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North Carolina AG Announces Settlement with Student Loan Debt Relief Company
On March 27, the North Carolina Department of Justice announced it had settled a lawsuit against a student loan debt relief company for allegedly charging upfront fees while failing to perform promised debt relief services. NC Attorney General Josh Stein stated that the terms of the consent order will provide restitution of more than $375,000 to 377 affected borrowers and will further prohibit the company from engaging in similar conduct in the future. The consent order is not presently available to the public.
Not-For-Profit Educational Organization Claims Department of Education Lacks Transparency over Number of Student Loan Failures
On March 20, a not-for-profit educational organization (Plaintiff), announced a FOIA lawsuit against the U.S. Department of Education (Defendant) in the U.S. District Court for the District of Columbia. Judicial Watch v. U.S. Department of Education, No. 1:17-CV-00501 (D.D.C. Mar. 20, 2017). The complaint alleges Defendant failed to respond to a request for access to all records in Defendant’s possession relating to a “coding error” that incorrectly computed College Scorecard repayment ranges, thus “masking [the fact] that most borrowers are failing to pay down their federally-subsidized student loans.” Defendant acknowledged in January of this year that an error in the coding did lead to the “undercounting of some borrowers who had not reduced their loan balances by at least one dollar, and therefore inflated repayment rates for most institutions.” Plaintiff claims to regularly request records from various federal agencies in order to analyze and disseminate findings of interest to the public in an effort to “promote transparency, accountability, and integrity in [the] government” and states it will be “irreparably harmed unless Defendant is compelled to comply with FOIA.”
Department of Education Withdraws Student Loan Guidance; Bipartisan Legislation Introduced to Require APR Disclosure on Federal Student Loans
On March 16, the U.S. Department of Education (Department) Acting Assistant Secretary Lynn B. Mahaffie notified relevant agencies that the Department is withdrawing statements of policy and guidance regarding repayment agreements and liability for collection costs on Federal Family Education Loan Program (FFELP) loans as previously stated in its July 10, 2015 Dear Colleague Letter (DCL) GEN 15-14. GEN 15-14 barred a "guaranty agency from charging collection costs to a defaulted borrower who (i) responds within 60 days to the initial notice sent by the guaranty agency after it pays a default claim and acquires the loan from the lender; (ii) enters into a repayment agreement, including a rehabilitation agreement; and (iii) honors that agreement.” The Department emphasized that the "position set forth in the DCL would have benefited from public input on the issues discussed in the DCL,” and as a result, the Department has withdrawn the DCL and will not require compliance without the opportunity for the public to provide comments.
Earlier in the month, Representatives Randy Hultgren (R-IL), Luke Messer (R-IN), and David Scott (D-GA) reintroduced the Transparency in Student Lending Act (H.R. 1283)—bipartisan legislation requiring the disclosure of the annual percentage rate on federal loans issued by the Department of Education. In 2008 the Truth in Lending Act disclosure requirements were applied to private loans, but not to federal student loans—an omission that does a “gross disservice” to borrowers according to Hultgren. “The Department of Education is the largest consumer lender in the United States, and should provide the most transparent and helpful information to borrowers. Helping borrowers understand their debt obligations is an important first step to ensuring they are able to make their payments, and also helps prevent taxpayers from being on the hook for delinquent borrowers,” noted Hultgren.
CFPB Seeks Comments on New Initiative Intended to Increase Transparency in Student Loan Servicing Market
On February 16, the CFPB announced a request for comments on an information collection plan titled “Student Loan Servicing Market Monitoring.” The proposed plan will collect student loan data from the largest student loan servicers in order to provide the Bureau “with a broader and deeper look into the student loan market, with a focus on key areas that might put consumers . . . at risk.” Key areas of examination will be: (i) the total size of the student loan market; (ii) borrowers who seek to repay their loans based on how much money they have (Income-Driven Repayment plans); (iii) borrowers who face the greatest risk of default; and (iv) borrowers with private student loans who experience financial distress. Comments must be submitted on or before April 17, 2017.
FTC Fines Large Debt Collector $700,000 for Unlawful Collection Calls
On February 14, the FTC announced that it has entered a Stipulated Order for Permanent Injunction and Civil Penalty Judgment of $700,000 with a debt collector that allegedly used unlawful tactics to collect on federal student loans and other debts. According to the complaint, filed by the DOJ on behalf of the FTC in the District Court for the Southern District of Texas, agents working for the defendant-debt collectors (i) left messages that illegally disclosed purported debts to individuals other than the debtors without permission to do so; and (ii) contacted consumers multiple times despite being told they had the wrong number or that the person answering did not owe the debt. Furthermore, the company was alleged to have falsely represented to regulators that it would take steps to prevent its employees from making such unlawful calls. In addition to the $700,000 fine, the Stipulated Order also enjoined the company from continuing such practices going forward.
CFPB Releases Updated Student Loan Payback Playbook Prototype
According to a January 17 blog post by CFPB Student Loan Ombudsman Seth Frotman, the CFPB has released an updated student loan Payback Playbook prototype, incorporating changes that the Bureau implemented after reviewing thousands of public comments submitted by student loan borrowers, consumer advocates, and other industry members. According to Mr. Frotman, the Bureau worked together with the Departments of Education and Treasury to develop “prototype disclosures” that “outline[] a path to affordable payments for struggling borrowers who are trying to avoid student debt distress.” The CFPB reports that it has shared the Payback Playbook prototype and the underlying consumer feedback data with the Department of Education. The joint efforts are part of a broader Department of Education initiative branded “A New Vision for Serving Student Loan Borrowers.”
CFPB Files Suit Against Nation's Largest Student Loan Company
On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CFPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systematically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”
Later that day, the lender issued a statement categorically rejecting the CFPB's charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”
CFPB Releases Report on Student Debt Incurred by Older Consumers
On January 5, the CFPB announced the release of a report, entitled Snapshot of Older Consumers and Student Loan Debt, which examines the “increasing student loan debt that older consumers are carrying, as well as how the increased debt burden is impacting borrowers’ later life financial security.” Among other things, the Report notes that the number of older student loan borrowers has quadrupled over the last decade, and that the amount of debt per older borrower has roughly doubled over that same time period, particularly as many borrowers take out loans for children or grandchildren. The Report notes further that, in 2015, nearly 40 percent of federal student loan borrowers age 65 and older were in default.
The Report also examines complaints from older consumers with private and federal student loans and highlights common problems that appear to arise, including, among other things, co-signing private student loans and difficulties accessing protections guaranteed under federal law for many federal student loan borrowers.
CFPB Outlines Fair Lending Priorities for 2017
On December 16, the Director of the Office of Fair Lending and Equal Opportunity at the CFPB announced the Bureau’s fair lending priorities for 2017. According to Ms. Ficklin’s blog post, the CFPB will increase its efforts to prevent credit discrimination and improve credit access by focusing on redlining, mortgage and student loan servicing, and small business lending. Specifically, the Bureau will increase its focus on evaluating: (i) whether lenders are intentionally avoiding lending in minority neighborhoods; (ii) if delinquent borrowers face more difficulty in working out payment arrangements with mortgage or student loan servicers because of their race or ethnicity; and (iii) whether women-owned and minority-owned small businesses experience discrimination when applying for credit.
CFPB Unveils Web-based Tool To Deliver Regular Updates on Consumer Lending Markets
On December 19, the CFPB announced the release of “Consumer Credit Trends,” a beta version of its new web-based tool to help the public monitor developments in the mortgage, credit card, auto loan, and student loan markets. According to the Bureau, the data used by Consumer Credit Trends “draws from a nationally representative sample of credit records maintained by one of the top three U.S. credit repositories.” The CFPB plans to update this information regularly, and will offer analyses on notable findings as warranted. It also clarifies that “before being provided to the Bureau,” the credit records are “stripped of any information that might reveal consumers’ identities, such as names, addresses, and Social Security numbers.” The ability to “chart the state of consumer markets,” says CFPB Director Richard Cordray, “will help us identify and act on trends that warn of another crisis or that show credit is too constricted.”