CFPB Supervision Reports Highlights Failings by Student Loan Servicers and Collectors

The CFPB’s Fall 2014 supervisory highlights, covering supervisory activity between March and June, points to failings by student loan servicers and debt collectors. The highlights identified six failings by student loan servicers, including misleading statements to consumers and telephone harassment. Debt collectors’ misconduct included charging illegal convenience fees to consumers paying by credit card, false threats of litigation and improper disclosure to third parties.

The complete list for Student Loan Servicing was:

• Allocating payments to maximize late fees
• Telling consumers that they had to pay more than their real minimum payment
• Charging late fees during a contractual grace period
• Telling consumers that student loans were never dischargeable in bankruptcy
• Withholding tax documents preventing consumers from claiming a tax deduction for student loan interest
• Calling consumers at inappropriate times using an autodialer. The autodialer was not programmed to account for the location of the numbers it was calling, resulting in over 5,000 early and late calls to consumers

The complete list for Debt Collection was:

• Charging illegal convenience fees for consumers making payments by credit card. Some debt collectors were charging over $10 for paying by credit card. The CFPB found this to be an unfair practice, and therefore unlawful under the FDCPA
• False threats of litigation. Some collectors are apparently still making threats to sue when they have little intention of suing. The CFPB required the collectors in question to stop making baseless threats
• Improper disclosure of information to third parties. A poorly written training manual led to collectors identifying their employer when speaking to third parties (and so, revealing to anyone they called that they were calling to collect a debt)

The CFPB also found that misleading information had been passed to some debt buyers by banks. Banks misstated the APRs of credit card accounts they sold, and failed to pass on information about payments they received post sale. As the CFPB says:

one or more financial institutions reported APRs that exceeded the rate for which the consumer was liable pursuant to the credit agreement. Second, in some instances, when at least one financial institution received payments from consumers on accounts post-sale, forwarding the payments to the appropriate debt buyer was significantly delayed, with delays ranging from two months to over two years.

Although the banks in question have now taken corrective action, this is just another illustration that unreliable information is sometimes produced by banks.

Unfortunately, the CFPB’s highlights do not give a real idea of the scale of these failings or which large market participants were involved.