In alignment with its recent focus on private student loans, the CFPB released a report describing the types of complaints it received related to “auto defaults”, the practice of placing private student loan borrowers in default despite the fact that their loans were current and in good standing. The report, which covers the period of October 1, 2013 to March 31, 2014, indicated that many of the complaints centered around industry participants automatically placing loans in default despite the fact that the borrower was paying off the loan as agreed upon. Estimating that approximately 90% of private student loans were co-signed in 2011, the CFPB noted that it has been receiving reports that borrowers are automatically put in default upon the death or bankruptcy of co-signers on the loan. In response to this, the report described several alternatives to such “auto-defaults”, including conducting an assessment of the borrower for co-signer release and maintaining the existing payment schedule, affording the borrower the opportunity to identify a new co-signer, or allowing the borrower time to refinance the loan.
Alert April 29, 2014