As we reported, in the CFPB’s “Mid-year snapshot of private student loan complaints” on complaints the CFPB received from October 2012 through March 2013, one of the top servicing issues reported by consumers was the continued difficulty experienced by some military borrowers in obtaining the 6% rate cap provided under the Servicemembers Civil Relief Act (SCRA). In the snapshot, the CFPB stated that it is coordinating with the Department of Justice (DOJ) regarding SCRA violations.
Appearing last week before the Senate Committee on Veteran’s Affairs at a hearing entitled “Preserving the Rights of Servicemembers, Veterans, and their Families in the Financial Marketplace,” a DOJ official confirmed that the DOJ is actively investigating whether companies have failed to provide military private student loan borrowers with the full benefits to which they are entitled under the SCRA. Eric Halperin, Special Counsel for Fair Lending in the DOJ’s Civil Rights Division, told the Committee that the DOJ’s investigation is focusing on whether companies failed to reduce interest rates on student loans to 6% when military members entered activity duty.
Also on the witness panel with Mr. Halperin was Holly Petraeus, CFPB Assistant Director, Office of Servicemember Affairs. In her testimony, Mrs. Petraeus noted that SCRA violations were a component of the February 2012 national mortgage settlement that state AGs, the Department of Housing and Urban Development and the DOJ reached with the five leading bank mortgage servicers. Mrs. Petraeus gave the Committee several examples of student loan servicing problems that have been reported to the CFPB. Those examples included
(1) servicemembers being told incorrectly that they must provide a letter from their commanding officer or “certified” orders for their rate to be reduced to 6%, (2) officers being told orders with an end date were necessary to receive the reduction despite the fact that officers’ orders usually do not have end dates, and (3) lenders requiring proof of continuing active duty to continue a rate reduction for more than one year despite the absence of any such requirement in the SCRA.