On April 12, the Consumer Financial Protection Bureau (CFPB) released a blog post titled “Busting myths about bankruptcy and private student loans.” In the blog post, the CFPB argues that certain private education loans can be discharged in bankruptcy. Specifically, the CFPB argues that the following private student loans can be discharged without a showing of undue hardship and an adversary proceeding:

  • Loans where the loan amount was higher than the cost of attendance (such as tuition, books, room, and board), which can occur when a loan is paid directly to a consumer.
  • Loans to pay for education at schools that are not eligible for Title IV funding, such as unaccredited colleges, a school in a foreign country, or unaccredited training and trade certificate programs.
  • Loans made to cover fees and living expenses incurred while studying for the bar exam or other professional exams.
  • Loans made to cover fees, living expenses, and moving costs associated with medical or dental residency.
  • Loans to a student attending school less-than-half-time.

The CFPB then relies on its own prior research to make the case that consumers rely on servicers to provide information about private student loans and cites specific consumer complaints as evidence that student loan owners, lenders, servicers, and collectors unlawfully collect on private student loans that should — according to the CFPB — have been discharged.

This blog post is another example of the seemingly high level of influence the CFPB takes from the Student Borrower Protection Center (SBPC). In our blog post on the CFPB’s “discrimination as a UDAAP” position, we noted that the SBPC had released a report nearly a year prior to the CFPB’s announcement, arguing that discrimination should be enforced as an unfair act or practice. The CFPB’s playbook appears to be the same here. In January of this year, the SBPC released a report titled “Morally Bankrupt: How the Student Loan Industry Stole a Generation’s Right to Debt Relief.” The report makes the case that only certain private student loans face limits to dischargeability in bankruptcy, and contends that agencies need to “use the tools of consumer financial protection to safeguard borrowers and to hold industry accountable” for any alleged wrongdoing on this topic. The CFPB’s recent blog post seems to indicate that it has taken up the issue urged by the SBPC.

Typically, the CFPB uses these kinds of blog posts and pronouncements as a precursor to action on a particular issue. Having publicly identified what it perceives to be a problem, the CFPB will then take action to correct that problem by targeting those industry participants engaged in any alleged wrongdoing. It feels inevitable that this private student loan blog post will result in the same kind of scrutiny.

Troutman Pepper will continue to monitor any developments related to the CFPB and its supervision and enforcement of the student loan industry.

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Photo of Chris Capurso Chris Capurso

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and…

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and other credit programs. He provides guidance on federal consumer protection laws and regulations, including TILA, ECOA, ESIGN, and GLBA.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Chris also leverages insights from his litigation and enforcement experience to help clients design new products and processes, including machine learning marketing, fraud prevention and underwriting models, product structure, advertising, online application flows, underwriting, and collection and loss mitigation strategies.

Chris brings a highly practical focus to his legal advice, informed by balancing a deep understanding of the business of consumer finance and the practical priorities of federal and state regulatory agencies.

Chris speaks frequently at conferences across the country on consumer financial services law and has been featured in numerous articles in publications such as the Wall Street Journal, the New York Times, the Washington PostAmerican BankerNational Law JournalBNA Bloomberg, and Bank Safety and Soundness Advisor.