WASHINGTON The Consumer Financial Protection Bureau issued a letter to student loan servicers on Tuesday asking them to voluntarily show their payment processing policies.
The letter, sent by Rohit Chopra, CFPB's student loan ombudsman, requests that servicers show the options they've made available to borrowers who want to make extra payments on their loans. The request follows concerns the agency raised last month in a study that said servicers were not applying extra payments to higher-costing loans, even upon a borrower's specified request.
"We have heard from borrowers that many of them want to pay off their high interest loans, but they also told us they had to run an obstacle course to get their payments processed properly," Chopra said in an emailed statement. "We hope that by asking student loan servicers to voluntarily tell us about their payment processing policies, we can work together to ensure that borrowers understand their options in repaying their loans."
The CFPB recently posted a template for borrowers to use when communicating with servicers in redirecting payments but Chopra said in the letter that an industry trade association told them it was "unhelpful." Instead, the association suggested a borrower would need to specify the extra payment allocation in a letter each and every time.
"We understand that many servicers welcome the opportunity to electronically respond to borrowers acknowledging the borrower's request - even when a servicer will not honor standing instructions - and responding with the various ways that borrowers can direct a prepayment to a specific loan," Chopra said in the letter, which was attached to the bottom of a blog posting. "This not only helps servicers reduce operating costs by reducing call center volume and costly processing of paperwork, but it also supports their efforts to ensure compliance with the Truth-in-Lending Act's ban on prepayment penalties for private student loans."
Chopra listed five questions to servicers, including how they handle electronic payments coming in lump sum from the Department of Defense on behalf of service members; the percentage of payments and processes for online bill pay as well as direct debit payments; and how they communicate to borrowers when directing prepayments to a specific loan.
In Chopra's blog posting directed at consumers, he encouraged borrowers to share their payment processing stories with the CFPB and said the request to servicers was "so that we can keep building tools to help you tackle your debt more quickly."
Servicers have until Dec. 17 to offer up the information. Chopra said in the letter that it was "entirely voluntary" and "not a confidential supervisory information request." However, he did note that the CFPB may publicize the information without identifying a specific servicer.
"Information provided in response to this request will support the bureau's ongoing consumer education and market analysis functions," Chopra said in the letter.