Student Loan Servicers Dunning Customers for Over-the-Top Late Fees
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It seems that whenever the Consumer Financial Protection Bureau (CFPB) catches one of the Department of Education's contractors jobbing their customers, ED is the last to know. On the other hand, there is no unequivocal regulation that prevents ED's loan servicers from doing what the CFPB accuses them of doing this time: charging late fees to people with student loans
According to the CFPB’s Supervisory Highlights, Issue 9, which came out on November 3, companies hired by ED to collect federal student loan payments made “deceptive” statements to borrowers and "misrepresented" the right of loan servicers to collect late fees.
The CFPB found that servicers informed borrowers that they might face late fees on their federal student loans even though ED does not charge such fees, the report says. The CFPB did not identify the companies where its regulators found problems.
What passes for guidance from these dueling regulators is about as clear as mud. The CFPB’s report stated, “While the Department of Education loan notes (to servicers) allow for the charging of late fees, the Department does not, at this time, charge late fees on its loans and instructs its servicers not to do so."
An ED spokesperson said the servicers have the ability to assess late fees but the department never instructed them to actually charge late fees. The federal government apparently can't mandate good customer service. Meanwhile the question—to charge or not to charge—remains but unanswered.
There are some 20 million Americans in college during any given semester. With most having student loans, it wouldn't be surprising if loan servicers viewed them as a golden opportunity to harvest fees.
The CFPB said that in some cases, loan servicers applied borrowers’ payments to various loans in ways that maximized late fees or unfairly processed automatic payments ahead of the scheduled pay day, which could lead to over-draft fees charged by customers’ banks.
“Student loan companies should be upfront and honest with borrowers," said Rohit Chopra, formerly the CFPB's student loan ombudsman, now senior fellow at the Center for American Progress. "For too long, student loan servicing practices have been shrouded in secrecy, and the industry is in serious need of reform.”
The CFPB has joined with the Treasury Department and ED on a joint statement of principles to improve student loan servicing. That solution doesn't rise to the level of an enforceable law that servicers will have to obey. Borrowers trying to cope with loans they want to pay off are at the mercy of a bureaucratic turf war who can't control contractors who feed at the public trough.