The Consumer Financial Protection Bureau’s (CFPB) focus on ensuring loan servicers’ compliance with the implementation of the Public Service Loan Forgiveness (PSLF) program continues. On March 30, 2022, the CFPB entered into a Consent order with student loan servicer EdFinancial Services, LLC, to settle CFPB allegations that EdFinancial engaged in deceptive acts and service practices related to the PSLF. The consent order sends another signal to student loan servicers that the CFPB intends to increase its oversight of student loan servicer practices, particularly with respect to misrepresentation to borrowers.
In the consent order, the CFPB argues that EdFinancial misled borrowers as to their eligibility for loan forgiveness under the PSLF program. EdFinancial has neither admitted nor denied the allegations contained in the consent order and released a statement indicating that it entered into the consent order to avoid protracted and costly litigation with the CFPB. The consent order includes a civil penalty of $1 million and requires EdFinancial to develop a compliance plan addressing the issues raised in the consent order.
Under the PSLF program, student borrowers who work in eligible government jobs may be eligible for loan forgiveness. The PSLF program is available to borrowers with Federal Direct Loans – student loans made directly by the U.S. Department of Education.
The CFPB’s findings in the consent order largely focus on representations made to Federal Family Education Loan Program (FFELP) borrowers about their eligibility for the PSLF. The CFPB specifically highlighted five types of misrepresentation:
False statements that FFELP borrowers could not receive the PSLF;
False 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 a direct consolidation loan;
False statements that borrowers in certain jobs were not eligible for PSLF; and
Failure to inform FFELP borrowers that the PSLF was a potential loan cancellation option.
The CFPB concluded that these actions violated the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) prohibitions of the Financial Consumer Protection Act of 2010.
In its press release regarding the consent order, the CFPB noted that the consent order “highlights a systemic problem with loan servicing” of service officers “lying” about cancellation programs and repayment of loans to “fill [their] bottom line. The CFPB press release further warns repairers that “additional monitoring” by the CFPB is coming. These comments echo the CFPB’s warnings to student loan servicers in their Summer 2021 Watch Highlights And subsequent Newsletter February 2022 that the CFPB believed that managers were misleading borrowers about the eligibility of their PSLF loans. The Ministry of Education also sent a letter to FFELP services pointing out issues with the CFPB consent order – which the Department of Education says are not unique to EdFinancial – and noting that it joins other federal and state officials in pursuing its “accountability and oversight efforts”.
The CFPB has also been active in reforming the PSLF criteria, making it accessible to more borrowers and setting expectations that loan servicers will adapt their policies and procedures to ensure that eligible borrowers receive program information. In October 2021, the Department of Education issued a limited waiver that allows borrowers to receive credit for past repayment periods that would otherwise not be eligible for PSLF. To be eligible for the PSLF, student borrowers who did not have a direct federal loan — such as borrowers with a loan made under the FFELP — must first consolidate their student loans into a direct consolidation loan. In February 2022, the CFPB followed the extension of the PSLF by the Ministry of Education with a newsletter reminding managers of their responsibilities to ensure that borrowers receive accurate information about the program – and warning them of the potential consequences of UDAAP should they fail to meet these obligations.
The CFPB warnings coincide with an increase in consumer complaints to the CFPB about student loan servicing. While complaints had dropped in 2020 and 2021 during the pandemic, the first three months of 2022 saw a 67% increase in complaints over the first three months of 2021. With the federal suspension of student loan payments set to lift in September 2022 (if not extended again), complaints may increase even further later in 2022. When payments restart, student loan servicers face the significant challenge of helping borrowers resume payments after a pause of more than two years, which has the potential to lead to a myriad of problems.
The CFPB’s consent order and related comments are further markers of the trend toward increased scrutiny of student loan servicers. Student loan servicers should expect increased scrutiny from the CFPB and prepare accordingly. All student loan servicers should act now to review their practices and procedures, with a view to avoiding misrepresentations that the CFPB could target. Although the Consent Order specifically addresses misrepresentation in the context of the FFELP Loans and the PSLF – and FFELP Loan Servicers should pay particular attention to the factual findings of the CFPB in the Consent Order – past comments and Shares indicate that the CFPB focuses more broadly on misrepresentation in the service.
© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 108