December 22, 2013
Bureau will be powerful ally in the corner of student-loan borrowers in March
Got a problem with your student loan? Not sure where to turn when the company managing your payments isn’t responding to your complaints?
Come March you’ll have a powerful ally, because the Consumer Financial Protection Bureau will have supervisory authority over nonbank student-loan servicers. The agency already had the authority to supervise student loans handled by the largest banks. Now its expanded power will include nonbank servicers that manage more than 1 million accounts, regardless of whether they involve federal or private loans. The CFPB estimates that it will have authority to oversee the seven largest student-loan servicers with more than 49 million borrower accounts.
The agency’s student-loan ombudsman, Rohit Chopra, released a report recently highlighting issues that borrowers have had with the way their private student loans were being handled. The Consumer Bankers Association felt it was misleading, relying on a small percentage of all people who have private student loans to make sweeping characterizations of the marketplace.
But we don’t have to go too far in the past for an example of problems in loan servicing: the housing crisis that led to many complaints about residential mortgages. The CFPB is concerned that we face a sequel on a similar scale. With outstanding debt at about $1.2 trillion, student loans have now become the second largest debt load after mortgages.
“We have heard complaints from private student-loan borrowers that their servicer is not held accountable for answering their questions and providing quality customer service,” CFPB Director Richard Cordray said during a teleconference with reporters. “Borrowers have complained that they had trouble making prepayments or partial payments on their loans. They have also complained that when their loans were transferred between servicers, their paperwork was often lost and processing errors were made that resulted in late fees.”
The CFPB heard from one borrower who had signed up for automatic payments through her checking account. After her 36th payment was debited, she applied to have her co-signer released from the loan, which was a benefit advertised at the time she took out the loan. The lender rejected her application, arguing that some payments were late. The borrower told the CFPB that her lender said it could take up to three days for her payments to post.
Other complaints in the Chopra report included problems with obtaining accurate payoff information. Some borrowers reported that they received conflicting payoff amounts or that after getting a payoff balance, they submitted that amount and thought their debt was satisfied, only to find out that their balance was incorrect and their account remained open.
“I am routinely frustrated monthly as I try to make extra payments,” a reader wrote to me. “I am unable to get clear information about how the payments are being applied.” Another wrote that it wasn’t until after she read a previous column about the CFPB’s report that she realized the larger payments she had been making on her loan weren’t being applied to principal first.
The CFPB analyzed more than 3,000 complaints submitted from October 2012 through September 2013. Yet Chopra cautioned that the complaints might not be based on a representative sample and thus may not reflect widespread problems.
The agency shouldn’t develop policy based on anecdotes. But here’s where you can make a difference. The CFPB needs to hear more. Go to www.consumerfinance.gov/
complaint and let your voice be heard. The more specific cases it investigates about what’s happening when you pay your student loans or the roadblocks you face when you can’t, the better the agency can identify trouble spots during its examinations. Your experiences can have an impact on reform that may be needed.
But your complaint won’t just be for informational purposes. It may get resolved. The CFPB forwards complaints to the servicing company and will work on getting you a response. Once a complaint is made, the servicer has 15 days to respond to the borrower and the CFPB. The agency expects companies to resolve the issue within 60 days. You can track the status of your complaint and receive e-mail updates.
It’s important to note that the majority of student loans made are federal student loans. I expect the agency to shine a light on servicing problems with both federal and private student loans.
What does this mean for you?
The CFPB estimates that 7 million student-loan borrowers are in default on federal and private student loans. One out of every five U.S. households has student loans affected by student-loan servicing. We can’t afford not to head off any major problems for people faced with these debts.
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