The Student Loan Service has been the subject of recent attention from the CFPB in the form of a blog post, “Busting Myths About Bankruptcy and Private Student Loans,” and a report (entitled “Special Feature”) titled “Student Loan Borrowers Potentially at Risk When Payment Suspension Ends.” Both of these raise compliance risks for student loan servicers.
blog post. The CFPB blog post aims to dispel “the perception that student loans cannot be discharged in bankruptcy.” The blog post first notes that release is still possible even for private student loans that are subject to an “undue hardship” standard and require the filing of adversarial proceedings. It then discusses the availability of discharge for certain private loans for educational purposes which, according to the CFPB, “can be discharged through normal bankruptcy proceedings, just like most other consumer debt”, and provides examples of such loans.
The blog post then turns to “the practices of private student loan owners, lenders, managers and collectors and their handling of bankruptcy discharges.” The CFPB observes that while consumers may have difficulty understanding “the details” of which private loans for educational purposes are releasable, these details “should be understood and reflected in the policies and procedures of the loan owners, lenders, managers and collectors. The blog post cites several consumer complaints which, according to the CFPB, “suggest that some of these companies may be misrepresenting to borrowers about bankruptcy protections — or worse, even collecting debts that have already been discharged by bankruptcy”. judge.” The CFPB warns that “[c]collecting debts that have been discharged through bankruptcy could not only violate the Consumer Financial Protection Act’s prohibition against unfair, deceptive, and abusive practices, but also violate the order of a U.S. bankruptcy judge.
Since the CFPB has used the blog to raise concerns about the handling of bankruptcy discharges, private student loan servicers, as well as loan owners, lenders and collectors, should be prepared for their practices related to bankruptcy discharges. bankruptcy to receive CFPB scrutiny.
Report. In anticipation of the end of the suspension of federal student loan payments mandated by the CARES Act and subsequent administrative actions, the report focuses on preparing student borrowers financially to resume payments.
Using data from the CFPB’s Consumer Credit Panel, the report identifies the types of borrowers most likely to have difficulty resuming payments based on five potential risk factors: pre-pandemic loan arrears students, pre-pandemic payment assistance on student loans, multiple student loans from loan servicers, delinquencies on other credit products since the start of the pandemic, and new third-party collections during the pandemic. The CFPB found that about 15 million borrowers have at least one of these potential risk factors, more than 5 million borrowers have two or more risk factors, and borrowers with multiple risk factors are more likely to live in low-income or high-minority census tracts. .
The report also examines the state of delinquency and payments on non-student debt “to better understand the credit situations of borrowers before the pandemic and to provide context for where borrowers are today.” The CFPB found that non-student loan delinquencies had increased in the second half of 2021 and that by February 2022, non-student loan delinquencies had almost returned to pre-pandemic levels. In a blog post on the report, the CFPB states that “[t]his figure portends potential financial turmoil for federal student loan borrowers when their loans are repaid” because “non-student loan defaults continue to rise even though the pause in student loan repayments is still in effect.” [means that] Once [student loan] payments come due again, borrowers who are already in increasing difficulty will face additional financial hardship.
In the blog post (but not in the report), the CFPB also notes that “CFPB’s work has shown that student loan servicers have erected barriers to borrowers’ access to lower payments under plans income-oriented repayment and loan forgiveness under an income-oriented repayment and Public Service Loan Pardon (PSLF)” and refers to its enforcement action against EdFinancial for allegedly doing misrepresentation to borrowers with loans from the Federal Family Education Loan Program regarding their eligibility for the PSLF. The CFPB clarifies that “[a]In the run-up to the resumption of payments, it is essential that borrowers can access these existing programs that allow payments to be reduced and canceled. »
Also in the blog post (but not in the report), the CFPB raises the specter of errors stemming from service transfers. It says it “will continue to monitor the activities of student loan servicers as they make transfers and begin communicating with student borrowers.”
report leaves little doubt, but that the CFPB intends to take a close look at how managers are handling the resumption of payments and to take action against managers in the event of missteps, particularly with regard to the provision of information to borrowers on income-tested repayment plans, loan forgiveness and service transfers. Further, by highlighting the report’s findings regarding the higher incidence of risk factors among borrowers living in low-income or high-minority census tracts, the CFPB appears to be signaling that it will be looking for possible discriminatory from the repairers.