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CFPB Says Student Loan Servicers Lie About Bankruptcy Discharge

Written by Steve Rhode

The Consumer Financial Protection Bureau (CFPB) has released a document critical of student loan servicers. Kind of an easy document to write because for the most part student loan servicers suck donkey balls with all their bad information and horrible advice to consumers.

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But here are the big items the CFPB says they really, really horrible at getting right.

Misleading consumers about bankruptcy protections: CFPB examiners found that some servicers told consumers student loans are not dischargeable in bankruptcy. While student loans are more difficult to discharge in bankruptcy than most other types of loans, it is possible to discharge a student loan if the borrower affirmatively asserts and proves “undue hardship” in a court. Servicer communications with borrowers asserted or implied that student loans were never dischargeable.

Learn how student loans can be discharged in bankruptcy, click here.

Misrepresenting minimum payments: Bureau examiners found that one or more servicers inflated the minimum payment that was due on periodic statements and online account statements. These inflated numbers included amounts that were in deferment and not actually due.

Charging improper late fees: CFPB examiners found one or more servicers were unfairly charging late fees when payments were received during the grace period. Like many other types of loans, many student loan contracts have grace periods after the due date. If a payment is received after the due date, but during the grace period, the promissory note stated that late fees would not be charged.

Failing to provide accurate tax information: CFPB examiners found cases where student loan servicers failed to provide consumers with information essential for deducting student loan interest payments on their tax filings. The servicers impeded borrowers from accessing this information and misrepresented information on the consumers’ online account statements. This practice may have caused some consumers to lose up to $2,500 in tax deductions.

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Misleading consumers about bankruptcy protections: CFPB examiners found that some servicers told consumers student loans are not dischargeable in bankruptcy. While student loans are more difficult to discharge in bankruptcy than most other types of loans, it is possible to discharge a student loan if the borrower affirmatively asserts and proves “undue hardship” in a court. Servicer communications with borrowers asserted or implied that student loans were never dischargeable.

Making illegal debt collection calls to consumers at inconvenient times: Examiners found that one or more student loan servicers routinely made debt collection calls to delinquent borrowers early in the morning or late at night. For example, examiners identified more than 5,000 calls made at inconvenient times during a 45-day period, which included 48 calls made to one consumer.




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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