CFPB Finds ‘Range’ of Unlawful Student Loan Market Activities
A new regulatory report shows a variety of unlawful activity in America’s student loan market.
The report, issued by the Consumer Financial Protection Bureau (CFPB) Monday (Dec. 16, covers violations connected to student loan refinancing, private lending and servicing, debt collection and federal loan servicing.
“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” CFPB Director Rohit Chopra said in a news release. “Student loan companies should not profit by violating the law.”
According to the report, student loans make up the second-largest form of U.S. consumer debt, with more than $1.7 trillion in total outstanding balances. In the last year, many borrowers faced challenges, with millions of them resuming repayment following the end of the COVID-19 payment pause.
Beyond that, borrowers are facing a host of challenges related to companies engaged in illegal practices, the report said.
For example, the CFPB’s research found that some lenders allowed borrowers to believe that refinancing would not cause them to lose access to federal loan cancellation programs, something that does happen to borrowers who refinance through private lenders.
The research also found instances of lenders unfairly denying discharge applications for borrowers who were eligible based on total and permanent disability status.
In addition, the research found instances of loan services failing to address allegations of school misconduct, failing to give borrowers adequate ways to deal with loan issues by phone and cases where servicers issued “deceptive” billing statements.
“Significantly, examiners also uncovered numerous problems with how servicers processed borrowers’ applications for income-driven repayment plans,” the CFPB said.
The findings come as the CFPB faces potential upheaval next year when Donald Trump returns to the White House.
A report this weekend by the Financial Times (FT) said that the new administration is having trouble filling some roles, given Republican plans to consolidate or close some regulatory agencies, including the CFPB. Source told the news outlet that a number of experienced candidates have declined when asked to lead the agency.
“Republicans think the CFPB is unconstitutional, and even if you do make progress in protecting middle-class and low-income Americans, the Democrats will never give you credit because you’re wearing the wrong color jersey,” said a former senior financial regulator who the FT says has no interest in the job.
As PYMNTS wrote soon after Trump’s election, the Supreme Court has held that the CFPB’s funding mechanism is constitutional, “in effect short-circuiting some conservative lawmakers’ efforts to raise existential questions about the bureau and pave the path toward its shuttering.”
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