Senators urge CFPB to investigate private student lenders’ bankruptcy compliance

On February 10, several American senators sent a letter to CFPB Director Rohit Chopra claiming that private student loan companies and servicing agents have “intentionally misrepresented to borrowers” their ability to repay certain private student loans in the event of bankruptcy. Citing a report from the Center for Student Borrower Protection, the senators claimed that these private lenders “intentionally perpetuated the false narrative that all student loans, including all private student loans, are non-dischargeable in bankruptcy, except where borrowers meet a standard of ‘undue’.” The letter noted, however, that the rules for enforceability of private student loans only applied to qualified student loans, whereas Private lenders and managers “have long peddled a variety of private student loans that do not meet the definition of qualified student loans.” Citing a figure estimating that approximately $50 billion in private student loans held by some 2.6 million borrowers fall into this category, senators said lenders include misleading language in their promissory notes while misrepresenting the fact that students could not repay their loans in the event of bankruptcy, and collected debts that could have been legally discharged, including through the use of abusive measures such as pursuing legal action and submitting negative reports to credit bureaus. The senators urged the Bureau to investigate the report’s findings and take action to ensure that private lenders and managers comply with bankruptcy law.

Michael J. Birnbaum