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On August 30, the U.S. Court of Appeals for the Second Circuit held that a debt collector’s representation to a debtor that her student loans were “ineligible” for bankruptcy discharge is a “false, misleading, or deceptive” debt collection practice in violation of the FDCPA. Easterling v. Collecto, Inc., No. 11-3209, 2012 WL 3734389 (2nd Cir. Aug. 30, 2012). The debt collector sent a collection letter to the debtor with a notice that the account was ineligible for bankruptcy discharge. The debtor sued the collector on her own behalf and on behalf of nearly 200 borrowers who also received such notices. The district court granted summary judgment in favor of the debt collector, concluding that because the debtor had previously filed for bankruptcy without seeking to discharge her student loan debt, and because student loan debt is presumptively non-dischargeable, her debt was, in fact, not eligible to be discharged. The appeals court disagreed and held that the district court erred in focusing on the borrower’s circumstances instead of applying the “least sophisticated consumer” standard. In applying that standard on appeal, the court reasoned that while the bar for bankruptcy discharge is high, it is not impossible and the “least sophisticated consumer” might not seek the advice of counsel for pursuing discharge through bankruptcy after receiving the debt collector’s inaccurate notice. The court held that the debt collector’s notice did violate the FDCPA and reversed and remanded the case for further proceedings.
On August 29, the CFPB released an updated and corrected report on private student loans. Although the updated report provides the same findings and recommendations as the original report, the revised report attempts to address concerns about some of the study’s methodologies. The CFPB’s summary of updates states that the new report includes revised methodologies for determining the extent to which private student loan borrowers exhausted their Federal Stafford Loan options before taking on a private student loan and the extent to which private student loans were originated without certification of borrower need by the institution of higher education. Specifically, the revised report provides updated results showing a higher percentage of students who took out a private loan without exhausting the individual Stafford maximum, and a higher level of school certification of private loans.
On August 8, the FDIC announced consent orders with a debit card issuer and vendor to resolve allegations that the entities operated an allegedly unfair and deceptive student debit card account program that (i) charged student account holders multiple nonsufficient fund (NSF) fees from a single transaction, (ii) allowed accounts to remain in overdrawn status while NSF fees accrued, and (iii) collected fees from subsequent deposits to the accounts. Collectively the settling companies will provide $11 million in restitution and agreed to pay civil money penalties totaling $282,000. The orders also require that the companies enhance their compliance programs and take specific steps to alter their NSF practices. On August 9, the CFPB issued a consumer advisory in which it reminds students that they (i) cannot be required to use a specific bank or card, (ii) should select bank account before arriving at school, and (iii) should opt for direct deposit as soon as it is offered.
On July 20, the CFPB released a report on private student loans, prepared in conjunction with the Department of Education. Pursuant to Section 1077 of the Dodd-Frank Act, the report covers (i) the evolution and current state of the private lending market, (ii) the characteristics of consumers of private student loans, (iii) consumer protections, including recent changes and possible gaps, (iv) fair lending compliance information currently available and its implications, and (v) statutory or legislative recommendations to improve consumer protections. The report includes a series of recommendations from the CFPB and the Department of Education. The CFPB recommends that Congress require lenders to obtain a certification of the student’s financial need from the educational institution before disbursing private student loan funds. The CFPB also recommends that Congress examine the impact that the 2005 amendments to the bankruptcy code that made private student loans non-dischargeable in bankruptcy absent a showing of undue hardship, have had on young borrowers. On July 24, the CFPB’s Student Loan Ombudsman appeared before the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection to discuss the report and the CFPB’s recommendations. The hearing also included testimony from consumer groups and one private student lender.
On June 13, the CFPB issued a Notice of Request for Information seeking information on existing private student loan complaints collected by state agencies, institutions of higher education, consumer and legal advocates, and lenders. In addition to its general solicitation, the CFPB specifically invited the participation of state attorneys general, schools, and advocacy groups. The responses received by the CFPB will be incorporated into the student loan ombudsman’s report it provides to Congress pursuant to the Dodd-Frank Act. In conjunction with its general solicitation, the CFPB also published the nearly 2,000 comments it received in response to a Notice and Request for Information on private student loans that it issued on November 17, 2011. The CFPB identified the following common themes from the data collected to date in connection with its earlier solicitation: (i) many borrowers report relying on school financial aid offices for information and guidance on which loan products to use, (ii) many borrowers struggling in today’s economy are finding their private student loan debt to be unmanageable, and (iii) many borrowers report finding it difficult to navigate the repayment process.
On March 5, the CFPB’s student loan ombudsman, Rohit Chopra, acknowledged in a blog post that the CPFB had launched its student loan complaint system. The CFPB outlined its expectations regarding financial institution response and resolution times. It expects institutions to respond to complaints with fifteen days, and resolve complaints within sixty days. Concurrent with the opening of the complaint system, the CFPB sent a letter to university officials advising them of this new resource available for their students and alumni.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference