CFPB Shines a Spotlight on Unlawful Collection Practices for Discharged Student Loans

  • The CFPB issued a Compliance Bulletin and Policy Guidance warning loan servicers that continuing to seek repayment of certain student loans after bankruptcy discharge is an unfair, deceptive, or abusive act or practice in violation of the Dodd-Frank Act.
  • The bulletin states that the CFPB recently identified certain loan servicers who failed to maintain policies or procedures for determining whether education loans they serviced were “qualified education loans”—which can only be discharged if they meet an “undue hardship” standard—or “non-qualified education loans”—which can be discharged under standard bankruptcy discharge orders. The bulletin notes that the loan servicers’ failures to make those determinations resulted in improper attempts to collect repayment on non-qualified loans after bankruptcy discharge. The bulletin also notes that the CFPB directed those loan servicers to cease collection of the discharged loans, conduct a multi-year lookback, and issue refunds to affected consumers.
  • The bulletin notifies loan servicers that the CFPB will continue to determine whether servicers are collecting repayment on loans that have been discharged after bankruptcy, and that the CFPB expects servicers to proactively identify discharged loans and cease collections on those loans.