Yesterday 116 state, local, labor, civil rights, housing, consumer, and other groups, including Americans for Financial Reform, sent a joint response to the Consumer Financial Protection Bureau’s request for information (RFI) on student loan servicing issues. In their letter, the groups called for stronger measures to protect borrowers’ rights and help them repay their loans successfully. This overwhelming show of support for changes to the system underscore just how badly servicing reforms are needed for student lending, just as they were needed in mortgage servicing.
Unfortunately, the present student loan system too often throws obstacles in the path to repayment and makes it needlessly difficult for borrowers to get back on their feet. Many borrowers have already submitted statements describing their bad experiences in detail. You can see some of those stories here. Other comments from groups include telling examples as well. The comment letters from the National Consumer Law Center and Consumer’s Union each highlight many cases where difficulties borrowers have had with their servicers.
Stories such as these demonstrate the need for action to end unfair, harmful, and deceptive practices on the part of loan servicers.
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Letter to the Consumer Financial Protection Bureau’s RFI on student loan servicing issues
July 13, 2015
The Honorable Richard Cordray
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552
Re: Student, consumer, labor and civil rights groups’ response to Request for Information on Student Loan Servicing
Dear Director Cordray:
The undersigned consumer, student, education, and civil rights groups submit this comment in support of student loan servicing reform. Fair and accurate student loan servicing is crucial to protect student loan borrowers’ rights under the law and help them repay their loans successfully. But student loan servicing today stands where mortgage servicing stood over a decade ago: hugely important, and largely ignored. Instead of supporting higher education, the present student loan servicing system makes it more difficult for borrowers to realize the promise of their investment. As American students increasingly rely on loans to pay for college, the student loan servicing system must not throw additional obstacles into their path or prevent financially distressed borrowers from getting back on their feet.
Principles of Fair Student Loan Servicing
A fair, effective student loan servicing system is one where servicers serve borrowers. Borrowers should not default, pay more than necessary, or have difficulties paying down their loans because of poor service. Regulators must take action to end clearly unfair and deceptive practices, like purposefully maximizing fees or flouting statutory or contractual rights. Contracts, regulations, and supervision goals must be structured so that servicers are required to put the student borrower’s best interests first. And servicers should create an internal culture where high standards of compliance and customer service ensure that borrowers can access accurate information in a timely manner.
History of mortgage servicing and credit card reforms provide useful perspectives
During the foreclosure crisis mortgage servicers’ shoddy and unfair conduct repeatedly prevented borrowers from accessing mortgage modifications or other loss mitigation that could have helped them keep their homes. In some cases, servicers engaged in outright fraud, proceeding with foreclosures without proper grounds to do so. These bad servicing practices harmed not only consumers and their communities, but also the investors who owned mortgage securities, but could not properly oversee the servicers. Loan modifications that would have benefitted both the investor and borrower never happened because distressed borrowers did not get the information and help needed from their servicers. Now, new mortgage servicing rules require servicers to act on loss mitigation programs they have on their books, to respond in a timely way, and provide clearer information to borrowers.
See full PDF below.