Yesterday, Rohit Chopra, the CFPB’s Student Loan Ombudsman, released his Second Annual Report which analyzes approximately 3,800 complaints received by the CFPB from private student loan borrowers between October 1, 2012 and September 30, 2013. (To put this in perspective, last year the Federal Reserve Bank of New York reported that there are approximately 37 million borrowers with outstanding student loans.) The CFPB also issued a consumer advisory that assumes that borrowers with multiple loans may instruct servicers on how to allocate payments greater than the minimum amount due and then advises them as to how to do so.
The report observes that many of the complaints were similar to those discussed in the Ombudsman’s First Annual Report and like the First Annual Report, broadly characterizes the issues involved in consumers’ complaints as “servicing issues.” In addition to complaints, the report also draws on other sources of data, such as comments received by the CFPB on its request for information regarding student loan affordability.
The report notes that while complaints continue regarding improper treatment of military borrowers, there have been improvements in this area. In addition, the report describes various alleged payment processing problems such as confusion about payment application policies and difficulties relating to the application of excess payments and underpayments, timing of payment processing, access to payment histories, lost payments, obtaining payoff information and servicing transfers.
The report also includes commentary from the Ombudsman and, as required by Dodd-Frank, recommendations for legislative and regulatory action. In his commentary, the Ombudsman suggests how student loan servicers might do something that we believe they by and large are already doing–adapt the new mortgage servicing requirements created by Dodd-Frank and the CARD Act’s requirements for credit card servicing and payment processing to the servicing of student loans. In his recommendations, the Ombudsman states that it may also be useful for policymakers to assess whether “certain reforms to the servicing of credit cards and mortgages” might apply to student loans and then continues to lobby for the notion that student loans are somehow responsible for current financial conditions, cautioning that “[i]f industry fails to correct deficiencies in the student loan servicing market, policymakers may need to act to avoid further negative consequences for the economy.”
Currently, the CFPB has authority to supervise student loan servicing by large banks and their service providers. In March 2013, the CFPB issued a proposal to supervise nonbank servicers of private and federal student loans who qualify as “larger participants” in the student loan servicing market. (Although the CFPB had indicated in its Spring 2013 Regulatory Agenda that it expected to issue the final larger participant rule in September, it now seems likely that the final rule will not be issued until the end of this month or at the beginning of November.) Nonbank servicers should expect the issues highlighted in the Ombudsman’s report to be a major focus of CFPB examiners once that rule is finalized and CFPB examinations begin.