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It has been more than two years since the nation's most powerful financial watchdog examined the companies that manage about $1.5 trillion of federal student loans owed by 43 million borrowers. On Thursday, two members of the Senate Banking Committee said that they're exasperated with the Consumer Financial Protection Bureau's continuing failure to pursue mounting problems with the way student loans are handled, NPR.org reported. "You and your staff have provided a variety of excuses and shifting explanations for the Bureau's failure to fulfill this critical oversight role," Democratic Sens. Sherrod Brown (Ohio) and Robert Menendez (N.J.) wrote in a letter, obtained by NPR, to CFPB Director Kathleen Kraninger. Brown is the committee's top Democrat. Last fall, sources told NPR that a turf war between the Department of Education and the CFPB was effectively blocking the bureau from sending examiners into loan servicing companies to look for problems — in particular with a troubled loan forgiveness program for public service workers. The program has been rejecting 99 percent of people who think they have met the requirements. In a subsequent hearing in October 2019, senators told director Kraninger that her agency had broad powers to conduct such oversight and could go to court to force the issue. Under Education Secretary Betsy DeVos, the Education Department has told loan servicers not to cooperate with the CFPB where federal student loans are concerned. Kraninger responded at the hearing that she would rather not have an adversarial relationship with the Department of Education. "I have met with Secretary DeVos," she said, "and we are already discussing how to move forward in an effective way to make sure that we're overseeing servicers." Read more. 

In related news public servants with student loans were furious, and the U.S. Department of Education heard them. The department revealed on Thursday that it will simplify the process for borrowers to apply for an expansion of the troubled Public Service Loan Forgiveness (PSLF) Program, NPR.org reported. The move comes after a damning Government Accountability Office review. In that 2019 review, the federal watchdog found that during the expansion program's first year, the department turned away 99 percent of applicants. The change — which the department posted to the Federal Register without a news release or other public announcement — will address one of the most alarming revelations in the GAO's review: 71 percent of denials were essentially due to a paperwork technicality. According to the GAO, more than 38,000 applicants were denied relief under the expansion — known as Temporary Expanded Public Service Loan Forgiveness (TEPSLF) — simply because they hadn't first applied for and been denied PSLF. In a statement, the department said of the fix: "We believe borrowers will be better served by using a single form for both programs. So the point is to further reduce confusion and to eliminate the need for a borrower who completed the wrong form to complete a new form." "Sometime in the near future, we'll be able to go one step further and actually text the student that information," added Mark Brown, head of the department's student loan office, Federal Student Aid. The department's fix is to consolidate the two programs into one application form so that borrowers applying for TEPSLF will no longer have to first file a separate application for PSLF. Read more. 

The Consumer Financial Protection Bureau (CFPB) on Thursday filed a lawsuit against Citizens Bank, alleging it routinely failed to investigate and resolve billing errors and unauthorized credit card charges reported by customers, The Hill reported. In a complaint filed in the U.S. District Court for Rhode Island, the CFPB accused Citizens Bank of violating a slew of federal consumer protection laws between 2010 and 2016. The bureau claims Citizens Bank automatically rejected certain claims without due process, failed to compensate customers who were charged fees on erroneous or unauthorized transactions, and neglected to update some customers on the status of their complaints. The CFPB also accused Citizens Bank of failing to offer credit counseling referrals to customers who called a designated phone line for that purpose. Instead, the bureau alleges, the phone number directed customers in good standing to the general customer service line, while customers with delinquent accounts were directed to the collections department. Citizens Bank called the CFPB’s actions “misguided,” asserting that the bank fully compensated the “very small” number of affected customers soon after the bank reported these issues to the bureau in 2015. Citizens Bank said that it “self-identified operational errors” that affected roughly 2 percent, or 25,000, of its roughly 1.2 million credit card customers. The bank said it reported that conduct to the CFPB and paid $750,000 to a broad subset of potentially affected customers, calling the CFPB’s demands “far out of line.”

A bankruptcy court in New York is making it easier for borrowers with financial difficulties to modify their student loans through negotiation, potentially reducing their monthly payments to amounts they can more easily afford, the Wall Street Journal reported. Chief Bankruptcy Judge Cecelia G. Morris, who oversees bankruptcy courts in Manhattan and White Plains, N.Y., introduced a program on Monday designed to resolve student loan disputes through a court-supervised mediation process. The program, which aims to resolve disputes through mediation before resorting to litigation, enables borrowers and their student loan lenders to discuss repayment options. It is open to any borrower who has a student loan with a bankruptcy case pending in the Southern District of New York, which also includes Judge Morris’s court in Poughkeepsie, N.Y. Judge Morris’s mediation program is modeled on the bankruptcy court’s mortgage loss mitigation program, created during the mortgage foreclosure crisis. Many other bankruptcy courts throughout the country have similar loan modification programs that require homeowners and mortgage lenders to go through mediation in hopes of staving off foreclosure. The U.S. Bankruptcy Court for the Middle District of Florida has a similar program in place, referred to as the student loan modification program, that went into effect last year. The program sets the reasonable attorney fee for assisting an application for loan modification at $1,500, far less than the typical fee of more than $10,000 to handle student loan adversary proceedings, said Jason Iuliano, a bankruptcy law professor at Villanova University. The Florida program helps people get current with their payments and provides them an opportunity to restructure, said John Alper of Oviedo, Fla., law firm Alper Law, which specializes in bankruptcy. But “there’s nothing that the courts are going to do that could force the lenders to modify,” he said. Both the New York and Florida programs establish a process to facilitate document exchange and communication, and encourage negotiations between student loan borrowers and their creditors to reach settlements. “It’s hard to say how this will go,” said Prof. Robert M. Lawless of the University of Illinois College of Law, who served as the official reporter on ABI's Commission on Consumer Bankruptcy. “It’s often not so much what’s written on the paper, but how it actually ends up working out in practice that determines how well they do. A lot of it depends upon the willingness of the parties to talk through differences.”

A student loan servicer is appealing a bankruptcy judge’s watershed decision to discharge all of a U.S. Navy veteran’s student debt, YahooFinance.com reported. Educational Credit Management Corporation (ECMC) — a nonprofit that guarantees and services student loans on behalf of the Department of Education (ED) — is challenging the January 7 decision made by Chief U.S. Bankruptcy Judge Cecelia G. Morris, who discharged $221,385.49 in student loan debt for Navy veteran and lawyer Kevin Rosenberg under chapter 7 bankruptcy. The decision belies the common notion that student debt is not dischargeable under chapter 7. Judge Morris had applied the Brunner test — a three-factor standard used to identify if the borrower is facing undue hardship and cannot make repayments — to evaluate whether Rosenberg was eligible for discharge. “This Court will not participate in perpetuating these myths,” Morris wrote her decision. “Rather, this Court will apply the Brunner test as it was originally intended.” ECMC’s main contention in their appeal is that Rosenberg was licensed to practice law but did not pursue job opportunities in the same field: “Instead of pursuing those opportunities available to him, and paying back his taxpayer-backed federal student loans, Plaintiff, for the past 10 years, has held various positions in the outdoor adventure industry, including starting up and running his own tour guide business.” The loan servicer also implied that Judge Morris’ interpretation of the Brunner test was lax.