The Consumer Financial Protection Bureau yesterday released a special edition of its Supervisory Highlights report, sharing its findings from examinations related to student loan refinancing, private lending, servicing, and debt collection. The report spotlighted violations that impact both federal and private student borrowers, particularly as 28 million federal borrowers resumed repayments after the COVID-19 pause.
Why it matters:
Student loans represent $1.77 trillion in U.S. consumer debt, second only to mortgages. The report identifies issues across student loan markets, including misleading borrowers, unlawful debt collection tactics, and processing failures during the return to repayment period.
Key findings:
- Refinancing Missteps
- Misleading marketing: Private lenders falsely implied that borrowers could refinance federal loans without forfeiting forgiveness options.
- Abusive practices: Lenders took advantage of borrowers’ lack of understanding, profiting from refinanced loans that negated federal protections.
- Re-amortization failures: Lenders failed to re-adjust loan terms after borrowers requested modifications during refinancing.
- Debt Collection Violations
- Illegal collection tactics: Servicers included language threatening legal action in collection letters but did not pursue such actions, misleading borrowers.
- Transcript withholding: Schools withheld academic transcripts as a blanket policy for defaulted institutional loans. This tactic, often illegal, disrupts borrowers’ access to education and employment.
- Access denial: Loan contracts allowed schools to bar students from classes or exams as a penalty for default — an unfair and injurious practice.
- Return to Repayment Failures
- Deceptive billing: Federal servicers issued inaccurate payment amounts and due dates, further delaying loan management.
- Phone access failures: Borrowers faced average call hold times of 40–58 minutes, preventing timely resolution of issues.
- Unauthorized withdrawals: Servicers debited incorrect or excessive amounts from borrowers’ accounts without proper authorization.
- Private Loan Deception
- Lenders denied disability discharges for eligible borrowers and misrepresented eligibility for autopay discounts.
- Promises of unemployment benefits — like suspended payments — were later rescinded, misleading borrowers about critical protections.
The CFPB is directing entities to:
- Create robust systems for evaluating borrowers’ claims of school misconduct.
- Maintain adequate avenues for borrowers to manage loans by phone.
- Revise policies on electronic fund transfers and billing statements.
