Statement in Response to Education Department's Announcement On

NCLC Welcomes Chopra at CFPB

WASHINGTON— The United States Senate today confirmed Rohit Chopra as Director of the Consumer Financial Protection Bureau. National Consumer Law Center Associate Director Lauren Saunders made the following statement:

“We welcome Rohit Chopra as Director of the CFPB. Chopra has deep experience and a track record of working to protect consumers from his days at the CFPB Student Loan Ombudsman to his work on issues posed by technology and scams as a Commissioner at the Federal Trade Commission. He knows the importance of confronting problems old and new and ensuring that the CFPB is a strong watchdog on behalf of consumers. Acting Director Dave Uejio has set the CFPB on the right track and done a lot of groundwork for Chopra so he can hit the ground running.

“Chopra will bring the creativity, insight, commitment, and deep knowledge that is needed to protect consumers and stop unfair, deceptive, and abusive practices in today’s pressing problems — from protecting homeowners, tenants and students struggling with the COVID economic crisis to addressing racial injustices through the financial system to stopping old abuses like overdraft fees and credit reporting problems and new ones like fintech evasions. We look forward to working with him.”

The nonprofit National Consumer Law Center® (NCLC®) works for economic justice for low-income and other disadvantaged people in the U.S. through policy analysis and advocacy, publications, litigation, and training.

Advocates Testify Before House Subcommittee on Closed School Discharges

LAFLA and NCLC Advocates Testify Before House Subcommittee on Closed School Discharges

Washington — Representatives from the Legal Aid Foundation of Los Angeles and the National Consumer Law Center provided testimony today before the U.S. House of Representatives Subcommittee on Higher Education and Workforce Investment — offering perspectives on improving the federal loan discharge process for borrowers harmed by sudden school closures.

“The [U.S. Department of Education’s] failure to provide widespread and automatic closed school discharges to these borrowers has systematically removed wealth from economically disadvantaged families and communities, including communities of color, through the collection of burdensome and invalid debt, often through seizures of wages, tax refunds, and federal benefits,” testified Robyn Smith, senior attorney at the Legal Aid Foundation of Los Angeles (LAFLA) and of counsel to the National Consumer Law Center.

An abrupt school closure wreaks havoc on students, many of whom have given up jobs and spent months or years working toward a now-unattainable diploma or degree. Additionally, when a for- profit school closes, the students typically cannot transfer those units, rendering the units worthless. Students face having to repay thousands of dollars in federal loans, and sometimes private loans, without having earned any credits. Furthermore, many of these students are low-income and from the very communities most impacted by the COVID pandemic.

LAFLA client Karyn Rhodes provided testimony about her “thirty-year long journey with the Department of Education to get a closed school loan discharge” after her for-profit school abruptly closed in 1988. “Although, according to my legal aid lawyer, I was eligible for this discharge since 1994, I had never been invited to apply by my loan servicer or debt collectors, even when I explained my school had closed,” said Rhodes. “As a result, I experienced ruined credit and the constant threat of wage garnishment and tax refund offsets for debts that I should not have had to repay… This caused tremendous stress, and I felt the education system had failed me.”

Through the help of LAFLA, Ms. Rhodes received a student loan discharge in 2020, freeing herself and her family of $26,000 in debt. Her testimony sheds light on the hardships faced by low-income borrowers trying to further their prospects through higher education, only to come to the brink of financial ruin after their schools suddenly close: “My goal is to help anyone who is experiencing or has experienced a defaulted school loan as a result of a school closure,” said Ms. Rhodes.

A 1992 amendment to the Higher Education Act mandated the U.S. Department of Education issue loan discharges to student borrowers impacted by school closures, which began in 1994. However, “[m]ost borrowers, including some who have been struggling with debt for decades, have no idea that they are eligible for a discharge, while others have been unable to obtain a discharge without the assistance of an attorney,” Smith added. “It is time for the Department to finally comply with Congress’s mandate and grant all borrowers who are eligible for a closed school discharge, according to the Department’s records, automatic discharges without requiring applications.”

Ms. Smith concluded her testimony urging the Department of Education to:

Grant automatic discharges to all borrowers who attended schools that have closed since January 1, 1986, and who are eligible based on the Department’s records; Send discharge information to all borrowers who were in attendance when their schools closed, as they may still be eligible for discharge even if they re-enrolled at another school; and Develop more accessible application procedures for all borrowers, including those with limited English proficiency.

Troubled Servicer Navient to Exit Federal Student Loan System

Boston – In response to the announcement that the student loan servicer Navient intends to end its federal contract with the Department of Education in December and proposes Maximus Federal Services, Inc. (“Maximus”) as substitute servicer, Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, issued the following statement:

“For decades, servicing misconduct and carelessness have plagued borrowers, causing too many borrowers to pay more and for longer on their loans. Lawsuits by borrowers, the Consumer Financial Protection Bureau, and numerous state attorneys general have charged Navient with a long history of these practices. Navient’s conduct has left millions of borrowers confused and paying more for longer, and has stopped them from obtaining the relief they are entitled to. While today’s announcement will ensure that those borrowers can no longer be harmed by Navient’s practices, it also demonstrates how irrevocably broken our student loan system is.

“We find it troubling that Navient can appoint its own substitute without being subject to the same rigorous and public solicitation process. This back-room deal is further evidence that the federal student loan system is too big to fail. Maximus is the servicer that operates the Department’s Debt Management and Collection System, known to borrowers as the Default Resolution Group. In December, 2019, the National Consumer Law Center, along with Justice Catalyst and Flitter Milz, P.C., sued Maximus for failing to cease “collection activity” (or continuing to seize borrowers’ tax refunds and wages) after defrauded borrowers had submitted a “Borrower Defense to Repayment” Application to the Department of Education’s Office of Federal Student Aid (“FSA”). That suit is still pending.

“Navient is now the fourth federal student loan servicer to opt out of the government’s servicing contract. But forty-three million federal student loan borrowers do not have the luxury of opting out of a system that has failed to adequately protect them. While servicers have reaped billions of dollars in lucrative contracts, borrowers have been exposed to abusive practices, largely unprotected and, for too long, without adequate remedies. We are heartened to see the Department of Education rescind its Notice of Preemption to help ensure that borrowers have access to protections under state law.

“But more needs to be done. The Department must take bold action to ensure that borrowers are not harmed as it reshuffles loan accounts. Borrowers’ financial futures hang in the balance while the Department decides what to do next and they deserve action that acknowledges the large-scale systemic failures. We call on President Biden to commit to widespread administrative debt cancellation immediately.”

Appalachian, Wheeling Power Companies Proposal Will Cause Significant Rate Increases for Low-Income West Virginians

WASHINGTON—Today, representatives from 15 West Virginia and national organizations, including Mountain State Justice, WV Center for Budget and Policy, and the National Consumer Law Center, submitted a letter to the Public Service Commission of West Virginia (PSC) urging it to reject the request by the Appalachian and Wheeling Power Companies to place the entire costs of environmental mitigation measures necessary to keep three coal burning power plants operating until 2040 on West Virginia ratepayers. Instead, the PSC should either close the plants in 2028—which would avoid the necessity for the costs—or require the Companies’ shareholders to bear them.

“Many West Virginians are already struggling to make ends meet, to feed their families, to keep the lights on, and to find their way out of poverty,” said Margot Saunders, an attorney at the National Consumer Law Center. “The rate increases proposed would have potentially devastating consequences to impoverished West Virginians. We urge the Public Service Commission to protect West Virginia ratepayers and reject the relief requested by Appalachian and Wheeling Power Companies.”

The proposal by Appalachian and Wheeling (the Companies) would saddle West Virginia ratepayers with the costs for implementing environmental mitigation measures necessary to keep the power plants running until 2040. The plants provide power to three states: West Virginia, Kentucky and Virginia. After regulators in Kentucky and Virginia rejected requests to saddle their ratepayers with the costs, the Companies are seeking to impose the whole burden on the ratepayers of West Virginia. The Companies originally projected that the allocated cost of these projects to West Virginia ratepayers would total $169.55 million and have a rate impact of $23.5 million annually. But testimony provided by a representative of the Companies estimates the combined true cost of the projects to be closer to $346 million.

“This request would increase—by over 100%—the total cost to be borne by West Virginia ratepayers,” said Kelly Allen, Executive Director of the WV Center on Budget and Policy. “The annual impact on rates charged to West Virginia ratepayers would be more than double the original estimate of $23.5 million per year, to a total of $48 million per year.”

Since 2011, the monthly cost for a residential customer of Appalachian or Wheeling, using 1,000 kWh, has already increased from $91.32 to $153.38, an increase of almost 60%. This rate of increase is among the fastest in the nation, and is almost 3 times greater than the rate of inflation over the same period.

Rate increases in these amounts dramatically impact low-income ratepayers, who will receive absolutely nothing additional in return, except more pain. Charging households even more to keep the lights on, the water pump running, and the heat working will directly reduce access to food, medicine, and other necessities.

Commissions in Virginia and Kentucky have already determined that it is not appropriate to ask ratepayers in those states to pay for any of the potential costs at issue in this proceeding. The West Virginia Public Service Commission should also protect the ratepayers in this state; especially from the costs associated with providing power to households in Virginia and Kentucky.

The letter submitted to the Public Service Commission of West Virginia was signed by:

Good News Mountaineer Garage Manna Meal MountainHeart Community Services Mountain State Justice PRIDE Community Services WV Alliance for Sustainable Families WV Center for Budget and Policy WV Community Action Partnerships, Inc. WV Interfaith Power and Light WV Covenant House WV NAACP Conference of Branches Consumer Federation of America National Consumer Law Center on behalf of its low-income clients National Consumers League National Legal Aid and Defender Association

Fed Must Do More to Protect Consumers From Fraud and Mistakes in New P2P Payment System

FedNow System Must Not Launch Until it is Safe

Washington — The Federal Reserve Board must do more to protect consumers, small businesses and other users from fraud and mistakes in the new “FedNow” instant person-to-person (P2P) system that it is developing, according to comments submitted today by consumer, small business, community and legal services groups.

One set of comments was submitted by a coalition of 43 consumer, small business, civil rights, community and legal services organizations. Another, more detailed set was filed by the National Consumer Law Center (on behalf of its low income clients), the National Community Reinvestment Coalition and the National Consumers League.

“Scammers have found that faster payments mean faster fraud, and the Fed must not launch the FedNow system until consumers and small businesses are protected. Scams, particularly those targeting communities of color, and mistakes are all too common in today’s faster payment apps,” said Lauren Saunders, Associate Director of the National Consumer Law Center. “Including protection from scams and mistakes will give banks and fintech payment apps the incentive to design systems to prevent problems in the first place, just like consumer fraud protection works well in the credit card market to spur innovative means to prevent and detect fraud.”

“Consumers have come to expect the right to correct errors when they use their bank accounts. The prospect that the Fed’s proposed faster payments system would leave them without equivalent protections should alarm anyone who worries about the financial safety of consumers, and particularly for the millions of low-wealth households that might be unable to pay rent or buy groceries with a single unauthorized expense,” said Adam Rust, Senior Policy Advisor at the National Community Reinvestment Coalition.

“The rapid adoption of peer-to-peer payment apps by consumers has been mirrored by the embrace of this new technology by scammers,” said John Breyault, Vice President of Public Policy, Telecommunications and Fraud for the National Consumers League. “Speed and convenience of payments must not come at the expense of safety and security. The Federal Reserve Board must ensure that the FedNow system does not become the next payment method of choice for fraudsters.”

The Federal Reserve Board has been developing the FedNow P2P service as a competitor and alternative to The Clearing House’s RTP (Real Time Payments) service, which facilitates instant payments through the Zelle service offered by banks and credit unions. Recent reports have found that complaints about Zelle and other P2P apps have skyrocketed, and fraud is also significant in faster payment systems in other countries, such as the United Kingdom. ###

The National Community Reinvestment Coalition and its grassroots member organizations create opportunities for people to build wealth. We work with community leaders, policymakers and financial institutions to champion fairness in banking, housing and business. NCRC was formed in 1990 by national, regional and local organizations to increase the flow of private capital into traditionally underserved communities. NCRC has grown into an association of more than 600 community-based organizations in 42 states that promote access to basic banking services, affordable housing, entrepreneurship, job creation and vibrant communities for America’s working families.

The National Consumers League is America’s pioneering consumer advocacy organization, representing consumers and workers on marketplace and workplace issues since our founding in 1899. Headquartered in Washington, DC, today NCL provides government, businesses, and other organizations with the consumer’s perspective on concerns including fraud prevention, child labor, privacy, food safety, and medication information. NCL operates Fraud.org, which provides and collects information about consumer fraud.

Statement in Response to Education Department’s Announcement on Student Loan Discharges for ITT Tech Students

Boston – Today, the U.S. Department of Education announced that 115,000 borrowers who attended and withdrew from ITT Tech will receive more than $1.1 billion in student loan discharges based on findings that the school engaged in misconduct that allowed it to stay in business while deceiving students and luring them into taking out unaffordable loans. In response, Abby Shafroth, staff attorney with the National Consumer Law Center’s Student Loan Borrower Assistance Project, issued the following statement:

“We are pleased to see the Department of Education provide discharges to more borrowers who took out loans at the urging of ITT while the school hid its significant problems—and ultimately left its students high and dry. This action will make a tremendous difference in the lives of the many borrowers who withdrew from ITT once they realized that the school had sold them a bill of goods. Many of these borrowers have been struggling for more than a decade with mountains of student loan debt and no benefit to show for it for years. The Department also made the right call by making this loan relief automatic for most eligible borrowers. As we have long known, red tape and bureaucratic complexity mean that few borrowers entitled to loan cancellation actually get it.

“But today’s relief action left out hundreds of thousands more ITT students who were subject to the same misconduct, and the Department’s next step must be to cancel the debt for all former ITT students. The Department’s rationale for cancelling this subset of ITT students’ loans—that the school engaged in “widespread misrepresentations” and “malfeasance [that] drove its financial resources away from educating students”—applies to all ITT students, not just those who withdrew.

“The Department should use its existing authority to cancel all federal student debt taken out to attend ITT. And the Department should not stop there—ITT is hardly the only school that took advantage of the federal student loan system and ITT students are hardly the only borrowers who have suffered from a broken student loan system. Millions of borrowers are still waiting for President Biden to make good on his promise to provide widespread student loan cancellation, and the time to act is now.”

Additional resources:

National Consumer Law Center Advocates Support Education Department Giving Loan Relief for 18,000 Former ITT Students but Urge More Action (June 21, 2021) Delivering on Debt Relief: Relief for Borrowers Whose Schools Closed (National Consumer Law Center, Nov. 2020) Delivering on Debt Relief: Relief for Borrowers with a Defense to Repayment (Project on Predatory Student Lending, Nov. 2020)

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Statement in Response to Education Department’s Announcement on Automatic Cancellation for Disabled Borrowers

Boston – In response to the announcement today by the U.S. Department of Education that 323,000 borrowers who have a total and permanent disability (TPD) will receive more than $5.8 billion in automatic student loan discharges due to a new regulation, Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, issued the following statement:

“We are excited to see the Department of Education finally provide automatic discharges to the hundreds of thousands of disabled borrowers who have been entitled to this relief for years. This action is long overdue and will make a huge difference in the lives of hundreds of thousands of borrowers who have been trapped in unnecessary student debt. We are also encouraged to see that the Department of Education plans to pursue broader changes through its upcoming rulemaking and we look forward to working with the Department through this rulemaking to eliminate the many barriers that exist which keep borrowers with disabilities from receiving the relief they are entitled to under law. In addition to committing to eliminating the three year monitoring period during the upcoming rulemaking, which has prevented many borrowers from getting relief under the disability discharge program, we hope the Department will take this opportunity to expand the eligibility criteria to better match the intent of the law, and to find additional ways to identify borrowers who miss out on relief due to our kafkaesque student loan system. “Make no mistake, the Department’s actions today will provide meaningful relief to hundreds of thousands of borrowers. Today’s action will take one step towards fixing a fundamentally broken system, but more still needs to be done. Millions of borrowers are still waiting for President Biden to make good on his promise to provide widespread student loan cancellation.”

Additional Resources:

Student Loan Borrower Assistance: Disability and Death: Total and Permanent Disability Discharge Relief for Borrowers With Disabilities, John Whitelaw and Bethany Lilly (2020)

CRL and NCLC Research Reveals Two-Thirds of Navient Borrowers Enrolled in IDRs and Making Voluntary Loan Payments During COVID Student Loan Pause Are Underwater

An Analysis of Over 428,000 Borrowers in Income-Driven Repayment (IDR)

Washington, D.C. — The Center for Responsible Lending (CRL) and the National Consumer Law Center (NCLC) issued a new joint policy brief revealing that almost two-thirds (63%) of student loan borrowers enrolled in Income-Driven Repayment Plans (IDR) serviced by Navient who made voluntary loan payments during the COVID-19 federal student loan payment pause are underwater—unable to repay even $1 of their original loan balance.

Of the borrowers who are underwater, one-third owe more than 125% of their original balance, despite making at least one payment during the payment pause enacted by the federal government in March 2020. Of the underwater borrowers:

67% owe 100% to 125% of original balance 26% owe 125% to 150% of original balance 6% owe more than 150% of original balance

The data, produced by the U.S. Department of Education in response to a Freedom of Information Act (FOIA) request, included information on 428,268 Navient borrowers who owe almost $28 billion in student loans and made $600 million worth of voluntary payments.

“The data reinforces what we already knew: borrowers want to make progress towards repaying their loans, but our broken student loan system has made it difficult, resulting in loan balances that in many cases greatly exceed the original amount borrowed,” said Center for Responsible Lending Senior Researcher Robin Howarth. “Servicing errors and lack of federal oversight exacerbate flawed federal student loan policies and leave borrowers, particularly those of color, even more vulnerable. It is imperative for the Biden Administration to provide immediate relief to existing borrowers with across-the-board student debt cancellation as the Administration works to reduce the wealth gap and get the economy back on a sustainable path.” “As this data shows, it is unfortunately all too common for student loan borrowers to see their balances go up instead of down while in repayment,” said National Consumer Law Center Attorney Abby Shafroth. “Balances go up when borrowers in financial distress cannot afford to make payments. They also go up when monthly payments in income-driven repayment plans are insufficient to cover interest, which is common for low-income borrowers, meaning that despite faithfully making payments their balance goes up instead of down. And unpaid interest is often capitalized, so borrowers pay interest on interest. Ballooning balances not only make education more expensive for those who must borrow but make many feel hopeless that they’ll ever be free of their student debt. The Biden Administration can and should end the practices that cause debt to balloon going forward and provide relief to borrowers already harmed through debt cancellation.”

Based on the analysis of the data, NCLC and CRL recommend the following policy improvements for the Department:

Provide across-the-board debt cancellation: While policymakers have debated system fixes, borrowers’ debt has ballooned, and their financial futures have grown more bleak. In addition to fixing the system going forward, the Department should provide relief to existing borrowers by providing widespread student debt cancellation and by clearing the books of bad debt. End practices that cause balances to balloon: To stop balances from ballooning, the Department should both (1) expand existing partial interest subsidies in income-driven repayment (IDR) plans by fully subsidizing unpaid interest that would otherwise accrue as a result of IDR payments that are insufficient to cover accrued interest for borrowers with high debt to income ratios, and (2) end interest capitalization, which causes borrowers who experience financial distress to have to pay interest on interest. Provide data: As policymakers grapple with what to do about the student debt crisis, more information about the amount and role of interest in the federal student loan portfolio is needed to better understand the scope of the problem and to assess potential responses.

CFPB Moves Forward with Flawed Debt Collection Rules

Nearly One-Third of U.S. Adults with a Credit Report Have Debt in Collection

WASHINGTON, D.C. – On Friday, July 30th, the Consumer Financial Protection Bureau (CFPB) announced that it would not delay the effective date of its debt collection regulations as it had originally proposed this spring.

Instead, the CFPB will be moving forward with implementation of debt collection regulations containing many elements that will be harmful for consumers.

“The CFPB indicated that it can still revisit the rules in the future, and we urge them to do so,” said National Consumer Law Center staff attorney April Kuehnhoff. “In the meantime, we call on states to enact additional protections to prevent vulnerable families still recovering from the pandemic from harassing and abusive debt collection practices.” Consumer advocates raised concerns about practices that may be allowed under the rules and urged the CFPB to address them. Concerning practices that might be allowed include:

Phone Calls. Collectors might harass consumers by making up to seven attempted calls per week per debt, either to the consumer or to friends and family to ask for the consumer’s contact information. A consumer with 5 medical accounts in collection could receive 35 attempted calls per week. Electronic Communications without Consumer Consent. Collectors can use electronic communications to contact consumers unless the consumer opts out. Requiring an opt-out rather than requiring collectors to obtain consumer consent is more likely to result in missed messages – including critical required disclosures – if collectors use old contact information or communications are sent to spam. Privacy may also be violated if messages are viewed by others, including employers. Procedures to reduce third-party disclosures are currently optional for debt collectors. Oral Collection Notices. The CFPB has said that collectors can provide required collection disclosure notices orally despite the increased amount of information required in the notice under the regulations. This will make it difficult for consumers to understand or remember important disclosures about the alleged debts and their debt collection rights. Time-Barred Debt Collection. Collectors can still pressure consumers to pay debts that are beyond the statute of limitations. They are prohibited from suing or threatening to sue on time- barred consumer debts, but they can pressure people to make payments using tactics that are likely to confuse people, and collectors may still be able to sue if a consumer inadvertently revives the statute of limitations through a partial payment or acknowledgment made after pressure from collectors.

The debt collection rule will impact at least 68 million people in the United States. The Urban Institute has documented that, during the COVID-19 pandemic, 29% of adults in the United States with credit reports have debt in collection. That number goes up to 39% for those residing in communities of color.