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CFPB Concerned about Reports of Widespread Servicing Failures
Tuesday, October 6, 2015 6:40 AM

CFPB and U.S. Departments of Education and Treasury Issue Framework for Servicing Reforms, Bureau Prioritizes Stamping Out Illegal Actions 

The Consumer Financial Protection Bureau has released a report outlining widespread servicing failures reported by both federal and private student loan borrowers. Consumers describe companies using a wide range of sloppy, patchwork practices that can create obstacles to repayment, raise costs, cause distress, and contribute to driving struggling borrowers to default.

The Bureau has made it a priority to take action against companies that are engaging in illegal servicing practices, and that ongoing work includes addressing many of the problems outlined in today’s report. The Bureau also intends to explore potential industry-wide rules to increase borrower protections. This work builds on an interagency framework for market-wide reform released today in coordination with the U.S. Department of Education and the U.S. Department of the Treasury.

Find out more details and read the report.

Student loans make up the nation’s second largest consumer debt market, which has grown rapidly in the last decade. The total volume of outstanding student loans has more than doubled, rising from less than $600 billion in 2006 to more than $1.2 trillion today. One in four student loan borrowers are currently in default or struggling to stay current on their loans, despite the availability of income-driven repayment options for the vast majority of borrowers.

Servicers are a critical link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers must contact student loan servicers to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms. The servicer is often different than the lender, and a borrower typically has no control over which company services a loan.

As millions of student loan borrowers struggle to repay their student loans, many consumers reported to the CFPB that servicers are failing to provide the basic level of service necessary to meet borrowers’ needs. Consumers and other stakeholders report problems such as servicers losing paperwork or misapplying payments. Borrowers say that when errors arise, they find it difficult to have them corrected. Many federal and private loan borrowers report serious problems accessing affordable repayment options or other repayment alternatives to avoid default. These anecdotes in combination with findings in the CFPB’s examinations and investigations of servicers lead the Bureau to be concerned that problems are widespread.

To address the harmful servicing practices identified through the Bureau’s public inquiry, this report includes recommendations for policymakers and market participants to improve borrower outcomes and reduce defaults. These recommendations stem from public comments received by the CFPB and a Joint Statement of Principles on Student Loan Servicing, released by the CFPB, the U.S Department of the Treasury, and the U.S. Department of Education. The principles offer a roadmap for student loan servicing reform, including a call to establish clear and consistent industry-wide standards.

The CFPB will continue to work in coordination with these agencies and other stakeholders to protect consumers in the student loan servicing market.

Find out more about CFPB's report.