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CFPB Settles with Bank and its Two Affiliates for $18.5 Million over Alleged Faulty Student Loan Servicing Practices
On July 22, the CFPB announced that a major bank and its two affiliates agreed to pay $18.5 million to resolve allegations that the entities engaged in inadequate private student loan servicing practices. According to the consent order, the CFPB alleged that the bank and its affiliates (i) failed to provide clear information regarding the student-loan interest consumers paid; (ii) overstated the minimum amount due in student-loan billing statements; (iii) initiated collection phone calls to student loan borrowers that were non-compliant with certain provisions of the Fair Debt Collection Practices Act; and (iv) failed to provide students with defaulted student loans with information about the amount and source of the debt and the consumers' right to contest the debt's validity, as required by the Fair Debt Collection Practices Act. Under terms of the settlement, the bank agreed to provide $16 million in restitution to affected borrowers, improve its student loan servicing and collections practices, and pay a $2.5 million civil money penalty. The announcement comes as the CFPB, along with the Department of Education and Department of Treasury, concluded its comment period for public feedback on ways to improve borrower service, reduce defaults, develop best practices, implement consumer protections, and spur innovation in the student loan servicing market.
CFPB Report Details Ongoing Challenges Between Servicemembers and Student Loan Servicers
On July 7, the CFPB released a report detailing the continued challenges military servicemembers experience related to the servicing of their student loans, particularly when trying to invoke certain rights granted under the Servicemembers Civil Relief Act (SCRA). This report follows the CFPB’s May announcement seeking public comment on student loan servicing practices related to servicemembers. Based on over 1,300 complaints received, the report details how both private and federal student loan servicers continue to make mistakes handling servicemembers’ student loan repayments, leading to wrongful denial of legal benefits and negative credit reporting for military families. Specifically, the report highlights servicemembers’ difficulties in (i) obtaining the SCRA’s 6-percent interest rate cap; (ii) receiving adequate information or having requests properly processed, especially regarding deferment plans (leading to unwarranted delinquencies, defaults, and debt collections); and (iii) discharging the debts of severely injured veterans or the families of deceased servicemembers.
Department of Education Releases Reports on SCRA Reviews of Major Student Loan Servicers
On May 26, the Department of Education announced the release of reports on its reviews of four major federal student loan servicers, which were conducted to ensure that the servicers adhered to federal law concerning loan interest rates for active-duty servicemembers. Specifically, the Department aspired to determine whether eligible borrowers of eligible Family Federal Education Loans (FFEL) and Direct Loans received the benefit of the 6 percent interest rate cap provided by the SCRA in accordance with applicable statutes and the Department’s regulations and guidance. The reviews considered servicemembers’ SCRA eligibility between 2009 and 2014, and showed that “in less than 1 percent of cases, borrowers were incorrectly denied the 6 percent interest rate cap required by the laws.” In addition to these reviews, the Department will be “expanding its review of compliance with the SCRA and HEA to the Department’s seven non-profit servicers as well as commercial [FFEL] servicers,” with completion expected later this year. The Department’s reviews follow a May 2014 DOJ settlement with one of the four student loan servicers.
CFPB Seeks Public Comments Into Student Loan Servicing Practices
On May 14, the CFPB published a Request For Information (RFI) seeking public comment on student loan servicing practices. In particular, the Bureau is requesting comments on six areas: (i) industry practices that cause repayment challenges; (ii) challenges faced by distressed borrowers; (iii) financial incentives that affect the quality of service; (iv) application of consumer protections in other markets to the loan servicing market; and (v) the availability of information about the student loan market. According to the Bureau, the comments received concerning the aforementioned areas will be used to assist student loan servicers and policymakers identify potential options to improve service, reduce defaults, develop industry best practices, examine consumer protection, and spur innovation. Comments must be received by July 13. Along with the RFI, the CFPB released a factsheet on student debt stress, highlighting statistics that could lead to significant challenges for the industry. In prepared remarks for a field hearing concerning the issue, CFPB Director Richard Cordray alluded to the growing concerns within the student loan market, mentioning that two-thirds of graduates finishing their bachelor’s degrees graduate with debt averaging almost $30,000.
Illinois Crackdown on Companies Targeting People Struggling to Repay Student Loans Continues
On May 4, Illinois AG Lisa Madigan’s office announced that it filed five lawsuits against companies that allegedly scammed borrowers into paying hundreds to thousands of dollars in upfront fees with the false hope that they would be paying off student loan debt or have the debt forgiven entirely. The lawsuits allege that the companies violated the 2010 Illinois Debt Settlement Consumer Protection Act, which bans companies from charging upfront fees for services that claim to settle debt. According to the lawsuits’ allegations, the companies falsely advertised that they could stop wage garnishments, reduce monthly payments, and remove default statuses. In addition to the allegations under the Debt Settlement Consumer Protection Act, the companies are being charged with violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Credit Services Organizations Act. The May 4 lawsuits follow the Illinois AG office’s July 2014 suits against two companies for violations of the same three acts.
CFPB Sets Date for Student Debt Field Hearing
On April 29, the CFPB revealed via blog post that it will host a field hearing focusing on issues related to student debt. The hearing will be held in Milwaukee, Wisconsin and is scheduled to occur on Thursday, May 14. The hearing will feature remarks from CFPB Director, Richard Cordray, in addition to testimony from consumer groups, industry representatives, and members of the public.
CFPB and Department of Education Reach Agreement with Buyer of For-Profit Colleges
On February 3, the CFPB and the U.S. Department of Education announced that they had reached an agreement with ECMC Group, to provide debt relief and additional consumer protections to borrowers who took out private loans from Corinthian Colleges, Inc. ECMC is the new owner of a number of Corinthian schools. In September 2014, the CFPB sued Corinthian for allegedly luring students into high-cost private loans, using illegal debt collection tactics to make students pay back private loans while still in school, and advertising inaccurate job prospects and career services. The agreement releases ECMC from liability for Corinthian’s actions in exchange for ECMC (i) providing more than $480 million in debt relief for borrowers who took out high-cost private student loans with Corinthian; (ii) not offering private student loans for a period of seven years; (iii) ceasing lawsuit threats and improper debt collection practices; (iv) instructing credit reporting agencies to remove negative credit reporting information from borrowers’ credit reports; and (v) implementing additional consumer protections, including flexible withdrawal policies and clear information on job prospects. The CFPB’s lawsuit against Corinthian remains ongoing.
CFPB Issues Request For Information on Proposed "Safe Student Account Score Card"
On January 14, the CFPB issued a press release seeking public comments on its “Safe Student Account Scorecard.” The scorecard is a tool for colleges and universities to solicit information on the fees and features of financial products before selecting a financial institution partner. It would enable colleges and universities to evaluate the costs and benefits of financial products based on a variety of different factors including fees, product features, sales and marketing practices, and how much financial institutions earn for each account opened. The Bureau is interested in receiving comments from students, parents, colleges and universities, and financial institutions by March 16, 2015.
CFPB Report Highlights Errors In Mortgage And Student Loan Servicing
On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards. With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution. The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales. For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies. The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications; (iii) misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making debt collection calls to borrowers outside appropriate hours.
CFPB Report Analyzes Private Student Loan Borrowers' Complaints
On October 16, the CFPB announced the findings of its annual student loan ombudsman report. Analyzing over 5,000 private student loan complaints that the CFPB received from October 1, 2013 through September 30, 2014, the report highlights the struggle private loan borrowers face in repaying their loans, noting that many are driven into default because practical repayment options are not available to them. The report outlines three main reasons why many private student loan borrowers default: (i) they are unaware of the loan modifications available to them; (ii) they do not have the same affordable options that federal student loan borrowers are entitled to by law; and (iii) the temporary forbearance options that some lenders offer often result in “burdensome enrollment fees and processing delays.” In connection with the report, the CFPB released a sample letter that consumers can edit and send to servicers to request lower monthly payments and information on available repayment plans, as well as a sample financial worksheet to assist borrowers to determine maximum funds available to pay their student loans.