Private Loan
Private Loan This week, we released the results of an examination showing that some private student loan servicers had violated the conditions of their own loans or loan modifications. We depend on financial institutions to keep their word when they make promises to us over the phone,
in advertisements, or on loan documents. Because of their repeated broken promises to pay back customers, we demanded that these firms pay out substantial sums in restitution.
Two examples of student loan servicers engaging in unfair conduct or practices in violation of the Dodd-Frank Act due to broken promises are shown in the most recent issue of Supervisory Highlights.
Bonuses and Rewards
Financial incentives are frequently used by businesses to entice customers or prompt particular repayment habits, such as buying more from the company or taking out a loan. A bank may reward a borrower with $200 if she successfully refers a friend to apply for a loan,
and the referred friend may also receive a $200 welcome bonus if she successfully applies for and receives a new loan. Businesses provide monetary incentives to customers who do things like have a checking account, sign up for automatic payments, or pay off their debts early.
Unfortunately, we have evidence of widespread breakdowns in financial institutions’ ability to keep their ends of the bargain. The institutions’ systems (either the technology or the procedures) may not always be able to pinpoint which customers have been awarded a bonus. However, customers who take advantage of these deals are dependent on financial institutions to efficiently run the program.
Some banks withheld bonuses on the grounds that they were contingent on requirements that were never part of the agreement. At least once, a loan servicer dangled a sizable cash bonus in front of early debt payoffing consumers.
However, the servicer refused customers these payments on the basis of a policy that the incentive payments were dependent on keeping a checking account at that institution, despite there being no evidence to support such a need.
Reduction in COVID-19 Payments
In the aftermath of the COVID-19 outbreak, several financial institutions provided customers with private school loans with payment relief alternatives to cut or suspend payments. It was possible, under the terms of some waiver agreements, for customers to retroactively get a grace period.
If a customer paid a payment in May and then applied for forbearance retroactively to May 1, the client would effectively receive a refund for the May payment. Consumers who are struggling due to the uncertainty of their health and employment status brought on by the epidemic might greatly benefit from this payment.
At least one student loan servicer, however, inconsistently returned these payments and failed to send refunds to certain clients, robbing them of thousands of dollars in financial flexibility at a time when they most needed it.
Companies should honor their agreements, whether it’s a promise to reimburse a customer for referring a friend or a promise to reduce a customer’s monthly payments. We are keeping a tight eye on student loan servicers through oversight to make sure borrowers are treated properly, and if they breach the law, the Bureau will make them pay.
