Federal Loan Servicers Misled Borrowers, CFPB Says

November 4, 2015

Companies hired by the U.S. Department of Education to collect federal student loan payments made “deceptive” statements to borrowers, according to the Consumer Financial Protection Bureau.

The consumer bureau said in a report published Tuesday that its routine review of loan servicing companies uncovered “misrepresentations” by federal student loan servicers about late fees. The servicers informed borrowers that they might face late fees on their federal student loans even though the Education Department does not charge such fees, the report says. The CFPB did not name the companies where its regulators found problems. The bureau said it directed the loan servicers to stop making deceptive statements.

An Education Department spokeswoman, Denise Horn, said the issue was a matter of confusion. She said the department's original contracts with its loan servicers required the companies to have the capability to assess late fees but the department never instructed them to actually charge late fees.

“We have never allowed or directed our servicers to charge late fees,” Horn said in an email. “Some servicers have included language on their statements indicating late fees may be assessed. The department was recently made aware of this issue and will be directing all servicers to cease making these representations.”

CFPB regulators also said they found other problems in the student loan servicing industry, including at companies that collect payments on behalf of private lenders. For example, in some cases, the CFPB said, loan servicers applied borrowers’ payments to various loans in ways that maximized late fees or unfairly processed automatic payments.

Bureau officials have said they’re actively exploring new regulations on student loan servicers but have yet to put forward any proposals.

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