Supervisory actions from the Consumer Financial Protection Bureau (CFPB) resulted in the recovery of $107 million in relief for more than 238,000 consumers, including consumers with student loans, according to the latest supervision report from the Bureau. The report outlines the illegal practices uncovered by the CFPB from May 2015 to August 2015.
Regarding student loan servicers supervised by CFPB, the report found that student loan servicers allocated borrowers’ payments to maximize fees and did not provide consumers choices about how to apply their payments.
Because servicers often combine multiple student loans for each borrower into one account, borrowers are allowed to make a single payment for all of their loans, which is then allocated by the servicer among the loans to satisfy the monthly payment for each loan. However, CFPB found that in cases when a borrower made a payment that was less than the total amount due, some servicers “allocated the amount proportionally to each loan.” This resulted in borrowers being charged late fees and, in some cases, delinquency. CFPB also found that servicers were not presenting customers with choices about how to apply partial payments and did not explain to borrowers the potential ramifications of the allocation methodology they used. Overall, CFPB examiners found that this practice “unfairly resulted in higher late fees and harm to borrowers,” according to the report.
Another finding of the report was that in cases where borrowers made automatic payments on a monthly basis, some servicers’ systems had malfunctions that resulted in earlier-than-scheduled payments. In other instances, pre-authorized auto-debit payments were scheduled for dates when banks were closed and, therefore, processed on the next business day. In both cases, consumers were charged overdraft fees and unexpected debits, and any interest accrued during the bank closures were not returned by servicers.
According to the report, student loan servicers were also deceiving certain borrowers about late fees by telling them that fees may be charged for federal student loans owned by the Department of Education (ED). CFPB noted that ED does not charge late fees on its loans and instructs servicers to refrain from the practice as well. A similar finding of the report was that some servicers continue to misrepresent the dischargeability of student loans in bankruptcy.
Have any of your students, or former students, voiced complaints about similar treatment from servicers? Tell us in the comments section.
Publication Date: 11/5/2015