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Senators warn CFPB of student loan servicers’ mismanagement of IDR programs
On April 14, Senators Sherrod Brown (D-OH), Elizabeth Warren (D-MA), and Richard J. Durbin (D-IL) sent a letter to CFPB Director Rohit Chopra urging the Bureau to investigate recent reports of student loan servicers mismanaging income-driven repayment (IDR) programs. The letter alleged that servicers have failed to properly count qualifying payments or accurately track borrowers’ progress towards cancellation. Specifically, the senators noted that servicers’ mismanagement is affecting the lowest-income borrowers the most, citing report findings that 48 percent of IDR borrowers are eligible for $0 monthly payments that can be counted towards loan forgiveness, but are not being tracked. In addition, IDR cancellation requires servicers to “proactively notify borrowers when they are within six months of qualifying for loan cancellation”—a process that requires servicers to accurately count payments and properly track borrowers’ progress. According to the senators, “out of 4.4 million eligible borrowers, recent reports indicate that only 32 borrowers have ever had their student loans canceled through IDR.”
Kentucky enacts student loan servicer licensing provisions
On April 7, the Kentucky governor signed HB 494 to establish the Student Education Loan Servicing, Licensing, and Protection Act of 2022. The act outlines licensing provisions for student loan servicers and implements consumer protections for borrowers. Among other things, the act requires, subject to certain exemptions, persons servicing student loans in the state to obtain a license from the commissioner. Under the act, the commissioner may require that the application and any supporting documentation be submitted to other agencies or authorities as part of a nationwide licensing system, “which may act as an agent for receiving, requesting, and distributing information to and from any source directed by the commissioner.” The commissioner may also conduct examinations and investigations, deny, suspend, or revoke a license, and enter an emergency order to suspend, limit, or restrict a license without notice or hearing if an investigation reveals that a “licensee has engaged, or is about to engage, in unsafe, unsound, or illegal practices that pose and imminent threat or harm to the public interest.” Additionally, the commissioner may impose civil penalties of up to $25,000 per violation for violations of the act’s provisions, and may order restitution, refunds, or expenses as deemed necessary. The act also prohibits student loan servicers from engaging in unfair, deceptive, predatory practices, or omitting material information connected with the servicing of a student education loan. Additional provisions related to licensing renewals and reinstatements, assessment fees, and reporting and net worth requirements are also provided. The act takes effect 90 days after the official adjournment of the session.
Virginia enacts qualified education loan servicer legislation
On April 11, the Virginia governor signed SB 496, which amends provisions related to financial institutions and qualified education loan servicers. The bill, among other things provides that a “qualified education loan servicer” is an individual that meets all of the following criteria: (i) “receives any scheduled periodic payments from a qualified education loan borrower or notification of such payments or applies payments to the qualified education loan borrower's account pursuant to the terms of the qualified education loan or the contract governing the servicing”; (ii) “during a period when no payment is required on a qualified education loan, maintains account records for the qualified education loan and communicates with the qualified education loan borrower regarding the qualified education loan, on behalf of the qualified education loan's holder”; and (iii) “interacts with a qualified education loan borrower, which includes conducting activities to help prevent default on obligations arising from qualified education loans or to facilitate certain activities.” The bill is effective July 1.
CFPB settles with student loan servicer over unfair practices
On March 30, the CFPB announced a settlement with a student loan servicer to resolve allegations that the company engaged in deceptive acts with respect to borrowers with Federal Family Education Loan Program (FFELP) loans about their eligibility for Public Service Loan Forgiveness (PSLF), in violation of the Consumer Financial Protection Act, among other things. The CFPB alleged that the company engaged in unfair, deceptive, or abusive acts or practices by misrepresenting: (i) that FFELP borrowers could not receive PSLF; (ii) that FFELP borrowers were making payments towards PSLF before loan consolidation; and (iii) that certain jobs were not eligible for PSLF. The Bureau also alleged that the servicer “did not provide any information about how to become eligible for PSLF when borrowers inquired about the program or mentioned that they worked in a job that was likely a qualifying public-service job.”
Under the terms of the consent order, the servicer is required to: (i) notify all affected borrowers of the Department of Education’s limited PSLF waiver to provide affected consumers the opportunity to take advantage of the waiver before it ends on October 31; (ii) “develop and implement a call script for Customer Service Representatives that, at minimum, requires them to solicit information from all FFELP Consumers about whether a consumer’s employment may make them eligible for PSLF, and if so, to direct them to a Public Service Specialist, who will provide accurate and complete information about PSLF”; and (iii) pay a civil money penalty of $1 million to the Bureau.
According to a statement by CFPB Director Rohit Chopra, the Bureau “has long been concerned that others in the student loan servicing industry have derailed borrowers from making progress toward loan cancellation,” and “CFPB law enforcement work has identified these problems for years, finding failures at multiple servicers.”
District Court: Consumer must notify furnisher directly to remove dispute notification from credit report
On March 21, the U.S. District Court for the Western District of Tennessee granted a Pennsylvania-based student loan servicer’s (defendant) motion for judgment on the pleadings, ruling that the servicer did not violate the FCRA when furnishing information to a credit reporting agency (CRA) that contained a notation of an “account in dispute” because the plaintiff submitted the removal request only to the CRA and not to the defendant itself. The plaintiff contended that his account was still being reported as in dispute even though he sent a letter to the CRAs indicating that he no longer disputed the tradelines and requesting that the dispute notification be removed. The CRAs forwarded the plaintiff’s dispute to the defendant. Several months later the plaintiff noticed the account was still being reported as in dispute on his credit report. The plaintiff sued, alleging the defendant violated Sections 1681s-2(b) and 1692s-2(b)(1) of the FCRA by, among other things, willfully failing to conduct a reasonable investigation after it received notice from the CRAs of the dispute. The court disagreed, pointing to caselaw which states that if a consumer wants to remove a dispute notification from his or her credit report, the consumer must alert the furnisher—not just the CRA. The court also referenced FTC guidance, which informs consumers that in order to correct mistakes on their credit reports they need to contact both the credit bureau and the furnisher that reported the inaccurate information. Additionally, the court wrote that “a defendant cannot, as a matter of law, fail to conduct a reasonable investigation under § 1681s-2(b) where the plaintiff never terminates the dispute directly with the furnisher, regardless of to whom the plaintiff initially disputed the account.”
CFPB scrutinizes student loan servicers’ PSLF compliance
On February 18, the CFPB released a compliance bulletin warning student loan servicers to make sure they provide complete and accurate information to eligible borrowers about Public Service Loan Forgiveness (PSLF) benefits. The Bureau indicated that it will be paying close attention to servicers’ compliance with Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Last October, the Department of Education changed its PSLF program to now provide qualifying borrowers with a time-limited PSLF waiver that allows all payments to count towards PSLF regardless of loan program or payment plan. The waiver covers payments made on loans under the Federal Family Education Loan Program or Perkins Loan Program. (Covered by InfoBytes here.) However, Bureau supervisory findings revealed unfair or deceptive practices taken by servicers that have prevented many borrowers from making progress towards forgiveness. The Bureau emphasized that it expects servicers to comply with federal consumer financial protection laws when administering the new PSLF waiver and providing assistance to borrowers. The Bureau “will pay particular attention” to whether (i) servicers of any federal loan type provide complete and accurate information about the PSLF waiver in communications related to PSLF or loan consolidation; (ii) servicers have adequate policies and procedures to recognize when borrowers express interest in PSLF or the PSLF waiver (or where borrowers’ files otherwise demonstrate their eligibility), in order to direct borrowers to appropriate resources; and (iii) servicers take measures “to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.” The Bureau advised servicers to consider enhancing their compliance management systems to ensure borrowers receive accurate and complete information about the PSLF waiver and that their enrollment is facilitated.
Senators urge CFPB to investigate student lenders’ bankruptcy compliance
On February 10, several U.S. senators sent a letter to CFPB Director Rohit Chopra claiming private student loan companies and servicers have “intentionally misrepresented to borrowers” their ability to discharge certain private student loans in bankruptcy. Citing a report from the Student Borrower Protection Center, the senators claimed that these private lenders “have intentionally perpetuated the false narrative that all student loans, including all private student loans, are nondischargeable in bankruptcy except in cases where borrowers meet a standard of ‘undue hardship.’” The letter stated, however, that rules related to the dischargeability of private student loans apply only to qualified education loans whereas private lenders and servicers “have long peddled a variety of private student loans that do not meet the definition of qualified education loans.” Citing a figure that estimated approximately $50 billion in private student loan debt held by some 2.6 million borrowers fell into this category, the senators stated that lenders included misleading language in their promissory notes while misrepresenting that students could not discharge their loans in bankruptcy, and collected debts that could have been legally discharged, including through the use of abusive measures such as pursuing legal action and making negative reports to credit bureaus. The senators urged the Bureau to investigate the report’s findings and take action to ensure private lenders and servicers comply with bankruptcy law.
CFPB is monitoring for PSLF waiver compliance
On January 26, the CFPB encouraged consumers to take advantage of the Public Service Loan Forgiveness (PSLF) limited waiver program before the October 31 application deadline. As previously covered by InfoBytes, last October the Department of Education announced several changes to its PSLF program, including a time-limited PSLF waiver for qualifying borrowers, which allows all payments to count towards PSLF regardless of loan program, payment plan, or whether the payment was made in full or on-time. However, the Bureau noted that consumers are complaining of servicers not providing the support they need to get the full benefit of the PSLF limited waiver. The Bureau stated that it is monitoring servicers for illegal practices to ensure public service employees are able to access PSLF relief. Consumers who experience issues with servicers providing the necessary information, support, and processing are encouraged to submit a complaint to the Bureau.
States reach $1.85 billion settlement with student loan servicer
On January 13, a coalition of attorneys general from 38 states and the District of Columbia reached a $1.85 billion settlement with one of the nation’s largest student loan servicers, resolving allegations that it engaged in misconduct when servicing student loans. The settlement, subject to court approval, brings to an end multistate litigation and investigations into the allegations that the servicer steered borrowers into costly forbearances and expensive repayment plans rather than helping borrowers find affordable income-driven repayment (IDR) plans. The servicer denies violating any consumer financial laws or causing borrower harm, as stated in a separate press release, but has agreed to maintain servicing practices to support borrower success.
Under the terms of the settlement, the servicer has agreed to cancel more than $1.7 billion in private student loan balances owed by roughly 66,000 borrowers. An additional $95 million in restitution payments of about $260 each will also be sent to approximately 357,000 federal student loan borrowers, and the servicer will also pay approximately $142.5 million to the signatory AGs. The settlement also requires the servicer to make several reforms, including explaining the benefits of IDR plans and offering estimated income-driven payment options to borrowers prior to placing them into deferment or discretionary forbearance. The servicer is also required to notify borrowers about the Department of Education’s Public Service Loan Forgiveness limited waiver opportunity (covered by InfoBytes here), implement changes to its payment-processing procedures to limit certain fees for late payments or entering forbearance status, and improve communications informing borrowers of their rights and obligations.
Education Dept. increases standards for student loan servicers
On October 15, the Department of Education announced revised standards for its student loan servicers effective early next year. The six identified student loan servicing companies signed contract extensions agreeing to comply with federal, state, and local laws governing student loan servicing and collections and will respond to complaints filed with those authorities in a timely manner. According to Federal Student Aid (FSA) Operating Officer Richard Cordray, the new standards “rais[e] the bar for the level of service student loan borrowers will receive. . .[and] come at a critical time as we help borrowers prepare for loan payments to resume early next year.” The FSA states that servicers that do not meet certain performance standards may see a decrease in the number of accounts placed with them, and servicers that assist borrowers avoid falling behind on payments, especially at-risk borrowers, will be rewarded.
Standards will measure several performance metrics including: (i) the percentage of borrowers who end a phone call before reaching a customer service representative; (ii) how well customer service representatives answer borrowers’ questions and help navigate repayment options; (iii) “[w]hether servicers process borrower requests accurately the first time”; and (iv) the overall level of customer service borrowers receive. Additionally, the six servicers will be required to submit “new, comprehensive reports,” which will provide FSA greater insight into borrowers’ experiences with loan servicers and allow FSA to track why borrowers contact their loan servicers, the type of borrower applications that are denied, and complaints borrowers send directly to loan servicers. FSA says it intends to publicly release the performance data.