In the United States, there are nearly 40 million students possessing student loans valued in excess of $1.2 trillion. Of the 40 million, 20% are currently in default on loans valued at $110 billion. With such staggering figures, it is not surprising the Consumer Financial Protection Bureau (CFPB) began focusing on student loan debt servicers in March 2014. The focus of their inquiry was large nonbank participants in the student loan servicing industry. As a result of this inquiry, the CFPB released an edition of Supervisory Highlights identifying illegal student loan servicing practices at several companies.
Following the release, a joint public inquiry was launched by the CFPB, the Department of Education, and the Department of Treasury, examining student loan servicing practices. According to the CFPB, their inquiry is tasked with determining whether the student loan servicers are complying with the Dodd-Frank Act, ensuring their activities are being conducted in a manner free from unfair, deceptive, or abusive acts or practices.
Some specific issues the CFPB is looking at include:
• Servicers acting as debt collectors
• Payment processing issues
• Maximizing late fees
• Misrepresenting minimum payment due
• Co-signer issues
• Service members not being fully informed or overburdened
• Informing consumers regarding their tax information
• Telephone calls at inappropriate times
The CFPB has already begun investigations into several student loan servicers. Discover Bank had a Consent Order entered against them in July 2015, which spoke directly to these issues. As a result of this Consent Order, Discover Bank agreed to pay $16 million in redress and a $2.5 million penalty.
However, this is just the opening salvo. In May 2015, the CFPB sent out an inquiry to all consumers regarding experiences with their student loan servicers. Within two months, it received more than 30,000 responses, many of which focused on issues with enrolling in income-driven repayment plans. As a result, the CFPB is now investigating other large student loan servicers like Citigroup Inc. and several of the Department of Education’s loan contractors such as Great Lakes Higher Education Corp., Navient Corp., and FedLoan Servicing to name a few.
What does this mean for student loan debt collectors? You should be especially aware of the following:
• Telephone calls at inappropriate times
• Disclosing all required information to the consumer
The CFPB made clear in the July 2015 Consent Order the time zone of a consumer is determined not only by the telephone number area code, but also the consumer’s address. Therefore, if a consumer has a cell phone with an area code in Montana, but now lives in Illinois both of these time zones must be taken into account in determining when to call. If the consumer has multiple area codes and/or addresses, calls must adhere to all possible time zones.
Disclosure of information is also high on the CFPB’s list. Make sure there are processes in place whereby communication with the consumers contains all required information. For example, the amount and source of the debt and the consumers’ right to contesting the debt’s validity need to be disclosed.
With two of my three children in college and a third who recently graduated, I am fully aware of the expenses associated with college. On the other hand, as a collection professional, I am also intimately aware collection attorneys often bear the brunt of these inquiries. However, as well meaning as the investigations may be, they fail to address the root causes of these defaults: lack of employment opportunities and the costs of college. Debt collectors did not cause the economic crisis of 2008 nor are they responsible for the exponential growth in the cost of higher education. Yet, because of the unfortunate convergence of these economic realities, the lenders and students often end up in court. If student debt were examined in the broader context of providing opportunities for graduates, frank determination on why college is so expensive and perhaps bankruptcy reform, then, it could be said we are getting serious about helping students. Until then, debt collection practices will adapt to whatever new practices the CFPB inquiries require, but that will not reduce the burden of student loans nor get us closer to a real solution.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.