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Consumer advisory: Co-signers can cause surprise defaults on your private student loans

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Today, we released a report that describes complaints we received related to the private student loan industry’s practice of placing borrowers in default even when their loans are current and in good standing. We’re also warning consumers that they can avoid surprise defaults by pursuing a co-signer release.

The vast majority of private student loans today have a co-signer (typically a parent or a grandparent). Having a co-signer can often lead to a lower interest rate, which can save you money in the long-term, because the co-signer will have to repay the loan if you don’t.

However, your loan might also contain provisions that allow your student loan servicer to put you in default — even if you’ve been making your payments on time.

That’s because your co-signer is also on the hook for your loan and therefore changes in their behavior can impact your loan, causing your loan to default and making your entire balance due all at once. We’ve received complaints that private student loan servicers are placing borrowers into default when their co-signer dies or files for bankruptcy.

Co-signer release

If you are a co-signer or have a student loan with a co-signer and you are in repayment, you should look into what’s called “co-signer release.” You should consider this option to avoid a surprise default. Both the borrower and co-signer can benefit from obtaining the release.

Many lenders advertise that a co-signer may be released from a private student loan after a certain number of consecutive, timely payments and a credit check to determine if you are eligible to repay the loan on your own. If your lender offers co-signer release, you will want to ask about this benefit and remove your co-signer as soon as you are eligible.

Unfortunately, many student loan servicers do not tell you when you are eligible to have your co-signer released, so you need to ask them how to do this.

To help you get started, we’ve put together sample letters you can edit and send to your student loan servicer. You can download sample letters to send by mail, or you can just cut and paste the text below into the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website.

I want more information about how to obtain a release of my co-signer

I am writing to you because I am seeking the release of my co-signer on my loan. Please conduct a review of my account to determine if I am eligible for co-signer release.

If you determine that I am not eligible to have my co-signer released from my loans, please provide an explanation, including the following:

  • What is your current co-signer release policy?
  • For what reason(s) am I ineligible for co-signer release?
  • If I am not eligible for co-signer release now, when will I become eligible?
  • What steps do I need to take to qualify for co-signer release?
  • Do you anticipate modifying these requirements in the future? Will any future modifications apply to me when I seek to release my co-signer?

If I am unable to exercise this option at this time, please update/annotate my account to reflect that I intend to seek co-signer release as soon as possible. Please contact me at the point-in-time at which I am eligible to have my co-signer released.

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.

Thank you for your cooperation.

I am a co-signer, I want to be released

I am writing to request that I be released from my obligation to repay any loans associated with this account. Please conduct a review of this account and make a determination as to my eligibility to be released from my obligation.

If you determine that I am not eligible, please provide an explanation, including the following:

  • For what reason(s) am I ineligible for co-signer release?
  • What steps do I need to take to qualify for co-signer release?
  • What is your current co-signer release policy?
  • Do you anticipate modifying these requirements in the future? Will any future modifications apply to me when I seek to be released from this obligation?

If I am unable to exercise this option at this time, please update/annotate this account or accounts to reflect that I intend to do so as soon as possible. Please contact me at the point-in-time at which I am eligible for co-signer release.

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.

Thank you for your cooperation.

We also have other sample letters you can send to your student loan servicer to give payment instructions and others you can send to a student loan debt collector.

Remember, if you’re having a problem with a student loan, 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.

Explainer: Compensating consumers for Bank of America’s illegal tactics for credit card add-on products

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Today we’re fining Bank of America, N.A. and FIA Card Services, N.A. for unfairly billing consumers for services relating to identity theft protection “add-on” products and for using deceptive marketing and sales practices for credit protection “add-on” products.

We are also ordering Bank of America to refund fees and provide other redress to consumers. Approximately 2.9 million consumers will be receiving or already have received up to $727 million in refunds for fees they paid for these products and services as well as additional redress.

If you’re impacted by the announcement, you don’t have to take any action to receive a credit or check. If you are one of the consumers affected by the order, Bank of America should have already notified you or will notify you directly. If you have questions about whether you are entitled to a refund, you can contact Bank of America.

Who is eligible for compensation?

Nearly 1.4 million consumers have already received or will receive refunds of at least $250 million in fees for the “credit protection” products (Credit Protection Plus and Credit Protection Deluxe). You will receive refunds if you are a Bank of America customer who enrolled in these products at any time over the phone, were charged a fee between October 1, 2010 and March 31, 2013, and either did not activate benefits or who had  a request for benefits denied.

Approximately 1.5 million consumers purchased the “identity theft protection” products (Privacy Guard, PrivacySource, and Privacy Assist) and were improperly billed for services that were not performed. As a result, consumers paid at least $459 million in fees, interest, and over-limit charges for these products without receiving full services. Today’s announcement recognizes the refunds Bank of America has already provided to consumers harmed as a result of the illegal billing practices relating to these identity theft protection products.

Eligible consumers who were enrolled in the “identity theft protection” products received refunds if they enrolled in these products between October 2000 and September 2011 but did not receive full credit monitoring services, received only partial credit monitoring and/or credit report retrieval without notice, and/or didn’t receive credit report retrieval benefits.

What do eligible consumers get?

That depends on the product consumers were enrolled in and some other factors.

Eligible consumers who were enrolled in a “credit protection” product for less than a year, who made a request for benefits that was denied or closed, or who, complained to the CFPB or to Bank of America stating that they did not authorize enrollment in the product, will receive a refund of all fees charged from October 1, 2010 through March 31, 2013. Eligible consumers who were enrolled in a “credit protection” product for a year or more and who do not fall within any of the groups described above will receive a refund of 300 days of fees charged from October 1, 2010 through March 31, 2013.

Some consumers who were enrolled in “credit protection” product will also receive:

  1. A reduction in charged-off balances due to product fees charged from October 1, 2010 through March 31, 2013.
  2. “Credit protection” services for six months at no-cost for consumers enrolled in the product as of March 1, 2013.

Bank of America has already completed reimbursement for the “identity theft protection” eligible consumers, so eligible consumers should have already received refunds. If you have questions about receiving a refund for this product, you can contact Bank of America.

Bank of America is responsible for providing refunds

Watch out for scammers claiming they will get you a refund. When large numbers of consumers get refunds, scammers sometimes pop up. The scammer may charge you a fee or try to steal your personal information. If someone tries to charge you, tries to get you to disclose your personal information, or asks you to cash a check and send a portion to a third party in order to “claim your refund,” it’s a scam. Please call us at (855) 411-CFPB to report the scam.

Save the date: Join us for a forum on the mortgage closing process in Washington, DC!

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Join us for a forum on the mortgage closing process in Washington, D.C. on Wednesday, April 23 at 2:30 p.m. EDT.

The event will feature remarks from Director Richard Cordray, as well as a discussion with consumer groups, industry representatives, and members of the public. You can watch a livestream of the event on our blog.

Consumer Financial Protection Bureau
1700 G Street NW
Washington, D.C. 20552

To RSVP

Email cfpb.events@cfpb.gov with:

  • Your full name
  • Your organizational affiliation (if any)

This event is open to the public, but RSVP is required to attend. If you need an accommodation to participate, you can make a request.

Updated on April 15, 2014: The time of the event has been updated.

 

Live from Chicago!

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We held an event in Chicago to launch our partnership with libraries.

The event featured remarks from Director Richard Cordray as well as Charles Evans, president of the Federal Reserve Bank of Chicago, and Keith Michael Fiels, executive director at the American Library Association. The event also included a panel discussion with CFPB officials, library representatives, and financial education experts.

The live event has now ended, but a recording of the event is available below.

Prepaid cards: Help design a new disclosure

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Today, we’re in Los Angeles, CA to show people potential disclosures that we may propose to be used on the packaging of prepaid cards. We’re developing new disclosures as part of a larger project that will provide a variety of protections for prepaid card users. We expect to propose a rule on this topic later this spring.

Current disclosures

Currently, each prepaid card company’s retail package discloses different information, which makes it difficult to do side-by-side comparisons. Below are a few examples of the disclosures that appear today on the packaging of several major prepaid cards that we recently bought in stores near our Washington headquarters:

201403_cfpb_prepaid-cards-attachment-A

As you can see from these examples, each prepaid card has a different style and format for presenting fee and other important information. We think this could make it difficult to find the information important to you and to compare fee information between cards.

We’re developing a model disclosure form to standardize these disclosures to include in the proposed rule. We want our model form to clearly present a prepaid card’s most important fees so you can easily identify the best prepaid card for your needs.

Testing new disclosures

To help us design this model disclosure, we’re conducting interview testing with consumers around the country. We’re presenting testing participants with versions of the forms we’ve developed to see which works the best. Our first round of testing took place last month in Baltimore, MD, our second round of testing begins today, and we expect to complete the testing in April.

These are two model form designs that we’re testing in Los Angeles:

Model form 1

201403_cfpb_modelformdesign_1

Model form 2

201403_cfpb_modelformdesign_2

Tell us what you think

Now, we want to hear from you! Take a look, and tell us if you think these model forms do a better job of disclosing fee information compared to other forms you’ve seen on prepaid card packaging. We’re eager to get feedback from anyone who is interested in making prepaid card disclosures better.

While you’re looking at the forms, think about these questions:

  • Do you understand how much each of these cards will cost to use?
  • What would you like to see added or changed? Is there some way to make the information clearer?
  • Is there anything you find confusing?

We want to get your feedback now so that we can consider it as we continue testing model forms over the next few weeks.

If you want to influence the design of a new prepaid card fee disclosure, let us know what you think! You can use the comments section below, send us a tweet, let us know on Facebook or send us an email.