WASHINGTON (Reuters) - Companies that service U.S. student loans and mortgages tricked customers into paying higher fees or engaged in other acts that violate U.S. consumer laws, the U.S. Consumer Financial Protection Bureau said in a report released on Tuesday.
Financial institutions hire servicing companies to do jobs that include collecting and processing loan payments, modifying loans, answering customer questions, maintaining loan records and in some cases helping struggling borrowers.
The CFPB found that some student loan servicers inflated minimum payments due, made illegal debt collection calls or charged unlawful late fees, even after borrowers had made payments during the grace period. The report did not specify which companies were being accused of breaking the rules.
Some servicers also misrepresented information on borrowers’ online statements or failed to provide accurate records for tax purposes, causing some students to lose up to $2,500 in tax deductions, the report said.
U.S. student loan debt exceeds $1.2 trillion according to CFPB estimates, and servicers manage loans of more than 40 million borrowers.
The agency previously said it had found troubling similarities in problems faced by student loan borrowers dealing with servicers and those faced by homeowners dealing with mortgage servicers.
The CFPB, which has sought to clean up the mortgage industry, also found that some mortgage servicers unfairly delayed permanent loan modifications, or misrepresented and confused borrowers about their terms.
After consumers had turned in the signed permanent loan modification agreements, the CFPB said, some servicers did not execute them, but instead later sent customers updated agreements with different terms.
“These misrepresentations about the available terms affected the borrowers’ payments, whether they would accept the modification, and how they could budget based on their expected payment,” the agency said.
The CFPB, created by the 2010 Dodd-Frank law, oversees banks and credit unions assets exceeding $10 billion and non-bank financial institutions of all sizes, including mortgage companies, loan servicers, payday lenders and private student loan lenders.
The agency has brought cases against several companies, including GE Capital Retail Bank (GE.N), ACE Cash Express AACE.UL, U.S. Bank, Flagstar Bancorp (FBC.N), and M&T Bank (MTB.N). The agency said its enforcement actions have so far yielded about $308 million for more than 1.2 million consumers for cases related to credit cards, payday loans, mortgage servicing and checking accounts.
“All borrowers should be treated fairly by loan servicers, and through our supervision program, we intend to hold them accountable for how they treat borrowers,” CFPB director Richard Cordray said in a statement.
Reporting by Elvina Nawaguna; Editing by David Gregorio