The CFPB Supervision report [PDF] examined the practices of the companies hired by financial institutions and put in charge of collecting and processing loan payments, modifications and keeping records of borrowers’ payment history.
Examiners for the CFPB found that from March to June 2014 some student loan servicers took part in several illegal and shady practices including inflating borrowers’ minimum payments, made illegal collection calls and charged unlawful late fees.
Although the CFPB did not identify the companies conducting the illegal practices, it did say that one or more servicers that inflated consumers’ did so by including amounts that were in deferment and not actually due.
Examiners found that some servicers employed fee-maximizing practices for consumers who typically made one payment to be split over multiple loans.
In instances that the borrower paid less than the full amount due, the servicer would apply the payment proportionally to each loan. Borrowers were then being charged a minimum late fee on all their loans, with many of those loans then becoming delinquent.
Additionally, the CFPB found that one or more servicers unfairly charged borrowers late fees when payments were received during a stated grace period.
“Like many other types of loans, many student loan contracts have grace periods after the due date,” the report states. “If a payment is received after the due date, but during the grace period, the promissory note stated that late fees would not be charged.”
Some servicers also made it difficult for consumers to acquire required or needed forms for tax purposes. The CFPB claims this practice may have cause some consumers to lose up to $2,500 in tax deductions.
Consumers seeking information on possible loan discharges were often given inaccurate and misleading information from servicers, the CFPB examiners report.
While student loans are extremely difficult to discharge through bankruptcy, it is possible if the borrower proves undue hardship in court. However, many of the servicers examined by the CFPB would imply that student loans were never dischargeable.
Often borrowers who were subjected to one or more of the CFPB’s deceptive findings would find themselves with delinquent loans.
When this happened, examiners found that many student loans servicers would routinely call borrowers early in the morning or late at night.
For example, examiners identified more than 5,000 calls made at inconvenient times during a 45-day period, which included 48 calls made to one consumer.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has authority to supervise and bring charges against banks and certain nonbanks including loan servicers. The latest report, the fifth edition of Supervisory Highlights, aims to share information with industry servicers to ensure their operations are in compliance with federal laws.
“Students are already struggling with crushing amounts of loan debt,” CFPB Director Richard Cordray says in a statement. “Student borrowers deserve better than illegal practices as they work to pay back their loans. All borrowers should be treated fairly by loan servicers, and through our supervision program, we intend to hold them accountable for how they treat borrowers.”