CFPB exams find school lenders and loan servicers in violation

The CFPB announced yesterday it had released a special edition of Supervisory Highlights on recent examination findings covering the practices of student loan servicers, and schools that lend to students directly. The exams found that these schools had improper blanket policies of withholding transcripts to force students to make payments. These findings come after the CFPB announced earlier this year that it would examine the operations of colleges that operate lending businesses. The CFPB’s exams also found that student loan servicers illegally hampered borrowers’ access to federal student loan payment relief and cancellation programs including Income-Driven Repayment, Public Service Loan Forgiveness and Teacher Loan Forgiveness. The CFPB directed servicers to act to remediate these issues.

The CFPB’s examinations found that the blanket withholding of transcripts to pressure borrowers is an abusive practice under the Consumer Financial Protection Act. The examinations also found many cases where federal loan servicers improperly denied borrower applications for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. Servicers illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief. Servicers also provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension. The CFPB directed servicers to address consumer harm caused by these actions, and it will continue to monitor servicers’ practices to ensure that student loan borrowers are not illegally excluded from relief provided for them under federal law.