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From Banking and Finance Law Daily, July 7, 2015

CFPB reports: U.S. servicemembers ‘overseas and underserved’

By Katalina M. Bianco, J.D.

A report authored by Holly Petraeus, Consumer Financial Protection Bureau Assistant Director, Office of Servicemember Affairs, and CFPB Student Loan Ombudsman Seth Frotman describes the hardships for military families in this country stemming from what the authors call “inadequate student loan servicing.” The CFPB previously reported on the impact of student loan servicing on military members in 2012. Since that time, the CFPB said that the bureau has received more than 1,300 complaints from military borrowers directly linked to the servicing or collection of student loans. The current report, entitled “Overseas and Underserved Student Loan Servicing and the Cost to Our Men and Women in Uniform,” is based primarily on information garnered from complaints submitted to the bureau.

Common issues. The CFPB outlined the most commonly reported student loan servicing issues. Among these issues are:

  • denial of military deferments without adequate explanation;

  • problems with the application of the Servicemembers Civil Relief Act;

  • issues with disability discharges, including potential negative credit reporting consequences; and

  • the impact of servicing breakdowns on financial and military readiness. Assistant Dire

Findings. The report discusses the CFPB’s findings from its continued study of student loan servicing for U.S. servicemembers. According to the bureau, servicemembers continue to face setbacks when they attempt to exercise military protections created with the intention of alleviating some of the burdens placed on them via student loans. The SCRA provides for interest rate reductions on most pre-service loans, which includes student loans. However, servicemember complaints suggest that there is an ongoing problem with how student loan servicers communicate with servicemembers about the programs available to them.

Roadblocks. In addition to communication issues, the report suggests that there remain roadblocks in the way of servicemembers seeking military deferments. A military deferment is an option afforded to some active duty servicemembers that allows for postponement of monthly student loan payments under certain circumstances.

For federal student loans, a servicer is required to provide a military deferment in certain, defined circumstances. The CFPB suggests that servicing representatives may lack sufficient training in deferment programs. Poor communication and improper loan processing by student loan servicers may lead to “surprise” delinquencies, defaults, and debt collection attempts upon the completion of military service or the return from deployment.

Additional problems. The CFPB’s report provides additional information on potential student loan servicing problems as related to servicemembers. Among these issues are the following:

  • failure to provide necessary information or process paperwork prior to deployment;

  • lack of clear explanation as to denial of military deferment;

  • differing application criteria, policies, and procedures for military deferment among student loan servicers;

  • problems with loan discharge policies

  • failure to provide co-signers with information about discharge or alternative arrangements in the case of death of the servicemember; and

  • the link between servicers’ practices related to disability discharge and veterans’ credit.

The CFPB report makes it clear that military borrowers continue to face “detours and deadends” when seeking to invoke their SCRA rights. Poor communication and inconsistent application of SCRA protections can exacerbate the stress that servicemembers experience when dealing with student loan servicers, according to the bureau.

Additional bureau tools. In conjunction with the report, the CFPB released a guide for servicemembers carrying student loans. The guide provides tips for servicemembers as to how to lower interest rates, manage federal student loans, and in the alternative, manage private student loans.

A set of frequently asked questions compiled by the bureau provides additional guidance. The FAQs are part of the CFPB’s Ask CFPB website tool. Interested parties can gain insight to issues most commonly encountered by those attempting to navigate the student loan system. Finally, the CFPB has created an online tool that provides information on repaying student loan debt that guides borrowers through the process of understanding and acting upon their repayment options.

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