CFPB Student Loan Report Focuses On Co-Signer Issues


On April 22, the CFPB released its mid-year report on student loan complaints, which summarizes approximately 2,300 private student loan complaints and 1,300 debt collection complaints related to student loans submitted to the Bureau between October 1, 2013 and March 31, 2014. The report focuses on complaints from private student loan borrowers with co-signers. The CFPB reports that 90% of the student loans extended in 2011 were co-signed. The report references complaints from borrowers who have faced “obstacles” when seeking to obtain a release for a co-signer, including those who have been denied co-signer releases for unknown reasons or for technical reasons, which the CFPB believes eventually can lead to unexpected defaults. Based on an unidentified number of consumer complaints, the CFPB’s Student Loan Ombudsman Rohit Chopra believes “industry participants are automatically placing loans in default – even when a borrower is paying as agreed” – in circumstances such as when a co-signer dies or goes into bankruptcy. The Ombudsman acknowledges that financial institutions may have legitimate business purposes for exercising contractual acceleration options which demand the full balance of a loan when a borrower’s co-signer has died or filed for bankruptcy. However, he cautions that these acceleration clauses present risks for financial institutions where borrowers have been making timely payments, including with regard to (i) reduction of interest income, (ii) reduced recovery of principal, (iii) poor customer experience, and (iv) reputation risks from utilizing debt collection protocols in the face of a family tragedy. The report offers potential alternatives to “auto-defaults” upon co-signer death and bankruptcy, including assessing the borrower for co-signer release and maintaining the existing payment schedule, providing the opportunity to identify a new co-signer, or providing the borrower time to refinance the loan.


Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BuckleySandler LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.