Consumer Finance Insights (CFI)

Allocating payments to maximize late fees: Typically, servicers handle multiple student loans for each borrower in one combined account. Servicers allow borrowers to make a single payment for all of the loans, and then the servicer allocates the payment among the borrower’s loans to satisfy the monthly payment for each loan. Where the borrower made a payment that was less than the total amount due, CFPB examiners found that one or more servicers allocated the amount proportionally to each loan rather than allocating the funds as a full payment to one of more of the accounts. The proportional allocation resulted in borrowers being charged a minimum late fee on all of their loans, a practice that the CFPB cited as unfair.

Misrepresenting minimum payments: CFPB claims its examiners found that one or more servicers inflated the minimum payment that was due on periodic statements and online account statements. These inflated numbers included amounts that were in deferment and not actually due, a practice that CFPB cited as deceptive.

Charging illegal late fees: CFPB examiners found one or more servicers were unfairly charging late fees when payments were received during the grace period, a practice that the CFPB cited as unfair and deceptive.

Failing to provide accurate tax information: CFPB examiners found cases where student loan servicers failed to provide consumers with information essential for deducting student loan interest payments on their tax filings. The servicers impeded borrowers from accessing this information and misrepresented information on the consumers’ online account statements. This practice may have caused some consumers to lose up to $2,500 in tax deductions, which the CFPB charges is unfair and deceptive under the Dodd-Frank Act.

Misleading consumers about bankruptcy protections: CFPB examiners found that some servicers’ communications with borrowers asserted or implied that student loans were never dischargeable. Examiners identified communications of this nature as deceptive under the Dodd-Frank Act.

Making illegal debt collection calls to consumers, at inconvenient times: Examiners found that one or more student loan servicers routinely made debt collection calls to delinquent borrowers early in the morning or late at night. Supervision found these phone calls to be unfair under the Dodd-Frank Act.