Loan Servicers Trick Graduates Into Paying Illegal Fees

By Lucy Stratton
This post first appeared on genprogress.org.

Recent college graduates throughout the country are holding their breath as their loan grace period comes to an end and their first loan payments are due. According to The Consumerist, however, some loan servicers have already begun targeting borrowers for early, and sometimes illegal, payments. These practices further emphasize the predatory nature of student loans.

The Consumer Financial Protection Bureau (CFPB), a U.S. consumer watchdog, released a report in late October that found that between March and June 2014, loan servicers participated in various shady loan practices. Minimum payments were inflated, late fees were unlawfully charged, and borrowers received illegal collection calls while their loans were still in deferment.

Though harmful enough on their own, the scale of these unlawful practices demonstrates a widespread problem across the mortgage industry. For example, the CFPB reported that servicers made 5,000 calls in the early morning or late at night to borrowers in a 45-day period, and one borrower even received 48 phone calls in a single day. This constant harassment violates consumer rights protected by the Dodd-Frank Act.

Servicers also intentionally made it difficult for customers to receive the correct information for filing taxes, causing some borrowers to lose up to $2,500 in tax deductions. Tax information, however, is only the beginning of the web of misinformation spun by loan servicers.

“While student loans are extremely difficult to discharge through bankruptcy, it is possible if the borrower proves undue hardship in court,” The Consumerist wrote. “However, many of the servicers examined by the CFPB would imply that student loans were never dischargeable. Often borrowers who were subjected to one or more of the CFPB’s deceptive findings would find themselves with delinquent loans.”

The CFPB also found that servicers manipulated payments in order to accrue an immediate profit. If a borrower fails to pay the full monthly payment for multiple loans, servicers distribute the amount that is paid equally across each loan. This causes every loan to become delinquent, allowing the servicer to maximize late fees at the expense of the borrower’s credit. Servicers have also claimed that minimum payment due was higher than what was actually due by inflating the interest on loans still in deferment.

“Students are already struggling with crushing amounts of loan debt,” CFPB Director Richard Cordray said in a statement. “Student borrowers deserve better than illegal practices as they work to pay back their loans. All borrowers should be treated fairly by loan servicers, and through our supervision program, we intend to hold them accountable for how they treat borrowers.”