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Consumer Law Professors Join Forces to Protect the Complaints Database
Professor Amy J. Schmitz joined forces with other consumer law experts Prof. Pamela Foohey of Indiana University Maurer School of Law and Prof. Angela Littwin of University of Texas School of Law to serve as the primary drafters of a response to the Consumer Financial Protection Bureau (CFPB)’s request for information regarding the CFPB’s reporting practices of consumer complaint information. The response explains how publicly releasing information about consumer complaints is essential to the CFPB’s primary purpose of ensuring that “markets for financial products and services are fair, transparent, and competitive.” The response primarily focuses on the benefits of the CFPB’s public consumer complaint database. The response also details the benefits of adding more data to the database, of continuing to publish reports based on complaint data, of publishing more tailored reports based on the complaint data, and of evaluating the design of the online interfaces through which consumers lodge complaints and access the database. These improvements will further enhance the operation of a fair, transparent, and efficient marketplace. The response has been submitted to the CFPB, but is also available to the public at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3190797.”
New Changes to Protections for Borrowers of Private Student Loans
Section 601 of Public Law No. 115-174 amends the Truth in Lending Act by prohibiting a private student loan lender from declaring a default or accelerating a debt against a student loan borrower on the basis of the co-signer’s bankruptcy or death. A second provision releases the co-signer’s obligation upon the student’s death. Nonetheless, these protections only apply to loans extended after November 20, 2018. In addition, the protections do not apply to private student loans consolidating other private student loans or to spouse co-signers where the spouse’s signature is needed to perfect the security interest in a loan.
Under another provision, students who successfully complete a loan rehabilitation program may request that negative credit reporting information about a private student loan be excluded from the consumer’s report. A loan rehabilitation program is one where the student makes a number of consecutive on-time payments on the loan.
Despite this, one should be aware that private student loan lenders are not required to offer a loan rehabilitation program and there are no specific standards for such a program. In fact, the lender apparently is not even required to help remove the default in the student’s credit file even when the student completes the program and requests the changes in the student’s credit report.
At the same time, the rehabilitation program adds an additional risk for students. If a student begins making payments under such a program after the statute of limitations has run on the private student loan, then the payments may revive the limitations period. This means that the student could again be subject to a collection lawsuit.
Avoid Paying Bad Debt and Borrow Smart
Many students take out tens of thousands of dollars worth of student loans to pay for undergraduate college expenses. According to studentloanhero.com, the average graduate in 2016 has $37,172 in student loan debt. How many of these students understand how student loans work or what methods of collection are legal?
The National Collegiate Student Loan Trust and its debt collector, Transworld Systems, Inc., will have to pay at least $21.6 Million because of illegal debt collection practices against private student loan consumers. In addition to the monetary penalty, over 800,000 student loan cases will have to be independently audited, and the companies are prohibited from attempting to collect on any loan, which either is too old to sue over or cannot be proven is owed according to the audit. Illegal activities include: violating consumer protection laws, filing false or misleading documents, and pursuing debts that they are not legally entitled to.
What is illegal debt collection?
“Zombie Debt” is the term used for debt when it is cut off, or “killed,” by a statute of limitations. In other words, the debt is too old for enforcement. Thus, the debt is no longer owed to the lender or collectors.
Debt collection companies can purchase bundles of debt from lenders for pennies on the dollar. Then, these companies attempt to collect on as much of the debt as possible, because they are able to keep everything they collect. Further, they have not checked to determine if the debt is good or bad before they attempt collection. There are a number of reasons why, but, the point is, that they do not check to make sure.
How do I know if my debt is “Zombie Debt”?
Check the terms and conditions of your debt. The state laws applicable to your debt should be named in the terms and conditions of your loan documents. Once you determine which state, a quick google search should reveal the restrictions on collections companies.
For example, Delaware has a statute of limitations of 3 years, while South Dakota has a statute of limitations of 6 years. The statute of limitation sometimes begins when you last made a payment; other jurisdictions begin the statute of limitations several months after your last payment.
What Other Steps Can I Take to Protect Myself?
You can protect yourself from illegal debt collection practices by staying informed on how long companies can try to collect a debt; knowing what obligations you owe, and questioning notices received.
There are steps to take when choosing and paying student loans that can help protect yourself from fraudulent collectors and understand how much debt to expect.
First, use student loan calculators to understand the amount of debt and estimate how long it will take you to pay off your debt. If you are familiar with Microsoft Excel, you may download a calculator template, which will allow you to make changes and add extra payments. Thus, you can know exactly how much money you will owe at any given time and be prepared to identify any mistakes or bad collection practices.
Second, when applying for loans, check the reviews of the company making the loan or the ranking of the lender, to make sure the lender is reputable or has services and support available for borrowers. Also, feedback from customer’s interactions with a company can show how they treat their borrowers. Using a calculator, as mentioned above, helps you to know about how much money is remaining on your loan. These support features can help you figure out what discrepancies exist and why.
Third, check for news on student loan companies being accused of illegal practices and what those practices are. For example, if companies are claiming borrowers owe money they do not, and the companies are facing a lawsuit, it may be a good time to check your loan status and how much the company is claiming you owe. This can just be a simple google search for loan companies in trouble.
The biggest step anyone can take is to stay informed. When borrowing money, track your money independently. This is the same process as balancing a checkbook. Track how much you pay and include simple interest calculations, or more complex interest calculations if they are needed and you know how. Every three to six months compare your numbers with the numbers the lender is claiming and make minor adjustments (mostly to account for complex interest). This will enable you to know what questions to ask the lender to ensure no shenanigans, such as questionable fees, rate changes, or false debt claims, are occurring with respect to your loan.
CFPB is Fighting the Good Fight
The Consumer Financial Protection Bureau (CFPB) today announced that its recent work resulted in $14 million in relief to more than 104,000 harmed consumers from January through June 2017. The Press release read in part:
“Today’s report, the 16th edition of Supervisory Highlights, covers CFPB supervision activities from January through June 2017, and shares observations in the areas of auto loan servicing, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, remittances, service providers, short-term small-dollar lending, and fair lending. Among the findings:
- Banks deceived consumers about checking account fees and overdraft coverage: One or more institutions deceived consumers by inaccurately describing when checking account service fees would be waived. One institution told consumers it would waive the fee if the customer met certain qualifications, including making 10 or more payments from the checking account during a statement cycle. In fact, only debit card purchases and debit card payments qualified toward the fee waiver. One or more institutions also misrepresented opt-in deposit overdraft services as extending to consumer payments by check, electronic funds transfers through the Automated Clearing House payment network, or recurring payments, when those transactions were not actually covered.
- Credit card companies deceived consumers about the cost and availability of pay-by-phone options: The Bureau’s examiners found that customer service representatives of at least one credit card company disclosed only costly pay-by-phone fees while omitting mention of much cheaper payment options. Failing to disclose less costly options can result in consumers being charged for services they don’t need.
- Auto lenders wrongly repossessed borrowers’ vehicles: Many auto loan servicers give borrowers options to avoid repossession of their vehicle if a loan is delinquent or in default. But the CFPB’s examiners found that one or more companies were repossessing vehicles after the repossession was supposed to be cancelled. Some lenders wrongfully listed the account as delinquent. In other instances, customer service representatives did not cancel the repossession order when feasible after borrowers made sufficient payments. Also, some repossession agents did not check the documentation beforehand to see if the repossession had been cancelled.
- Debt collectors improperly communicated about debt: Generally, debt collectors must get consent of the person owing the debt before discussing it with other parties. The Bureau’s examiners found that one or more third-party collectors did not confirm they had contacted the right person before starting collections, or wrongly attempted to collect from consumers who were not responsible for the debt. Also, one or more payday lenders, in collecting a debt, repeatedly called third parties, including personal and work references listed on the borrowers’ loan application. In some instances, even after being told to stop, these collectors called borrowers at work or asked third parties to relay messages to them. Such calls can lead to negative job consequences for the borrower, and risk improperly disclosing the default or delinquency to third parties.
- Mortgage companies failed to follow Know Before You Owe mortgage disclosure rules: CFPB examiners found that one or more companies overcharged closing fees to consumers and one or more companies wrongly charged application fees before consumers had agreed to the mortgage transaction. Examiners did find that in general, both banks and nonbanks were able to effectively implement and comply with the Know Before You Owe mortgage disclosure rule changes.
- Mortgage servicers failed to follow the Bureau’s servicing rules: Servicers are responsible for reviewing borrowers’ initial loss mitigation applications to determine what documents are missing. They must then tell borrowers what documents are missing, so that consumers can get a full evaluation of options they have available. One or more mortgage servicers offered a forbearance option to consumers to help them prevent foreclosure, but did not let the borrower know of their right to complete an application to be considered for other options. In addition, they did not exercise reasonable diligence in collecting information needed to complete the borrower’s application. Additionally, one or more servicers, through a vendor, also provided borrowers mortgage statements that failed to specifically list fees charged.
Today’s report shares information that companies can use to comply with federal consumer financial law. When CFPB examiners find problems, they alert the company and outline necessary remedies. These steps may include paying refunds or restitution, or taking actions to stop illegal practices and assure future compliance such as implementing new policies, or improving training or monitoring. When appropriate, the CFPB opens investigations for potential enforcement actions.”
For more information, see: today’s edition of Supervisory Highlights is available at: http://files.consumerfinance.gov/f/documents/201709_cfpb_Supervisory-Highlights_Issue-16.pdf
College Textbooks – Worth Their Weight in Gold?
Anyone who has either been in college recently or has had a child in college knows that textbooks are expensive. Some textbooks cost well over $200. Many students continue to purchase textbooks from their campus bookstore and then resell those books back to the university. The main reason is simply the convenience of purchasing the books near where you have the courses and not having to order them in advance. Unfortunately, campus bookstores often charge far more for books regardless of condition (New, Used, or Rental) than online retailers. Moreover, the campus bookstores also will pay far less for them at the end of the semester than other sources will.
What is the most cost effective way to purchase textbooks?
For any student looking to save money on their books, there are three simple steps. First, the student must determine the textbooks’ ISBN numbers, which can be used to find that textbook elsewhere. Many campus bookstores offer online book lists with ISBN numbers based on a student’s schedule. Second, the student needs to compare prices on a website, such as CheapTextBooks.org, or just search online retailers, such as Barnes & Noble or Amazon. Third, the student needs to order the books at least 2 weeks before classes begin.
Students always have the option of renting a textbook, rather than purchase the textbook. Websites, such as Amazon or CheapTextBooks.org, may have an option to rent the textbook for less than purchasing the book. This choice comes down to the preference of the student. If the student plans on making many notes and highlights in the book while studying, renters may charge the student. However, the student would not be responsible for reselling the book at the end of the year.
I, personally, recommend purchasing the textbook used around 3 weeks before courses start to get a lower price than right before classes start. Also, I recommend purchasing over renting textbooks, because a student may recover more money by reselling the books than students can initially save by renting.
What is the most cost effective way to resell textbooks?
Finals are over and students have 100lbs of textbooks that they never want to open again. Students have several options for reselling textbooks. Students may sell to the campus bookstore, a textbook company, or to another student. First, as mentioned above, reselling a book to the campus bookstore is not going to pay the most. Fortunately, some bookstores offer a minimum buyback price for those books which can only be purchased from the bookstore or are no longer used. For example, your marketing class requires you to pick up a book unique to your university. So you have to purchase the book from the campus bookstore. When classes are over, the marketing class decides to use a different book in the future. The student can go to the campus bookstore during their buyback and still sell the book back for $5.00 or some other minimum. Second, many textbook companies will set up on campuses at the end of the semester offering to buy textbooks for students. Most of their offers will be higher the campus bookstore’s offer. However, these tend to be picky about what books they purchase, and will not buy above a certain number of books. Third, the best way to recover your price of a textbook is to resell the book yourself to another student. Selling through an online retailer, such as Amazon, will cost a fee, but you will make far more money than reselling a book to a bookstore to act as a middleman. However, this method requires much more effort than the first two. The student will have to ship the textbook to the other student and there is a chance the textbook will not sell.
This past semester I resold my books through Amazon and recovered most of my money. So, since I chose Amazon, I created a sellers account and then priced my books at the lowest price (or lowest price+shipping). The closer the school year comes, the more expensive books tend to get. Therefore, unlike when purchasing books, you should sell your books closer to classes beginning.
Rules Prohibiting Schools’ Use of Mandatory Arbitration Agreements
On October 28, the Department of Education issued final regulations intended to protect student loan borrowers against school closures and fraud. To that end, the rules include significant provisions restricting school arbitration agreements; clarifying student rights to raise school fraud as a defense to loan repayment; providing automatic closed school loan discharges to certain eligible borrowers; and providing new rights for students to obtain false certification loan discharges. See https://www.gpo.gov/fdsys/pkg/FR-2016-11-01/pdf/2016-25448.pdf. Although some provisions are likely to face legal challenge, the rules generally will be effective July 1, 2017.
For those in the dispute resolution community, the provisions that may be of most interest are those limiting school arbitration and class-waiver requirements. This came in the wake of some institutions, such as Corinthian Colleges, using class action waivers and arbitration clauses to thwart actions by students for fraudulent and abusive conduct that largely pushed students into financial peril. The new rules prohibit schools participating in the federal student loan program from entering into pre-dispute arbitration agreements with students or agreements that purport to waive students’ rights to bring class actions. These limitations apply to agreements with students who have obtained Federal Direct Loans or benefited from Direct Parent PLUS Loans, and apply to claims regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained. This bars schools from using contract clauses or stand-alone pre-dispute agreements with students that waive students’ right to go to court or to pursue a class action over any claims that could also give rise to a “borrower defense” claim (described more fully in the new rules). The provisions also bar a school from relying on an existing pre-dispute arbitration agreement or other agreement to force an individual or class action out of court. This includes agreements entered into prior to the rule’s effective date. The school must either amend the agreement or notify the students that they will not enforce the agreement.
The rules also aim to increase transparency regarding such “borrower defense” related arbitration and litigation. If schools do engage in arbitration proceedings in a manner that is consistent with the regulations and applicable law, the rules require that these schools notify the Secretary of Education and provide disclosures. The rules similarly require that schools disclose such judicial filings and dispositions.
The complete provisions are lengthy, and can be reviewed in the PDF linked above from 75926 Federal Register/Vol. 81, No. 211/Tuesday, November 1, 2016/Rules and Regulations.
Meanwhile, we wait for the Consumer Financial Protection Bureau (CFPB) to issue final regulations regarding its proposal to prohibit companies from including pre-dispute arbitration clauses in agreements regarding financial products or services that prevent class action lawsuits. The proposal would open up the legal system to consumers so they could file a class action or join a class action when someone else files it. Although the proposal would allow companies to include arbitration clauses in their contracts, it would require that the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court.
How to Avoid Defaulting on your Federal Student Loans
Recent reports by the Wall Street Journal estimate more than 40% of federal student loan borrowers are not making payments or are behind on their payments. Defaulting on a loan can carry serious consequences, such as: lowering your credit rating, preventing you from buying a house or car, making it difficult rent an apartment, or even getting a cell phone contract. Additionally, the cost of your loan increases because of additional fees and it becomes payable immediately. All of the institutions can take measures to against you to recover the debt, including your school, lender, and federal government. This post aims to help you avoid the pains of default.
First, a few definitions are helpful to understand the default process. A loan is “delinquent” when loan payments are not received by the due dates. Your loan becomes delinquent the first day after you miss a payment and will continue until all payments are made to bring the loan current. (Source: Studentaid.ed.gov). Loan servicers report all delinquencies of at least 90 days to credit bureaus. “Default” happens when you fail to make a monthly payment for 270 days.
So, what steps can you take to avoid defaulting on your federal student loans?
1) Take the time to understand your loan agreement and the loans you receive. This includes reading your promissory note, which is a legal document where you agree to repay the loan according to its terms. This also includes learning the costs of getting your loan, the interest rate, and the repayment terms. You must repay all the loans you receive, even if you do not complete the educational program. A helpful guide in understanding your loans can be found on the Consumer Financial Protection Bureau site: http://www.consumerfinance.gov/students/knowbeforeyouowe/.
2) Manage your borrowing. Students often accept the full amount of loans offered in their school’s financial aid package. However, students should create a budget before accepting their loans in order to figure out how much money they actually need to borrow. Students can then request a lower loan amount via their school’s financial aid office. The student can always increase this amount later if they decide they need the additional funds. Students should also complete financial awareness counseling: https://studentloans.gov/myDirectLoan/counselingInstructions.action.
3) Track your loans online. Keep track of all your loans via: https://studentaid.ed.gov.
4) Keep good records. It is really easy to misplace important loan documents (especially when you don’t need to look at them for years). You should keep the following documents in easy to find file:
- Financial aid award letters;
- Loan counseling materials;
- Promissory notes;
- Amount of all student loans you borrow;
- Loan servicer contact information;
- Loan disclosures;
- Payment schedules;
- Record of your monthly payments;
- Any communications you have with your servicer;
- Deferment or forbearance paperwork; and
- Documentation that you paid your loan in full.
Although it is possible to track down this information several years after receiving loans, it is a difficult, time-consuming process and not always successful.
5) Notify your loan servicer. Your loan servicer manages your loan and processes payments. It is really important to talk to your loan servicers whenever any of the following situations happen:
- You need help making your monthly payments;
- You graduate;
- You withdraw from school;
- You drop below half-time enrollment status at school;
- You change your name, address, or social security number;
- You transfer to another school; or
- You experience a change in your life that might impact your loan payments.
You can work with your loan servicer to pick the best repayment plan for you when any of these events happen. If you do not contact your loan servicer, you run the risk of missing payments and ultimately default. Never ignore delinquency or default notices from your loan servicer! You are much better off working with your servicer to out the best plan of action.
Understanding Student Loans
According to recent reports by the Consumer Financial Protection Bureau, student loan debt is currently around $1.2 trillion. For many people, the decision to take on student loans is often the first major financial decision of their adult life. However, it is also a decision that can haunt us later in life. Students often struggle to understand the confusing financial documents given to them and have a difficult time finding helpful resources us navigate the student loan process. I know that my 18-year-old self definitely didn’t understand every aspect of the student loans I agreed to. So let’s start with the basics.
What’s the difference between federal loans and private loans?
Federal government loans almost always cost less and tend to have more flexible repayment options. Many federal student loans are subsidized and have fixed interest rates (more on interests later). Most students are eligible for these loans. The amount of money students can borrow is limited.
Private loans are usually done through private banks or lenders. Some schools and state agencies may offer these types of loans as well. You can borrow larger amounts than federal loans. Private student loans usually have higher costs and often require a co-signer. You are charged interest while attending school. Additionally, interest rates on private loans are often variable (more on this later) and repayment options are usually not flexible.
An interest rate is the cost of borrowing money. Interest rates are calculated as a percentage of the unpaid principal (the amount you borrowed). The total cost of your loan varies depending on the interest rate charged and the type of loan. The following are different types of interest characteristics that will effect how much your loan ultimately ends up costing:
- Fixed interest rate: this is a set rate that will not change over the life of the loan. Generally, a fixed rate will be higher than a variable rate.
- Variable interest rate: this is a rate that can change as interest rates in the market change. This means you may have a different interest rate on a monthly, quarterly, or annual basis.
- Subsidized: The Government will pay the interest on your loans while you attend school. These loans are awarded based on financial need. You do not pay interest during the 6 months after graduation (the grace period) or during periods of deferment.
- Unsubsidized: Interest starts to grow and is added to your principal (“accrue”) as soon as you receive the loan. You do not need to demonstrate financial need. You are responsible for all the interest on these loans during all time periods.
What is the best student loan for you?
There are many factors you should consider before deciding on what type of student loan to get. For example: Can you work during the school to cover some costs? Can you live at home? Do you think you may be able to pay the loan off quickly? Is one school offering me a better financial aid package? Below is a list of tips to help you make the best financial decisions regarding your student loans.
Strategies for building a strong financial future as a student:
- Fill out a Free Application for Federal Student Aid (FAFSA). You must fill out this form to be eligible for any federal student loans. Since federal student loans are usually the best option for most students, you should explore your federal loan options first. Also, schools often use the FAFSA to award scholarships and grants, so fill it out even if you don’t think you’re eligible! Access the application here: https://fafsa.ed.gov/
- Research free funds. Scholarships and grants are free money! These applications don’t usually take up much of your time and can really help you save money on education costs.
- Here is a great scholarship search to get you started: http://www.careerinfonet.org/scholarshipsearch/
- Here is a grant search: https://www2.ed.gov/fund/grants-apply.html
- If you are a service member, you may be eligible for GI Bill Benefits: http://www.benefits.va.gov/gibill/
- Negotiate for more aid.
- Do not be afraid to talk about your accomplishments. I did this myself! It can be difficult to put yourself out there, but you should always be your own advocate! Even just a little extra financial aid can be the difference in being able to attend the program you want. You can email your financial aid office and ask to meet with a staff member to explain your position. You can also send a letter with the same information if a face-to-face meeting is uncomfortable.
- Here is a helpful tool from the Consumer Financial Protection Bureau to compare your financial aid offers. You can use this information to help negotiate a better offer. http://www.consumerfinance.gov/paying-for-college/compare-financial-aid-and-college-cost/
- Know what your financial situation will be.
- Learn how to budget and be practical about what your costs will be. Getting informed now can save you from many headaches down the road.
- Get good advice. Your community likely has free or low-cost financial counselors that can help you with the student loan process and other important financial decisions. Make use of these resources. Reach out to your school’s financial aid office if you have any questions. Talk to friends or family about their student loan experiences. The Consumer Financial Protection Bureau also has some great resources. http://www.consumerfinance.gov/paying-for-college/
This information will hopefully help you understand and manage the student loan process. Student loans are not easy to understand, so take the time to learn as much about them as you can before making this important financial decision.