrowers do not need to take any action to have their payments suspended and interest will not accrue during this period. The CFPB also provided additional guidance on the impact on privately held student loans and federal loans held by commercial lenders, and provided information to help borrowers avoid student loan debt relief scams.
Department of Education provides Covid-19 relief by pausing loan collections, issuing refunds
On March 25, U.S. Secretary of Education Betsy DeVos announced that in order to provide additional relief for student loan borrowers, the Department will take a number of actions which include the following:
- Stop collection activities and wage garnishments for at least 60 days, effective March 13;
- Stop requests to the Department of Treasury to withhold funds from “defaulted borrowers' federal income tax refunds, Social Security payments, and other federal payments”;
- Refund almost $2 billion to over 830,000 borrowers from funds previously withheld as of March 13;
- Direct private collection agencies to “halt all proactive collection activities, including making phone calls to borrowers and issuing collection letters and billing statements,” however, “[p]rivate collection agencies are permitted to provide assistance upon the borrower's request”;
- Begin to “monitor employers' compliance with the request to stop wage garnishment.” Those “[b]orrowers whose wages continue to be garnished after March 13 should contact their employers' human resources department.”
Borrowers with defaulted loans who would like to “continu[e] a prior payment arrangement, consolidat[e] their loans, or begin[] a loan rehabilitation arrangement with their private collection agency, should contact the Department's Default Resolution Group at 1-800-621-3115 (TTY for the deaf or hearing-impaired 1-877-825-9923).”
For more information, borrowers may visit StudentAid.gov/coronavirus.
Federal student loan payments suspended, interest waived during Covid-19 national emergency
On March 20, U.S. Secretary of Education Betsy DeVos announced temporary relief for student loan borrowers in response to the Covid-19 national emergency. The borrower relief measures include:
- Automatic 0% interest rates on all federally held student loans for at least 60 days;
- Option to suspend payments for at least two months;
- Administrative forbearance on any federally held loan by all federal student loan servicers at the request of the borrower, for at least 60 days, beginning on March 13;
- Automatic payment suspension for any borrower who is “more than 31 days delinquent as of March 13, or who becomes more than 31 days delinquent”; and
- The entire loan “payment will be applied to the principal” loan amount “once all interest accrued prior to the president's March 13 announcement is paid” for all borrowers who wish to continue making payments on their loans.
Additional information may be found at StudentAid.gov/coronavirus.
Minnesota bill to address negative credit reports and student loans
On February 19, the Minnesota House Health and Human Services Finance and Policy Committee introduced a bill that would require the Commissioner of Commerce to negotiate with credit reporting bureaus to waive negative credit reports, and to negotiate a federal waiver for federally guaranteed student loans for persons under isolation or quarantine.
On March 9, the Minnesota Senate Health and Human Services Finance and Policy Committee introduced a bill that would accomplish the same objectives.