This week, the Consumer Financial Protection Bureau (CFPB) issued its latest supervision report highlighting legal violations uncovered by the Bureau’s examiners. In this report, it announced that it found that at least one of the Department of Education’s private collection agencies systematically made false and misleading representations to federal student loan borrowers. The collection agency exaggerated the benefits of the loan rehabilitation program which allows borrowers to get out of default by making 9 reasonable and affordable payments in a 10 month period. Debt collectors also told borrowers they had to make electronic payments when no such requirement exists. Not surprisingly, collection agencies get paid the highest commission rate when borrowers rehabilitate their loans which has led to a number of abuses.
The CFPB is the latest in a string of government agencies to find that private collection agencies working for the Department of Education break the law. Just two weeks before, the Department of Education announced that it was cancelling the contract of five of its private collection agencies for making “materially inaccurate representations to borrowers” at “unacceptably high rates.”
The day before the CFPB’s release, the White House, while not specifically naming any illegal action on the part of ED’s debt collectors, also announced that it plans to improve the debt collection process focusing on creating a fair and transparent process that charges reasonable fees and effectively assists borrowers.
In 2014, separate reports by the Government Accountability Office (GAO) and the Department’s Office of the Inspector General (OIG) found that Department of Education oversight of its collection agencies was woefully insufficient. The OIG report specifically stated that the Department “did not effectively ensure that the PCAs are abiding by the Federal debt collection laws and the related terms of their contractual agreements.”
While attention on federal student debt collectors is new, the problems are not. Advocates for student loan borrowers have been complaining of abuses by the ED’s debt collectors for years, especially around rehabilitation. Most recently, NCLC detailed many of the problems in its 2014 report: Pounding Student Loan Borrowers.
Clearly the system for collected defaulted federal student loans is broken. The Department of Education should end the use of private collection agencies and replace it with a system that puts borrowers first. In the meantime, the Department and the CFPB should continue to aggressively pursue these violations and require immediate corrective measures.