The Consumer Financial Protection Bureau has recently focused its efforts on collections practices used by student loan services. The Bureau’s emphasis on this segment of consumer debt is based on the growing importance of student loan debt in the nation’s economy: with over 40 million borrowers owing over $1.2 trillion, the student loan segment is now the second largest in the U.S. debt market.
In August, sources confirmed that the Bureau is investigating student loan collection practices by Citibank. This comes only weeks after the Bureau ordered Discover Bank’s student loan services to pay $18.5 million for its inappropriate actions towards borrowers.
In the Discover investigation, some of the student accounts at issue were actually debts that Discover had purchased from Citibank. According to the Bureau, numerous illegal debt collection tactics were being used, many causing direct harm to the borrowers. Some of these included: calling debtors at hours that violated the Fair Debt Collection Practices Act, such as early in the morning and late at night, and failing to provide debtors with the appropriate notices and options after the debts were acquired from Citibank.
In addition, account statements overstated minimum amounts due for borrowers just starting to pay off their debts by including interest on amounts that were still in deferment. The Bureau found that this practice caused financial challenges for the borrowers because paying these inflated minimums diverted their resources from other financial needs and caused others to not even try to make the payment causing further accrual of interest and penalties.
While those personally affected by the Discover investigation will receive some form of compensation for any losses they incurred, the news of the Bureau’s focus on student loan debt brings to light many illegal collection practices that could be happening to other borrowers every day. If any creditor has violated any of the rules mentioned here, or if you suspect other illegal collection practices, consult a New Jersey attorney who protects debtors’ rights against creditors to determine any course of action you may have to stop the collection efforts or even recover damages.
Source: Venture Capital Post, “Citibank Under Investigation: CFPB Probes Student Loan Services,” Aug. 6, 2015