Each year, more than five million student loan borrowers are better able to manage their debts thanks in part to government-based loan repayment plans. But yet another report has found that not all students qualified to participate in these income-driven repayment plans are able to, though at no fault of their own.
The Consumer Financial Protection Bureau on Monday released its 13th supervisory report [PDF] and found that, once again, many qualified students were blocked from participating in affordable loan repayment plans because loan servicers hired by the government failed to enroll them in the plans, despite meeting all the qualifications to do so.
Borrowers of federal student loans are eligible to enroll in income-driven repayment programs that cap a borrower’s student loan payment at a percentage of their monthly income. Additionally, borrowers who make payments under income-driven plans can have their debts forgiven after a minimum of 20 years of payments.
According to the report, many student loan borrowers may face needless hurdles and wrongful rejections when trying to enroll in these plans, either by servicers illegally denying applications or failing to inform borrowers of the option in the first place.
These practices could trap borrowers in payment plans they cannot afford, delay access to important benefits, increase costs for consumers, and contribute to avoidable defaults, the CFPB says.
“In light of this unfair practice, Supervision has directed one or more servicers to remedy borrowers who were improperly denied, and significantly enhance policies and procedures to promptly follow-up with consumers who submit applications that are incomplete, prioritize applications that are approaching recertification dealings, and implement a monitoring program” to ensure applications are handled properly, the Bureau reports.
Examiners also identified issues with the way in which servicers applied payments to borrower accounts that included more than one loan and how payments in excess of the current month due were applied to the loan balance.
While the Department of Education has issued guidance saying servicers must be more actively engaged with borrowers who do not have complete applications, the CFPB has also revised the exam procedures for student lending and servicing.
The Bureau’s revised exam procedures enhance those that were devised in 2013 to address servicing practices that can prevent borrowers from receiving needed relief. The exams, the CFPB says, will serve as a roadmap for state and local partnerships to work on implementing student loan servicing oversight.
In addition to addressing student loan borrower issues, the CFPB’s report also addressed other examiner findings related to auto loans and debt collection.
Bureau examiners found that one or more auto loan servicer illegally refused to return personal belongings from a borrower’s repossessed car unless the borrower paid a storage fee.
If borrowers did not pay the fee in the allotted time, usually 30 to 45 days, the companies would dispose of the property instead of returning it to the borrower.
As for debt collection issues, the Bureau’s examiners found that one or more debt collectors charged illegal payment processing fees and placed misleading collection calls about consumers’ credit scores or reports. In one case, a debt collection employee misled borrowers by falsely claiming immediate payments were needed to prevent damage to the consumer’s creditworthiness.
The CFPB also found one or more collectors revealed information about debts to consumers’ friends and family during debt collection attempts, and failed to investigate consumer reporting disputes.
The CFPB says that these actions violate the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
While many of the issues identified by CFPB examiners were eventually resolved without enforcement action, others were not. To that end, the CFPB says it returned more than $11 million to some 225,000 consumers through enforcement actions.
by Ashlee Kieler via Consumerist
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