The focus of the Office of Consumer Financial Protection (CFPB) on ensuring the compliance of loan service providers with the implementation of the Public Service Debt Forgiveness (PSLF) program continues. On March 30, 2022, the CFPB concluded a Consent order with the student loan service company EdFinancial Services, LLC, to settle CFPB’s allegations that EdFinancial committed deceptive acts and service practices related to PSLF. The consent order sends another message to student loan servicers that the CFPB intends to strengthen its oversight of student loan service practices, particularly in relation to counterfeiting of borrowers.
In the consent order, the CFPB alleges that EdFinancial misled borrowers about their eligibility to write off a loan under the PSLF program. EdFinancial neither acknowledged nor denied the allegations in the Consent Warrant and issued a statement saying it had entered into the Consent Warrant to avoid lengthy and costly disputes with the CFPB. The Consent Order includes a $ 1 million civil penalty and requires EdFinancial to develop a compliance plan to address Consent Order issues.
Under the PSLF program, student loan borrowers working in eligible public service positions may be eligible for a loan write-off. The PSLF program is available to borrowers with federal direct loans – student loans provided directly by the US Department of Education.
The CFPB’s findings in the Consent Order focus heavily on statements made to Federal Family Education Program (FFELP) borrowers about their eligibility for PSLF. The CFPB specifically identified five types of falsifications:
Incorrect statements that FFELP borrowers could not receive PSLF.
Incorrect statements that FFELP borrowers could not consolidate their loans into a direct consolidation loan.
False statements that FFELP borrowers made payments to PSLF before consolidating their loans into an Instant Consolidation Loan.
Incorrect statements that borrowers in some jobs were not eligible for PSLF. and
Failure to inform FFELP borrowers that PSLF was a possible loan write-off option.
The CFPB concluded that these actions constituted a breach of the 2010 Financial Consumer Protection Act (UDAAP) prohibitions.
In its Consent Order press release, the CFPB noted that the Consent Order “highlights a systemic problem with loan servicing” of service providers who “lie” about loan cancellation and repayment plans in the “pad [their] The CFPB press release further warns officials that “additional oversight” is coming from the CFPB. Summer 2021 Supervisory Snapshots and afterwards Bulletin February 2022 that the CFPB believed that the services were misleading the borrowers about the suitability of their PSLF loans. He also sent the Ministry of Education a letter to FFELP officials pointing out issues in the CFPB Consent Mandate – which the Department of Education notes are not unique to EdFinancial – and noting that it is working with other federal and state officials to promote “accountability and oversight efforts.”
The CFPB has also been active in reforming the PSLF criteria, making it available to more borrowers and creating expectations that loan services will adapt their policies and procedures to ensure that eligible borrowers receive information about the program. In October 2021, the Department of Education issued a limited waiver allowing borrowers to obtain credit for previous repayment periods that would not otherwise qualify for PSLF. To be eligible for the PSLF, student loan borrowers who did not have a federal direct loan – such as those with a FFELP loan – must first consolidate their student loans into a Direct Consolidation Loan. In February 2022, the CFPB followed the PSLF expansion by the Ministry of Education with bulletin reminding servers of their responsibilities to ensure that borrowers receive accurate information about the program – and warning them of the possible consequences of UDAAP in the event of non-compliance.
The CFPB’s warnings coincide with an increase in consumer complaints to the CFPB about student loan servicing. While complaints decreased in 2020 and 2021 during the pandemic, in the first three months of 2022 there was a 67% increase in complaints in the first three months of 2021. With the termination of the federal student loan to be lifted in September 2022 ( if not extended again), there is a possibility that complaints will increase even more later in 2022. When payments resume, student loan officers face the significant challenge of assisting borrowers with resuming payments after a break of more than two years, which has potential to lead to a myriad of issues.
The CFPB consent order and related comments are additional indicators of the trend towards increased oversight of student loan services. Student loan officers should expect increased scrutiny from the CFPB and be prepared accordingly. All student lenders should now act to review their practices and procedures, in order to avoid misleading statements that the CFPB may be targeting. While the consent order is specifically related to FFELP and PSLF loan fraud – FFELP loan officers should also pay close attention to the CFPB’s actual findings in the consent order – previous comments and Actions indicate that the CFPB focuses more broadly on misleading statements during service.
© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, No. 108