Private Loans, Public Complaints: The CFPB's Consumer Complaint .

data, more narrative information anddetailed information about consumercomplaints, including how theywere resolved, and the reasons forand outcomes of any disputes, withspecific monetary relief amounts,if any, included. The CFPB shouldalso conduct more frequent analysesof trends and give users the tools toundertake their own analyses of thedata. In addition, the CFPB shouldmake it easier for analysts to link theConsumer Complaint Database toother government databases. The CFPB should expand publicawareness of how to file complaintsand access the Consumer ComplaintDatabase by working with regulatorsto disseminate information about thecomplaints process to consumers. The CFPB should develop freesmartphone applications (“apps”)for consumers to access informationabout how to complain about a firmand how to review complaints in thedatabase. The CFPB should conduct surveysamong consumers and companiesinvolved in disputes, and continue toimprove its own customer service capacity through the complaints system.To improve the effectiveness of theCFPB, the agency should: Move quickly to implement strongconsumer protection rules based onadditional research into the opaqueand heavily concentrated student loanmarket, in order to protect studentloan borrowers from predatorypractices. Where problems are identified,use the information gathered fromthe database, from supervisory andexamination findings, and from othersources to require a high, uniformlevel of consumer protection, throughguidance and rules, to protectconsumers and ensure that responsibleindustry players can better competewith those who are using harmfulpractices. Press colleges and universities tocertify the safety and quality of privatestudent loans before encouraging theirstudents to borrow.Executive Summary 

IntroductionFor many Americans aspiring to upward economic mobility, no financialproduct is as important as the onethat enables them to get an education: astudent loan.A college education is increasingly necessary for success in the global economy.While 12.4 percent of workers over age 25without high school degrees were unemployed in 2012, only 4.5 percent of workerswith a bachelor’s degree were. Those withmaster’s, doctoral and professional degreeshad even lower unemployment rates. Thosewith associate’s degrees had an unemployment rate of 6.2 percent, compared to 8.3percent for those with just a high schooleducation. College-educated workers alsoearned more: workers with bachelor’sdegrees earned 163 percent of the averagesalary of workers with only a high-schooleducation.2As states have cut college budgets, manystudents hoping to attend college havebeen forced to pay more. But they oftenlack clear information to help them fullyunderstand total college costs, and may fallprey to troubling institutional or lendingpractices that could lead them to take onexpensive private student loans (PSLs).   Private Loans, Public ComplaintsChoosing to pay for college through aprivate student loan is no better than paying for it on a credit card. Private studentloans are generally more expensive andrisky for consumers than more-commonfederal student loans, and dealing withprivate student lenders can be a tremendous hassle.Take Helen (not her real name), forexample, who wrote to the ConsumerFinancial Protection Bureau (CFPB) inresponse to the bureau’s 2011 public requestfor information about private student loansand private student lenders. When shedecided to go to graduate school, she tookout GradAssist loans from Citibank forover 60,000, eventually settling in NewYork City after graduation to look for a job.Helen says she received loan terms statingthat she had two six-month defermentopportunities available to her in case ofunexpected financial difficulty. When theNew York job market crashed and she applied to Citibank for her second deferment,Helen says customer service informedher that the bank had changed its policythe previous week, and that the originalterms of her agreed-upon deferment nolonger applied. Helen also reported that

a Citibank representative had unilaterallychanged the due date on one of her loans,causing her to fall further behind and eventually into default. “Citibank,” concludesHelen, “has ruined my credit and perhapsmy financial future.”John (also not his real name) remembered a similarly frustrating experiencewith the holders of his two private studentloans. “Both of them have made countlesserrors in the administration of my loans,”he wrote. It was only after taking out hisPSLs from Access Group and Citibank,John said, that he realized that “many oftheir internal policies seem to be designedto force borrowers into missing payments.”Access Group, for instance, allegedly lostthe form John had submitted to sign up forautomatic monthly payment, and customerservice, he said, refused to help. “Thesecompanies,” concluded John, “are preyingon borrowers and need to be regulated orstopped.”3John and Helen are just two of the morethan 2,000 people who responded to theCFPB’s 2011 public request for information about private student loans. Amongthem were consumers who reported beingharassed, misled or otherwise mistreated.That outpouring of consumer dissatisfaction with private student loan firmsunderscores the need for a watchdog whosesole purpose is to look out for the interestsof consumers in the financial marketplace,including student borrowers. Consumersneed a watchdog with the power to investigate new lending schemes, work on consumers’ behalf in disputes with financialservices firms, and stop the most egregiousanti-consumer practices.Today, in the form of the CFPB, consumers have that watchdog. Created in2010, the CFPB has already made a bigdifference for consumers in many areas ofconsumer financial protection. The agencyhas cracked down on illegal kickbacks frommortgage insurers to mortgage companies.4 It has investigated abusive “overdraftprotection” policies by banks that canresult in consumers paying hundreds ofdollars in fees for a single overdraft. It hasexposed the sale of inaccurate credit scoresto consumers that differ from the scoresused by lenders to make credit decisions.5It has imposed nearly half a billion dollarsin civil enforcement penalties and restitution to consumers for unfair practices bythree large credit card companies.6 Andmuch more.In this, the second of a series of analysesof the Consumer Complaint Database,we focus on complaints regarding student lending. An average of roughly 250consumers each month have complainedto the CFPB about problems with theirprivate student loans. By reviewing patterns of consumer complaints, citizens candetermine which companies in their regionhave been subject to the most complaintsand which have been the most effective atresolving consumer complaints.The consumer complaints reviewed inthis report indicate that America is a longway from having a financial marketplacethat serves consumers. America needs astrong CFPB.Introduction 

The Consumer Financial ProtectionBureau: A Watchdog for ConsumersThe U.S. financial crisis of 2008 wasthe product of an under-regulatedfinancial system run amok. Millionsof consumers were lured into mortgageswhose terms they could not understandand which they had little hope of ever being able to repay. Easy credit inflated thehousing bubble which, when it collapsed,brought down the fortunes of millions offamilies as well as the broader economy.The mortgage crisis highlighted theneed for more stringent financial regulations and better consumer education.But the problem extended far beyondmortgages—for decades, consumers hadincreasingly fallen prey to a growing list ofpredatory financial practices, from paydayloans to exorbitant credit card and bankfees to onerous private student loans—withlittle help from Washington, D.C.   Private Loans, Public ComplaintsThe Private Student LoanMarket and the Need for aStrong CFPBPrivate student loans accounted for about7 percent of all student education loanstaken out last year, and account for about15 percent of outstanding student loan debtin the United States.7 The current debtowed by consumers in the United Stateson their private student loans is estimatedto be approximately 165 billion.8The private student loan market wasconsidered the “Wild West” of studentlending prior to the financial crash andrecession of 2008. Then, as now, the costof college outstripped the aid dollars thatwere available to students. Taking advantage of this dynamic, banks and lendersaggressively pushed their expensive, riskyprivate student loan products in a largelyunregulated environment that benefitedthem over the student consumer.While some PSL borrowers assumedthe maximum they could in federal studentloans, and then took on a private loan, mostdid not. In 2008, a majority of PSL borrowers took out less in federal student loans

than they could have. Of these borrowers,a full quarter took out no federal studentaid whatsoever.9In some cases, students signed on forprivate student loans without regard fortheir onerous terms and fees. But in largepart, private student borrowers fell preyto a range of unsavory marketing tactics.For example, fly-by-night private studentlenders engaged in “direct-to-consumer”marketing through television ads, mailingsand the Internet, offering easy credit withjust the click of a button.10 Some lendersdeliberately misled borrowers into believing that their private student loan productswere superior to federal loans.11In a major scandal uncovered by theNew York Attorney General’s office in2007, banks offered inducements andkickbacks to college financial aid offices,which in turn pushed their PSL products totheir students.12 For-profit colleges pushedhigh-cost PSLs on their students in orderto work around a federal rule meant toprotect taxpayers from supporting lowquality schools with federal financial aid.13Some top lenders, when giving student loanadvice to families, pushed their private loanproducts first over the availability of federalloans, and failed to mention the high feesand dubious terms of those private loans.14Lawmakers at the state and federal levelscracked down on some of these abusivetactics that thrived before the recession,such as collusion between college financialaid offices and banks. Other tactics like direct-to-consumer marketing disappeared,along with the lenders themselves, as thecredit markets tightened up.But the damage had been done. Hundreds of thousands of PSL borrowers whointended to better their lives instead faceda bleak future, hindered by unnecessarily deep debt. These borrowers ensnaredin bad private student loans before therecession required action to better theircircumstances. In 2010, Congress passedthe Dodd-Frank Wall Street Reform andConsumer Protection Act, which createdthe Consumer Financial Protection Bureau (CFPB), whose mission is to “makemarkets for consumer financial productsand services work for Americans—whetherthey are applying for a mortgage, choosingamong credit cards, or using any number ofother consumer financial products.”15 Thebureau started work on July 21, 2011.Congress considered the need to protectyoung people in the student loan marketplace to be a very important part of theCFPB’s mission. Congress established, within theCFPB, a statutory Office of theStudent Loan Ombudsman, whichspecializes in helping young borrowers and students deal with the difficulties presented by private student loansand private student lenders. Congress designated just three nonbank sectors of the financial marketplace for special CFPB authority. Inaddition to its regulation and enforcement authority over all non-banklenders, the CFPB was specificallyempowered to supervise (or examinethe books and activities at any time)payday lenders, non-bank mortgagecompanies and private student lendersof any size.16The CFPB is a critical asset for consumers, educating the public about financialpractices, enforcing consumer protectionlaws, and analyzing available data to keeptrack of current trends in the consumermarketplace.17 To fulfill these roles, theCFPB maintains a strong connection withthe public it serves.That connection is crucial to studentloan borrowers now more than ever, asthe PSL market, which grew at a rapidpace before the recession, is expandingonce again. Sallie Mae, Wells Fargo andDiscover Financial are some of the PSLThe Consumer Financial Protection Bureau: A Watchdog for Consumers 

lenders that are experiencing strong marketgrowth.18 Hopeful college students stillface the same basic market dynamic thatexisted before 2008, which is that collegecosts are outpacing the availability of lowcost government aid. Not only do WallStreet analysts expect the value of banksoffering PSLs to skyrocket,19 but expertspredict that private student loan volumewill outpace federal student loan volumeby 2030.20Even in a sluggish economic climate thatmay not seem conducive to aggressive PSLmarketing, student consumers are still being misled into purchasing these products.The CFPB’s own report on PSLs estimatesthat more than 54 percent of PSL borrowers did not maximize their federal loan aidbefore turning to private student loans.21Given the trends, the CFPB must makesure that stronger rules, and more checksand balances, are built into the systemso that today’s student borrowers are notparticipating in a market rigged againstthem as occurred prior to the financialcrash in 2008.The CFPB consumer complaints database not only enables the bureau to receiveand act upon consumer complaints againstfinancial institutions, but it also allowsthe bureau to identify systemic problemsthrough analysis of the database that canbe resolved through strong guidance andrules. Restricts unfair, deceptive or abusiveacts or practices; Takes consumer complaints; Promotes financial education; Researches consumer behavior; Monitors financial markets for newrisks to consumers; and Enforces laws that outlaw discrimination and other unfair treatment inconsumer finance.22Collecting and responding to consumercomplaints is a key part of the CFPB’smission, one that contributes to achievingseveral of the above goals. In particular,consumer complaints enable the CFPB to: Learn about new threats to consumers: The complaint process isdesigned to engage consumers whenthey believe that they have beenwronged. The CFPB Office of Consumer Response “hears directly fromconsumers about the challenges theyface in the marketplace, brings theirconcerns to the attention of companies, and assists in addressing theircomplaints.”23The Consumer ComplaintDatabase: A Critical Part ofthe CFPB’s Mission Identify trends in issues and potential unfair practices: The CFPBcan use the complaint data in aggregate to identify common issues orsectors where more enforcement isneeded. Writes rules, supervises companies,and enforces federal consumer Hold financial services firms accountable: Making complaint dataavailable to the public and monitoring the remedial process increases theaccountability of financial institutions.The CFPB engages in many tasks as part ofits mission to protect consumers. According to the agency’s website, the CFPB:10financial protection laws;Private Loans, Public Complaints

Ideally, these institutions will be lesslikely to engage in unfair practicesout of the fear that they will be heldaccountable by the public for anyresulting increase in complaints. Thecomplaint data also alert the agencyabout potential enforcement actionsthat may need to be taken.How the Consumer ComplaintProcess WorksWhen a consumer believes that he or shehas been subject to an unfair financialpractice, he or she may file a complaintwith the CFPB. Filing a complaint triggers a process through which the CFPBpasses the complaint along to the relevantfinancial institution, and later follows upwith the consumer to ensure the resolutionwas adequate.The steps are as follows:24 Filing – The consumer submitsa complaint form via the CFPB’sconsumer complaint website (www.consumerfinance.gov/complaint) orby phone (at 855-411-2372). Consumers can track the progress of theircomplaint using a variety of tools,including e-mail updates. Review and routing – CFPB staff review the complaint and, if appropriate,send it to the relevant company (or,if the issue is outside of the CFPB’sjurisdiction, to another governmentagency). Company response – The companythat is the subject of the complaintresponds to the consumer and theCFPB and proposes a resolution to thecomplaint. The consumer can thenprovide any response or feedback tothe company and the CFPB. Investigation – CFPB staff reviewthe complaint, the company’sresponse and the consumer’s feedbackto prioritize any complaints forinvestigation or enforcement action. Analysis and reporting – The CFPBaggregates data about consumercomplaints in its complaints database,analyzes those data for trends, andreports regularly to Congress and thepublic.The Consumer ComplaintDatabaseMaintaining the Consumer ComplaintDatabase is a key part of the CFPB’s mission. The database provides the agency, themedia and consumers with the informationneeded to monitor trends in consumercomplaints and industry’s response to thosecomplaints.The CFPB’s complaints program andthe Consumer Complaint Database havegradually expanded in scope over the twoyears since the agency began collectingconsumer complaints in July 2011. Initially, the CFPB received complaints aboutcredit cards, and it has gradually addedbanks, student loans, credit reporting andother financial services to the complaintsprogram. In July 2013, the agency beganaccepting complaints about debt collectionpractices.25 The agency has also graduallyexpanded the amount of data available tothe public through the database—in May2013, for instance, the CFPB enabled complaints to be identified by state.Complaints submitted to the CFPBinclude information on a variety of topics,including: The specific issue or problem the consumer had with that service, The company that provided the service, The date on which the complaint wasThe Consumer Financial Protection Bureau: A Watchdog for Consumers11

filed and state from which it was filed,and Several data points associated with thecomplaint’s resolution (including thesteps taken to respond to the complaint and whether the outcome wasdisputed by the consumer).Because much of the data entered intothe complaint database is public, consumers can sift through the data themselves,enabling them to make decisions with moreinformation. Financial institutions can alsouse the data to maintain and improve theirperformance.The CFPB also analyzes complaintsin the database in order to spot systemicproblems within a particular financialmarketplace or with particular financialinstitutions, and to determine the bureau’spossible course of action. In July 2012,CFPB chief Richard Cordray noted that,“the information we have been gatheringis very valuable, as it helps to inform oursupervisory exams, enforcement actions,and rulemaking

make it easier for analysts to link the Consumer Complaint Database to other government databases. The CFPB should expand public awareness of how to file complaints and access the Consumer Complaint Database by working with regulators to disseminate information about the complaints process to consumers. The CFPB should develop free