Once again, family finances are in danger from big banks. Thousands of students with loans are complaining their student loan companies are breaking laws in the same way mortgage servicers did during the foreclosure crisis. That's according to a newly released Consumer Financial Protection Bureau (CFPB) report that warns of increased fees and financial trouble to come:
Many of the private student loan complaints mirror the problems heard from consumers in the mortgage market following the wake of the financial crisis.
In the past year, CFPB received 3,800 complaints from student loan borrowers. Eight servicing companies received 87 percent of the complaints, including Sallie Mae, Wells Fargo, Citi and JPMorgan Chase.
Lenders pay other companies, called servicers, to process loans. These subcontractors make the least money when people pay back the loan on time -- and the most when people are struggling, since the subcontractors keep all of the late fees for themselves.
CFPB's report suggests a pattern of lawbreaking by student loan servicers. And why not? Wall Street saw how profitable foreclosing on families was. Although millions of Americans lost their homes due to criminal behavior, banks were just handed tax-deductible fines and banned from messing with the housing market like that again. But the student loan market remained open -- and too-big-to-fail banks knew they could get away with it again.
As David Dayen points out in Salon:
the past performance of regulators on mortgage servicing has been pretty toothless. And that’s why student loan servicers believe they have a license to steal.
Here's what the student loan services are up to, according to the CFPB report:
- Violating the Truth in Lending Act by charging student lenders fees for prepaying their private student loans.
- Forcing military borrowers -- including those in combat zones -- to resubmit unnecessary paperwork and then charging higher interest rates when they can't come up with the paperwork.
- Making it too complicated and difficult for most struggling graduates to refinance their loans.
It's no surprise over 14 percent of 2010 graduates defaulted on their loans within three years. Without reform and actual enforcement of lending laws, the default rate is only going to rise. We just wonder why this is still legal.