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Struggling private student loan borrowers are still searching for help

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In the years leading up to the financial crisis, many of the same subprime lending practices that led to troubles in the mortgage market also existed in the private student loan market. Like the homeowners who turned to their mortgage servicer to modify their loans but ran into customer service dead ends, lost paperwork and other breakdowns, many private student loan borrowers are looking for a clear path to stay current and avoid default.

Today we’re releasing a new report summarizing complaints from private student loan borrowers about difficulties faced when working with a lender or servicer to avoid default.

While federal student loans have a number of loan modification options to help borrowers avoid default, private student loan servicers and lenders may not make it easy for borrowers to get help in times of distress, which may have consequences for not only your financial future, but also for the broader economy.

For example, our analysis of complaints reveals that many of you tried to find out more information by calling your lender or servicer, but received conflicting or inaccurate information as you were bounced between call center staff. Many of you told us how you were provided no option at all, driving you into default, even though a reduced payment plan might be in the best interest of both you and your lender.

Request for repayment options

After listening to you and to the student loan industry, we’ve developed some advice for borrowers who want accurate information on alternative repayment plans and loan modification options, including a set of instructions that you can consider sending to your private student loan servicer (the company that sends a bill each month).

You can download the sample letter and mail it to your lender or servicer, or you can use the text below to provide instructions using the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website.

Although some companies are willing to help borrowers during a time of financial distress, unfortunately, not all private student loan companies offer assistance when consumers are struggling to repay their loans. Using this letter may help you get a clear answer and avoid long hold times and transfers from one call center representative to another.

I am writing to you because I need to reduce my monthly private student loan payment due to a financial hardship. I am requesting a payment that allows me to meet my other necessary living expenses.

Please conduct a review of my account to determine whether I am eligible for an alternative repayment plan.

[This paragraph is optional] I believe I can afford to pay $____ per month toward my loan(s). If you require details on my monthly income and expenses, I have attached a worksheet which you can use to make an evaluation.

If you require additional authorization in order to reduce the amount of my monthly payment, please consider this letter a written request that you contact my lender or other authorized party to conduct a review of my account and provide a response within 15 days of receipt of this letter.

If you do not grant this request for a reduced payment plan, I will be at risk of default. If I receive a reduced payment plan, I may be able to avoid default, which is in the best interest of all parties.

If you determine that you are unwilling to provide a reduced payment plan, please provide the following information:

  • What available reduced payment options do you offer other than forbearance?
  • For what reason(s) am I ineligible for these repayment programs?
  • If I am not eligible for these repayment programs, when will I become eligible?
  • What steps do I need to take to qualify for these repayment programs?
  • Do you anticipate modifying these repayment programs in the future?
  • Where on your website can I find additional information on these alternative repayment programs?

In addition, if you are unable to provide any of the information or documentation I have requested or otherwise cannot comply with this request, please provide an explanation.

I hope we will be able to agree upon an acceptable repayment plan.

Thank you for your cooperation.

These instructions may help you get valuable information on repayment options to reduce your monthly payment or to temporarily postpone making payments. You can also download a sample financial worksheet that you can use to determine the maximum amount of money you can put toward student loans.

Some student loan companies have told us that they may ask for recent pay stubs or a bank statement to verify income and expenses. Consider including these documents with your request, which you can mail or send through your private student loan servicer’s website after you login.

We also have other sample letters you can send to your student loan servicer to give payment instructions or request that your co-signer be released and others you can send to a student loan debt collector.

If you’re experiencing a problem with a student loan or debt collection, you can submit a complaint online or call us at (855) 411-2372.

If you have questions about repaying student loans, check out our Repay Student Debt tool to find out how you can tackle your student loan debt.

Rohit Chopra is the CFPB’s Student Loan Ombudsman. To learn more about our work for students and young Americans, visit consumerfinance.gov/students.

We’re open to innovative approaches to benefit consumers

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Take a look around and you’ll see that the consumer financial marketplace is experiencing constant and rapid change. New technologies and insights can impact the way we borrow, save, transact, and receive information we need about finances. This environment can pose benefits and risks to consumers. Consumer-friendly innovation can drive down costs, improve transparency, and make people’s lives better. On the other hand, new products can also pose unexpected risks to consumers through dangers such as hidden costs or confusing terms.

Our focus is on making financial markets work for American consumers — we want a marketplace where the costs and risks are clear, and no consumer is harmed by unfair, deceptive, or abusive acts or practices.

In addition to establishing strong consumer protections and holding bad actors accountable, we also want to support marketplace innovation so that new and emerging products that are safe and beneficial for consumers can be developed. We do not want regulations to unnecessarily limit consumer-friendly developments.

We’re open to new ideas that benefit consumers. So we’re publishing for comment a proposal for a limited No-Action Letter policy. The goal is simple: create a process to reduce the regulatory uncertainty that may exist for certain emerging product or services which stand to benefit consumers. To get all the details, you’ll need to review the proposed policy. But let me try to break it down and share the highlights.

Overview

This proposed policy is suited for new financial products or services where there may be uncertainty about how they fit in the existing statutes and regulations. Of course, such products or services must hold the promise for significant consumer benefit.

The proposed policy would allow our staff to send a No-Action Letter to a company that tells them the staff isn’t planning to recommend initiation of supervisory or enforcement action with respect to specific aspects of a particular legal requirement in connection with a firm’s offering or provision of a new product as described to the Bureau. A No-Action Letter can be revoked, and it may be limited by time, volume, or in other ways.

The proposed policy would not be a waiver of any law or regulation, and it doesn’t give a requesting entity an exemption from complying with any statutory or regulatory rules. It also would not spell out our official interpretation of a statutory or regulatory requirement. What it would mean is that, subject to some limitations, our staff would not recommend initiating supervisory or enforcement action against the requester with respect to the provisions specified in the letter. It would not, however, prevent any other regulator or person from asserting that the product violated legal requirements.

How it works

Under the proposed policy, the No-Action Letter would not be an available tool unless the applicant shows the product holds the promise of substantial consumer benefit. As part of the application process, we would require an applicant to thoroughly demonstrate the characteristics of the proposed product, how it will work, and what consumer risks are involved. An applicant will need to explain exactly what regulatory uncertainty exists and how that uncertainty interferes with the development of the product. In addition, the applicant will need to demonstrate what consumer safeguards are in place and how consumer interests and safety will be monitored.

How to work with us

There would be a formal application process as laid out in the proposed policy, but interested stakeholders would also be advised to reach out to our Project Catalyst team to initiate a preliminary discussion about their ideas. We anticipate that No-Action Letters would be issued infrequently and they would be issued in the staff’s sole discretion only after the applicant makes a thorough and persuasive demonstration that all the policy’s criteria, including the likely provision of consumer benefit, are met.

Check out the proposed policy for the details and you can submit comments until December 15, 2014. Comments on this blog post will not be accepted as official comments on the proposed policy.

We look forward to hearing from you!

Updated October 17, 2014 to include link to submit comments online and Federal Register notice.

Know Before You Owe: Proposed updates to TILA-RESPA final rule

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Nearly a year ago, we issued the TILA-RESPA Integrated Disclosure Rule. Many of you know this work as Know Before You Owe and we’ve been talking about it for a while now.

Today, we’re issuing a proposal to modify and make technical amendments to this rule. The rule introduced new, easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for consumers. The new Loan Estimate and Closing Disclosure mortgage forms will replace the existing federal disclosures and help consumers understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table.

Proposed changes

There are two issues we’re addressing in today’s proposal.

First, we’re proposing to give creditors some extra time to provide consumers with revised Loan Estimates after a consumer locks a floating interest rate. Under the current rule, when consumers lock their interest rates, creditors are required to give them a revised Loan Estimate the same day. After considering feedback from stakeholders on this requirement, we think that such a short turnaround may be challenging for creditors that currently allow consumers to lock interest rates late in the day or after business hours. This could result in creditors only allowing consumers to lock interest rates during business hours or even early in the day (e.g., before noon). We’re proposing to give creditors until the next business day to provide the revised disclosures, which we believe should provide creditors with enough time to provide new disclosures without having to reduce flexibility that consumers may have today in locking their rates.

Second, we’re proposing a minor addition on the Loan Estimate form. Construction loans often take longer to settle than other loans, and the estimated charges can change when more than 60 days pass. Our proposal would create a space on the Loan Estimate form where creditors could include language informing consumers that they may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle.

We determined that these issues are important and may significantly affect implementation planning and decisions.

Throughout the Know Before You Owe project, feedback has been an important part of the process. This step is no different. We welcome your comments on this proposal, so submit them by November 10, 2014. We’ll update this post with a link to submit comments on Regulations.gov when it’s published in the Federal Register.

Effective date

The effective date for the TILA-RESPA rule is still August 1, 2015. We’re proposing these changes now so that there’s plenty of time to consider these changes while implementation decisions are being made, and we do not think that the proposed changes will affect the industry’s ability to implement the rules on time.

Implementing the rules

As part of our work to support the implementation of our rules, we have regulatory implementation resources available including compliance guides, sample Loan Estimate and Closing Disclosure forms, and a calendar showing timing requirements based on a sample real estate transaction.

Save the date, Long Beach!

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Join us for a joint FTC/CFPB roundtable entitled, “Debt Collection and the Latino Community,” which will examine how debt collection and credit reporting issues affect Latino consumers, especially those who have limited English proficiency (LEP). The event will take place on October 23, 2014 from 9 a.m. to 5 p.m. at:

Grand Ballroom at the University Student Union
California State University, Long Beach
1250 Bellflower Blvd.
Long Beach, CA 90840

The roundtable will bring together consumer advocates, industry representatives, state and federal regulators, and academics to exchange information on a range of issues.

This event is open to the public, but registration is encouraged. To register, send an email with your name and affiliation.

A livestream of the event will also be available here on our blog.

If you need an accommodation to participate, you can make a request.

See you there!

Forum on access to checking accounts

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Today, we held a forum on access to checking accounts in Washington, D.C. The live event has now ended. The event featured remarks from Director Richard Cordray, as well as presentations from consumer groups, federal and local government officials, and industry representatives. We aim to learn more about how the screening system works and how to improve the information and products that are available for consumers.

A recording of the forum will be available here soon.

Access to checking is important

Many people view checking accounts as an important step towards financial stability and economic mobility– particularly for low-income and economically vulnerable households. However, more than ten million households in America are unbanked , meaning they do not currently have a checking account.

Checking accounts provide: a secure way for consumers to:

  • deposit their paychecks,
  • make payments,
  • transfer and hold money, and
  • manage household finances.

Checking accounts can also be an entryway to other financial services like savings accounts and credit products. This can ultimately enable access to longer term financial goals such as auto-and home ownership. Checking accounts often enhance financial capability, upward mobility, and the building of wealth.

Although new financial service products, such as prepaid cards, are becoming more popular and affordable, checking accounts typically offer more features and payment options. As a result, households without checking accounts often spend more time and money managing household finances and meeting day to day obligations than those with checking accounts.

Consumers who struggle to pay their bills each month or who have problems managing their checking accounts risk overdrawing them. This frequently results in stiff penalties. We found that the median overdraft fee was $34 in 2012. Overdraft and non-sufficient funds (NSF) fees account for the majority of checking account fees charged to consumers. These fees quickly add up and consumers who are unable or unwilling to repay what they owe end up losing their accounts. This can have serious consequences for consumers, affecting their ability to open a new checking account for several years. While some accounts are closed because of fraudulent behavior, most are closed due to overdrafts.

Some initiatives intended to help consumers gain or regain access to basic checking accounts cite that having a negative “hit” on a checking account screening report is a primary barrier to getting an account.

How the system works

Many banks and credit unions rely on reports provided by specialty consumer reporting agencies (CRAs) to determine whether to open a checking account for new customers. These specialty CRAs collect information on consumer check writing and account history from financial institutions, including whether a consumer has had a previous account closed. The information may include a record of bounced or returned checks and overdrafts. It is used by financial institutions to decide whether to offer a checking account to consumers, and what kinds of restrictions to place on the account. Policies on what is reported and how it’s reported vary among financial institutions. This makes it difficult for consumers to determine which of their previous account problems might disqualify them for an account.

Learn about issues and roles

At today’s forum, we’d like to shed light on a few things, including:

  • Issues consumers face when trying to regain access to a checking account
  • The role that Credit Reporting Agencies and financial institutions play when consumers apply for a checking
    account
  • Data used as part of the account opening decision
  • How institutions set their risk tolerances
  • Definitions of fraud and improper account usage

We also hope to identify some potential next steps, including:

  • How to increase the accuracy of data furnished to and reported by consumer reporting agencies
  • How institutions can use various screening tools to manage risk without unnecessarily excluding potential accountholders
  • How institutions can tell consumers about their right to know what’s in their account histories and correct any inaccuracies
  • How consumers can access different account products that meet their needs

Resources in Spanish that could help thousands of older Hispanics spot financial exploitation and scams

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Elder financial exploitation crosses all social, economic and cultural boundaries. Older Hispanics, like other older adults, increasingly are targets of financial abuse and scams by a broad spectrum of perpetrators. A 2012 study found that 17 percent of Hispanic seniors are victims of financial exploitation, and that limited English proficiency is a factor that contributes to the vulnerability of older Hispanics.

Nearly 1.5 million – or two-in-five- older Hispanics have limited English language proficiency and speak Spanish only. Their limited access to trusted information and resources in Spanish hampers their ability to detect, respond to and report abuse.

We have Spanish versions of two resources that can help Spanish-speaking seniors, their family members and other caregivers, and the professionals and organizations that work with them:

  • Money Smart para Adultos Mayores (Money Smart for Older Adults) – an educational program with the FDIC that teaches older adults and their caregivers how to spot scams and frauds, and prevent financial exploitation. The translated guide can be used as a self-study guide or delivered as a training in a group setting.

These resources are available in English and Spanish for download and free print copies are also available.

The CFPB blog aims to facilitate conversations about our work. We want your comments to drive this conversation. Please be courteous, constructive, and on-topic. To help make the conversation productive, we encourage you to read our comment policy before posting. Comments on any post remain open for seven days from the date it was posted.