The Biden administration announced that it would cancel $39 billion of student debt owed by more than 804,000 borrowers whose debts have been outstanding for more than 20 years, Politico reported. The Education Department said that it was implementing its plan, announced in April 2022, to compensate borrowers for what it called “historical inaccuracies” and other failures in how the agency and its contracted loan servicers have managed the income-driven repayment programs. The program is separate from President Joe Biden’s sweeping student debt relief program that the Supreme Court struck down last month. But the announcement comes as the Biden administration looks to highlight its alternative pathways for delivering student debt relief in the face of that legal defeat.
Click here for the Department of Education's press release.
The Consumer Financial Protection Bureau (CFPB) yesterday joined with several state attorneys general and a state regulator to take action against Prehired for deceptive marketing and debt collection practices, according to a CFPB release. Prehired operated a 12-week online training program claiming to prepare consumers for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired drove interested applicants to sign an “income share” loan to finance the costs of the program and represented that consumers would pay nothing until they got a high-income job through Prehired. In reality, Prehired deceptively buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased consumers’ required minimum monthly payments without any evidence that they had secured employment or experienced an increase in income. The CFPB is seeking to void the loans and obtain redress for affected consumers and a penalty, which would be deposited into the CFPB’s victims relief fund. The attorneys general from Washington, Oregon, Delaware, Minnesota, Illinois, Wisconsin, Massachusetts, North Carolina, South Carolina, and Virginia joined the action, along with California’s Department of Financial Protection and Innovation.
President Joe Biden is launching another effort to forgive at least some federal student loan debt after the Supreme Court struck down his initial proposal to wipe away as much as $20,000 for borrowers, ABC News reported. The White House's new approach is based on the Higher Education Act (HEA) of 1965, which provides government-backed student loans and grants the U.S. Education Department the ability to "compromise, waive or release loans." Further details will be revealed during a rulemaking process: Implementing any changes will take multiple steps over months, the National Economic Council's deputy director, Bharat Ramamurti, said. It's unclear if any debt cancellation offered through HEA would be of a similar scope and scale as Biden's first program, which the White House said covered 43 million borrowers — with 20 million expected to see their student loans entirely erased. Conservatives had sharply criticized that loan forgiveness as a misuse of tax dollars and an excessive and unconstitutional "scam," with some saying it didn't address underlying cost problems in education. Ramamurti said that "even a typical rulemaking process can take some amount of time. You have to do a proposal, it has to receive comments, it has to be finalized and so on." A negotiated rulemaking process is "even more complicated," Ramamurti said, and will involve public hearings. The Education Department will hold one virtually on July 18.
In other news, Republicans are moving forward with their own proposed student loan debt solution, ABC News reported. Conservative lawmakers from both chambers, vocally opposed to the president's landmark program, which they said was an overreach, celebrated the court's decision. Even with the 6-3 ruling against him, President Joe Biden laid out alternative options to his original call for sweeping debt forgiveness, though some specific details remain unclear. An on-ramp to repayment will begin later this fall, according to Biden. It will include a 12-month grace period after the pause unfreezes in September. Federal student loan borrowers should expect interest on their debts to kick back in on Sept. 1 and payments to resume starting in October. Repayments had been paused for more than three years amid disruptions from COVID-19. Recently, Louisiana Sen. Bill Cassidy, the ranking member of the Senate's Health, Education, Labor and Pensions committee, and House Education and the Workforce Committee Chairwoman Virginia Foxx of North Carolina requested to meet with Education Secretary Miguel Cardona on or before July 20 to discuss federal student aid servicer roadblocks, as well as internal memos and documents about the department's strategy for the return to repayment. Cassidy and Senate Republicans previously sent a letter to the secretary seeking to halt Biden's student debt relief plan in early June, calling it an "affront to the millions of Americans [who] do not have student loans." Read more.
The Consumer Financial Protection Bureau (CFPB) has ordered installment lender OneMain Financial to pay $20 million in redress and penalties for failing to refund interest charged to 25,000 customers who cancelled purchases within a purported “full refund period,” and for deceiving borrowers about needing to purchase add-on products to receive a loan, according to a CFPB press release. OneMain will pay $10 million in refunds to consumers it harmed, and an additional $10 million penalty to the CFPB’s victims relief fund. “OneMain pressured its employees to load up its loans with extra charges through false promises of easy cancellation with full refunds,” said CFPB Director Rohit Chopra. “We are ordering OneMain to refund borrowers it cheated and to clean up its business practices.” OneMain is a nonbank personal loan installment lender headquartered in Evansville, Indiana and is a subsidiary of OneMain Holdings, Inc. OneMain is one of the largest non-depository personal installment lenders in the United States. It has a nationwide network with more than 1,400 branches across 44 states. The company offers loans and makes extra profits by upselling borrowers with products such as roadside assistance, unemployment coverage, and identity theft coverage. OneMain expected its employees to upsell borrowers on every loan, according to the CFPB. Employees were incentivized to push more products, and company training materials directed them to upsell them even when consumers had already declined the products on previous loans. Salespeople were evaluated on the basis of their sales rate and could even be fired if they did not upsell enough.
The nation's most powerful financial watchdog agency directed student loan servicers that unlawfully collected debt discharged in bankruptcy to return those funds to affected borrowers, YahooFinance.com reported. It also warned all servicers against the illegal practice and to cease those efforts immediately. The bulletin issued yesterday by the Consumer Financial Protection Bureau (CFPB) comes after the agency’s examiners found some private student loan servicers did not determine whether loans were discharged and continued to bill and collect payments, running afoul of the Consumer Financial Protection Act’s “prohibition on unfair, deceptive, or abusive acts or practices.” Many borrowers continued to pay thousands of dollars on those loans, it said. “When a court orders the discharge of a loan, lenders and servicers should not treat this as a suggestion,” CFPB Director Rohit Chopra said in a press release. “The CFPB has found that some servicers are ignoring bankruptcy court orders. The student loan servicing industry should ensure that their collection practices are compliant with the law.”
Top White House officials and the head of the Consumer Financial Protection Bureau (CFPB) on Wednesday urged states to expand efforts to crack down on surprise fees consumers are forced to pay on everything from rental housing to cable bills, Reuters reported. The push is part of President Joe Biden's government-wide effort to reduce or eliminate "junk fees" that jack up costs for consumers. Some agencies have already taken action, including a proposed rule by the CFPB to cut most credit card late fees and a Department of Transportation proposal to require airlines to disclose all fees up front. Biden's domestic policy adviser, Susan Rice, said some fees were slapped on without the consumer's knowledge. "There are the surprise fees that show up after a hospital visit or predatory fees like bank overdraft fees," she said. Biden has vowed to keep attacking the issue on the federal level, and the White House said on Wednesday that action by state governments is also "essential" to rid the U.S. economy of billions of dollars in "unnecessary, unavoidable or surprise charges." To boost their efforts, the White House hosted a virtual meeting on Wednesday with hundreds of state legislators, some of whom shared actions they have taken to reduce or eliminate junk fees by beefing up enforcement, passing new laws or even changing their contracts with third-party providers.
The Biden administration on Thursday said military personnel should be allowed to pursue class actions accusing Citigroup Inc. and American Express Co. of overcharging them on loans, and not be forced to arbitrate their claims individually, Reuters reported. In "statements of interest" filed with a federal court in North Carolina, the Department of Justice said federal law gives service members an "unwaivable right" to pursue class-action claims even if they had agreed to arbitrate. The Justice Department weighed in on private lawsuits accusing Citibank and American Express National Bank of wrongly charging military personnel more than 6% interest on some loans. Citibank allegedly overcharged four named plaintiffs on credit cards, with Army Sergeant Jeremy Bell seeing his rate increase to 25.99%, while Amex overcharged Army National Guard veteran Nicholas Padao, who served in Iraq. According to the Justice Department, such charges violated the federal Servicemembers Civil Relief Act, whose roots date to the Civil War, and can be challenged in court via class actions. "The law's explicit purpose is to allow servicemembers to devote their entire energy to the defense needs of the nation, (and) must be read with an eye friendly to those who dropped their affairs to answer their country's call," the department said in both filings.
