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CFPB Releases Student Lending Examination Procedures
On December 17, the CFPB released its Student Lending Examination Procedures, which are an extension of the CFPB’s General Supervision and Examination Manual and will be used as a field guide by CFPB examiners to review student lender compliance with federal consumer financial laws. The Student Lending Examination Procedures are organized in seven modules: (i) Advertising, Marketing, and Lead Generation, (ii) Application, Qualification, Loan Origination, and Disbursement, (iii) Loan Repayment, Account Maintenance, Payoff Processing, and Payment Plans, (iv) Customer Inquiries and Complaints, (v) Collections, Accounts in Default, and Credit Reporting, (vi) Information Sharing and Privacy, and (vii) Examination Conclusion and Wrap-up. Under the first module, for example, CFPB examiners will assess whether a lender’s advertising and marketing practices are deceptive, misleading, or discriminatory by sampling all of the lender’s marketing and advertising materials, including print, electronic and other media, such as the Internet, email and text messages, telephone solicitation scripts, agreements and disclosures. With regard to borrower complaints, examiners will assess, among other things, the systems, procedures, and policies used by a lender for tracking, handling, investigating, and resolving consumer inquiries, disputes, and complaints. The CFPB has the authority to supervise large bank and nonbank student lenders, and, as with its other procedures, the CFPB will use the same examination procedures across both types of institutions.
CFPB Report Likens Student Loan Complaints to Mortgage Servicing Problems
On October 16, CFPB Student Loan Ombudsman Rohit Chopra published the first annual report on student loans, as required by the Dodd-Frank Act. According to the report, the CFPB has received nearly 3,000 complaints regarding private student loans since it began accepting such complaints in March 2012. Based on the complaints and other data obtained by the CFPB, the report describes issues in the student loan market as similar to those seen in the mortgage servicing market including (i) improper application of payments, (ii) untimeliness in error resolution, and (iii) inability to contact appropriate personnel when facing economic hardship. Further, the report notes problems reported in the application of the Servicemembers Civil Relief Act, including obstacles to obtaining the available interest rate cap. The CFPB Student Loan Ombudsman recommends that the Treasury Secretary, the CFPB Director, and the Education Secretary assess whether efforts to remedy problems in mortgage servicing can be applied to improve student loan servicing. The Ombudsman also invites lenders to develop creative programs to help borrowers restructure debt, and recommends that the relevant Senate and House committees identify opportunities to spur the availability of loan modification and refinance opportunities. Additionally, on October 18, the CFPB released a report that expands on the servicemember-related issues presented in the Ombudsman's annual report.
Student Lender Agrees to Settle TCPA Collection Litigation
On September 17, the U.S. District Court for the District of Washington approved a settlement entered into between a student lender and a class of borrowers who alleged that the lender violated the Telephone Consumer Protection Act (TCPA) by employing an automated dialing system to place collection calls to borrowers’ cell phones. The lender and its affiliated companies agreed to pay $24 million to resolve the case and avoid the costs of further proceedings, but the lender continues to vigorously deny the allegations. According to counsel for the class, the settlement, which the parties have been negotiating since 2010, is the largest settlement to date under the TCPA.
Second Circuit Applies "Least Sophisticated Consumer" Test In Student Loan Debt Collection Case
On August 30, the U.S. Court of Appeals for the Second Circuit held that a debt collector’s representation to a debtor that her student loans were “ineligible” for bankruptcy discharge is a “false, misleading, or deceptive” debt collection practice in violation of the FDCPA. Easterling v. Collecto, Inc., No. 11-3209, 2012 WL 3734389 (2nd Cir. Aug. 30, 2012). The debt collector sent a collection letter to the debtor with a notice that the account was ineligible for bankruptcy discharge. The debtor sued the collector on her own behalf and on behalf of nearly 200 borrowers who also received such notices. The district court granted summary judgment in favor of the debt collector, concluding that because the debtor had previously filed for bankruptcy without seeking to discharge her student loan debt, and because student loan debt is presumptively non-dischargeable, her debt was, in fact, not eligible to be discharged. The appeals court disagreed and held that the district court erred in focusing on the borrower’s circumstances instead of applying the “least sophisticated consumer” standard. In applying that standard on appeal, the court reasoned that while the bar for bankruptcy discharge is high, it is not impossible and the “least sophisticated consumer” might not seek the advice of counsel for pursuing discharge through bankruptcy after receiving the debt collector’s inaccurate notice. The court held that the debt collector’s notice did violate the FDCPA and reversed and remanded the case for further proceedings.
CFPB Corrects Student Loan Report
On August 29, the CFPB released an updated and corrected report on private student loans. Although the updated report provides the same findings and recommendations as the original report, the revised report attempts to address concerns about some of the study’s methodologies. The CFPB’s summary of updates states that the new report includes revised methodologies for determining the extent to which private student loan borrowers exhausted their Federal Stafford Loan options before taking on a private student loan and the extent to which private student loans were originated without certification of borrower need by the institution of higher education. Specifically, the revised report provides updated results showing a higher percentage of students who took out a private loan without exhausting the individual Stafford maximum, and a higher level of school certification of private loans.
FDIC Settles Student Debit Card Fee Enforcement Action; CFPB Issues Related Consumer Advisory
On August 8, the FDIC announced consent orders with a debit card issuer and vendor to resolve allegations that the entities operated an allegedly unfair and deceptive student debit card account program that (i) charged student account holders multiple nonsufficient fund (NSF) fees from a single transaction, (ii) allowed accounts to remain in overdrawn status while NSF fees accrued, and (iii) collected fees from subsequent deposits to the accounts. Collectively the settling companies will provide $11 million in restitution and agreed to pay civil money penalties totaling $282,000. The orders also require that the companies enhance their compliance programs and take specific steps to alter their NSF practices. On August 9, the CFPB issued a consumer advisory in which it reminds students that they (i) cannot be required to use a specific bank or card, (ii) should select bank account before arriving at school, and (iii) should opt for direct deposit as soon as it is offered.
CFPB Releases Report on Private Student Loans, Testifies in Senate
On July 20, the CFPB released a report on private student loans, prepared in conjunction with the Department of Education. Pursuant to Section 1077 of the Dodd-Frank Act, the report covers (i) the evolution and current state of the private lending market, (ii) the characteristics of consumers of private student loans, (iii) consumer protections, including recent changes and possible gaps, (iv) fair lending compliance information currently available and its implications, and (v) statutory or legislative recommendations to improve consumer protections. The report includes a series of recommendations from the CFPB and the Department of Education. The CFPB recommends that Congress require lenders to obtain a certification of the student’s financial need from the educational institution before disbursing private student loan funds. The CFPB also recommends that Congress examine the impact that the 2005 amendments to the bankruptcy code that made private student loans non-dischargeable in bankruptcy absent a showing of undue hardship, have had on young borrowers. On July 24, the CFPB’s Student Loan Ombudsman appeared before the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection to discuss the report and the CFPB’s recommendations. The hearing also included testimony from consumer groups and one private student lender.
CFPB Seeks Additional Private Student Loan Complaints
On June 13, the CFPB issued a Notice of Request for Information seeking information on existing private student loan complaints collected by state agencies, institutions of higher education, consumer and legal advocates, and lenders. In addition to its general solicitation, the CFPB specifically invited the participation of state attorneys general, schools, and advocacy groups. The responses received by the CFPB will be incorporated into the student loan ombudsman’s report it provides to Congress pursuant to the Dodd-Frank Act. In conjunction with its general solicitation, the CFPB also published the nearly 2,000 comments it received in response to a Notice and Request for Information on private student loans that it issued on November 17, 2011. The CFPB identified the following common themes from the data collected to date in connection with its earlier solicitation: (i) many borrowers report relying on school financial aid offices for information and guidance on which loan products to use, (ii) many borrowers struggling in today’s economy are finding their private student loan debt to be unmanageable, and (iii) many borrowers report finding it difficult to navigate the repayment process.
CFPB Acknowledges Student Loan Complaint System
On March 5, the CFPB’s student loan ombudsman, Rohit Chopra, acknowledged in a blog post that the CPFB had launched its student loan complaint system. The CFPB outlined its expectations regarding financial institution response and resolution times. It expects institutions to respond to complaints with fifteen days, and resolve complaints within sixty days. Concurrent with the opening of the complaint system, the CFPB sent a letter to university officials advising them of this new resource available for their students and alumni.