One or more student loan servicers between March and June 2014 engaged in illegal actions that ranged from not providing accurate tax deduction information to borrowers to making illegal debt collection calls, according to a new report from the Consumer Financial Protection Bureau (CFPB).
The report, the fifth edition of Supervisory Highlights, includes the CFPB’s latest findings from its examination of student loan and mortgage servicers, as well as other markets. The CFPB was given the authority to supervise private student loan servicers as well as some large, nonbank servicers under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Through its most recent review, CFPB examiners found that one or more student loan servicers were engaged in practices deemed unfair under the Dodd-Frank Act, including charging late fees during the grace period or allocating under-payments between multiple loans to maximize late fees.
According to the report, when a payment is made for borrowers who have an account that combines multiple loans, the servicer allocates it in a way that satisfies the monthly payment for each loan. However, CFPB found that some servicers were distributing payments that were less than the total amount due in a way that resulted in late fees being applied to all loans, further resulting in all loans being deemed delinquent.
The CFPB also found that some servicers inflated minimum payments on periodic statements and online account statements to include amounts in deferment or not yet due. The Bureau in its report deemed this practice to be “deceptive.” It also deemed the practice of telling consumers that student loans can never be discharged in bankruptcy – which one or more servicers were found to do – deceptive. The report notes that while student loans are very difficult to discharge in bankruptcy, borrowers who are able to prove “undue hardship” are able to successfully do so.
One or more servicers also were found to have routinely made debt collection calls at inconvenient times like early in the morning or late at night. According to the report, more than 5,000 calls over a 45-day period were made at inconvenient times, including 48 calls made to a single consumer. Another illegal practice highlighted in the report includes not providing consumers with accurate information about deducting student loan interest from their tax filings, which CFPB said might have led some consumers to lose up to $2,500 in tax deductions.
In yesterday's press release, the CFPB pointed to previous servicing irregularities with student loan servicers. In a May agreement with Federal Deposit Insurance Corporation (FDIC) on private loan late fees, Navient refunded late fees to certain customers and eliminated a $5 minimum on late fees. The company also altered its late fee policy to end minimum fees and changed its billing statements to provide a second reminder before late fees are assessed.
Publication Date: 10/29/2014