On December 9, the CFPB entered into a consent order with a debt collection agency for alleged unlawful student loan debt collection practices against defaulted borrowers. The debt collection agency’s allegedly improper practices included delaying borrowers’ loan rehabilitation processes to generate and collect fees that cost individual borrowers thousands of dollars. These actions were in violation of the CFPA’s prohibitions on unfair and abusive acts or practices and the FDCPA. See 12 U.S.C. §§ 5563, 5565;15 U.S.C. § 1692l(b)(6).
The company collected on student loan debt, including from borrowers who had defaulted on Federal Family Education Loan Program (FFELP) loans. Under FFELP, defaulting borrowers have a one-time right to rehabilitate their loans and bring them back into good standing by entering into a loan rehabilitation agreement, under which they make a series of reasonable and affordable payments. Collection costs for rehabilitations and other fees are lifted on the condition that borrowers enter into the loan rehabilitation agreement within 65 days of default.
According to the CFPB, the company routed the borrowers to specialized agents, who were instructed by managers to delay the loan rehabilitation process, aiming to prevent borrowers from executing loan rehabilitation agreements within the prescribed 65 day period. To effectuate this, the agents accepted rehabilitation forms by postal mail only, refusing to handle forms sent via email or other online methods. The CFPB alleges that the agents held up loan rehabilitations past the expiration of the 65-day limit, enabling the company to impose fees.
The CFPB further found that, as a result of the company’s improper business tactics, it caused borrowers to incur costs amounting to 16% of their outstanding loan balances plus additional interest charges over time. The delays also caused postponement of some additional benefits of loan rehabilitation under FFELP, including restoring student aid eligibility, ending federal withholding of tax refunds, and removing record of any default from borrowers’ credit reports.
The order bans the company from servicing or collecting on any student loan debt and to pay a $700,000 penalty to the CFPB’s victims relief fund, granting borrowers access to the fund to help redress the financial harm they suffered.
Putting It Into Practice: The order highlights federal and state regulators’ commitment to policing unlawful student debt collection practices (previously discussed here, here, and here). Debt relief agencies handling student loans are advised to assess their business practices to ensure they are in compliance with state and federal regulatory standards and mitigate enforcement risk.