Report:

Private Loans, Public Complaints

The CFPB's Consumer Complaint Database Gets Real Results for Student Borrowers
Released by: NMPIRG Education Fund

The Consumer Financial Protection Bureau (CFPB) was established in
2010 in the wake of the worst financial crisis in decades. Its mission
is to identify dangerous and unfair financial practices, to educate
consumers about these practices, and to regulate the financial
institutions that perpetuate them.

To help accomplish these goals, the CFPB has created and made
available to the public the Consumer Complaint Database. The database
tracks complaints made by consumers to the CFPB and how they are
resolved. The Consumer Complaint Database enables the CFPB to identify
financial practices that threaten to harm consumers and enables the
public to evaluate both the performance of the financial industry and of
the CFPB.

This report is the second of several that will review complaints to
the CFPB nationally and on a state-by-state level. In this report we
explore consumer complaints in the private student loan sector with the
aim of uncovering patterns in the problems consumers are experiencing
with their student loans.

Student consumers can obtain federal student loans, private student
loans or both to pay for higher education. Private student loans (PSLs)
are typically far more risky and expensive for consumers seeking a way
to pay for college. Private student loans, like credit cards, generally
offer variable interest rates that are higher for those borrowers with
the least means. Repayment options are also severely limited. Federal
student loans, by contrast, are typically subsidized at a fixed interest
rate and offer repayment options like deferment, income-based repayment
and loan forgiveness that can help the borrowers respond to job
changes, job loss, illness or other changes in income.

PSLs accounted for about 7 percent of all student education loans
taken out last year, and account for 15 percent of outstanding student
loan debt in the United States. The current debt owed by consumers in
the United States on their private student loans is estimated to be
approximately $165 billion.

Since the Consumer Financial Protection Bureau began
collecting data on private student loans in March 2012, the CFPB has
recorded more than 4,300 complaints about problems with private student
loans.*

  • Sallie Mae was by far the most complained-about private student
    loan firm. Sallie Mae is a behemoth in the PSL marketplace, with an
    estimated 50 percent market share. However, its share of total
    complaints to the CFPB was lower than its market share. The Pennsylvania
    Higher Education Assistance Authority (AES/PHEAA), which has purchased
    several private student loan portfolios and acts as the servicer for
    other private student firms, ranked second. Wells Fargo, which is the
    second largest private student lender behind Sallie Mae, ranked third.
    Ten U S. private student lenders and servicers account for about 90
    percent of all complaints to the CFPB.
  • Repayment of loans (including fees, billing, deferment, forbearance,
    fraud and credit reporting) was by far the most common subject of
    complaints to the CFPB. Loan repayment was the subject of nearly 65
    percent of complaints filed.
  • Sallie Mae, the largest PSL lender, received the largest number of
    complaints in all three complaint categories that the CFPB tracks. The
    company received 1,983 complaints – more than the next nine companies
    combined, and 46 percent of all student complaints filed with the CFPB.
  • In most cases, lenders and servicers that received high total
    numbers of complaints also ranked toward the top for complaints across
    all three issues tracked by the CFPB (issues related to getting loans,
    inability to pay and loan repayment). AES/PHEAA, for example, was second
    in both complaints about loan repayment and problems resulting from
    inability to pay (such as issues related to default, debt collection and
    bankruptcy), as well as second in complaints overall.

Complaints about private student loans vary by state, and state residents vary in their tendency to reach out to the CFPB.

  • Sallie Mae was the most complained-about lender in 48 states.
    However, its size and dominance in the PSL market renders comparison to
    other lenders difficult.
  • Excluding Sallie Mae, AES/PHEAA was the most complained-about
    private student loan firm in 28 states. Wells Fargo was the most
    complained-about company (other than Sallie Mae) in seven states, while
    Citibank was most complained-about in three and Discover in one.

Figure ES-1. Most Complained-About Private Student Loan Firm (other than Sallie Mae) in Each State[i]

 

  • Student loan borrowers in Northeastern states are most likely to
    complain about PSLs, while borrowers in the Midwest and South are least
    likely. The District of Columbia had the highest complaint-to-borrower
    ratio, followed by New Hampshire, Connecticut, Massachusetts, New York,
    Maryland and Vermont.

Figure ES-2. Complaints about Private Student Loans per 100,000 Student Borrowers, by State

 

  • The variation in the ratio of complaints to student borrowers by
    state may reflect differences in the propensity of residents of each
    state to rely on private student loans, or other factors, such as
    differing levels of awareness of the CFPB database on the part of that
    state’s residents. States with higher average student loan debt tend to
    have borrowers who complain more frequently about private student
    lenders to the CFPB. Private student loans are disproportionately used
    by high-debt borrowers.
  • The District of Columbia, Vermont, Massachusetts, Connecticut,
    Maryland, New York and New Jersey all ranked among the top 10 for
    complaints per 100,000 borrowers in both categories of issues that
    attracted large numbers of complaints to the CFPB (problems related to
    inability to pay and loan repayment). However, some states experienced
    large numbers of complaints in one category but not the other. Rhode
    Islanders were seventh most-likely to complain about problems resulting
    from an inability to pay, for example, but were 40th in complaints about
    loan repayment. Pennsylvanians were in the top 10 for complaints about
    loan repayment, but 22nd in complaints about problems resulting from
    inability to pay.

The CFPB is making a significant difference for student borrowers facing difficulty with their financial institutions.

  • The CFPB has helped more than 330 consumers, or just under 8
    percent, to receive monetary compensation to resolve their student loan
    complaints, with a median amount of monetary relief of $700 and maximum
    relief of over $75,000. More than 500 additional consumers, or 12
    percent, have had their complaints closed with some form of non-monetary
    relief.
  • Private student loan companies vary greatly in the degree to which
    they respond to consumer complaints with offers of monetary relief.
    Almost 15 percent of consumers complaining to Discover Financial
    received offers of monetary relief, compared with slightly fewer than 2
    percent of complaints regarding Nelnet.
  • About 20 percent of responses received from private student loan
    firms to complaints filed with the CFPB were deemed unsatisfactory by
    consumers and were subject to further dispute.
  • Of companies with 10 or more overall complaints, the lender with the
    greatest proportion of disputed responses was First Associates Loan
    Servicing LLC, with 40 percent of complaint responses disputed by
    consumers. Of these same lenders, PNC Bank had the highest proportion of
    complaints resolved without dispute, with less than 6 percent of
    complaint responses disputed.

The Consumer Financial Protection Bureau’s Consumer
Complaint Database is a key resource for consumer protection. To enhance
the effectiveness of the CFPB in addressing consumer complaints:

  • The CFPB should make the Consumer Complaint Database more
    user-friendly by adding, among other data, more narrative information
    and detailed information about consumer complaints, including how they
    were resolved, and the reasons for and outcomes of any disputes, with
    specific monetary relief amounts, if any, included. The CFPB should also
    conduct more frequent analyses of trends and give users the tools to
    undertake their own analyses of the data. In addition, the CFPB should
    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 smartphone applications (“apps”) for
    consumers to access information about how to complain about a firm and
    how to review complaints in the database.
  • The CFPB should conduct surveys among consumers and companies
    involved in disputes, and continue to improve its own customer service
    capacity through the complaints system.

To improve the effectiveness of the CFPB, the agency should:

  • Move quickly to implement strong consumer protection rules based
    on additional research into the opaque and heavily concentrated student
    loan market, in order to protect student loan borrowers from predatory
    practices.
  • Where problems are identified, use the information gathered from the
    database, from supervisory and examination findings, and from other
    sources to require a high, uniform level of consumer protection, through
    guidance and rules, to protect consumers and ensure that responsible
    industry players can better compete with those who are using harmful
    practices.
  • Press colleges and universities to certify the safety and quality of
    private student loans before encouraging their students to borrow.

 * As of August 6, 2013

  

[i] Sallie Mae was the most complained about lender in every state other than Alaska and Minnesota.

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