Student Loan Servicers Deceived Borrowers [View all]

[Live and Learn]

and Manipulated Payments to Maximize Late Fees

Eric Reed
Oct 31, 2014 5:01 PM EDT

NEW YORK (MainStreet) - Student debt collectors have been deceiving borrowers according to a new report from the Consumer Financial Protection Bureau, resulting in unfair fees and damaged credit. The violations include maximizing late fees and deceiving borrowers regarding their debt, among other deceptive practices banned under the Dodd-Frank Act.

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This week's report applies to loan servicers, companies responsible for collecting and helping graduates to structure their payments. The CFPB flagged six major issues in the industry, including:

Structuring payments to maximize penalties.

Many servicers handle multiple loans per person and consolidate them all into one account. Typically they bill just for that one lump sum every month and allocate the payment accordingly. That much is fine.

However many servicers have been taking unfair advantage of this situation. When borrowers pay less than the full monthly amount, these companies have been distributing the money proportionately across each loan, resulting in all of the loans in a borrower's account becoming delinquent. The servicer then charges a late fee for every loan in the account, maximize penalties while harming the borrower's credit.

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