The Consumer Financial Protection Bureau released a report Tuesday highlighting illegal servicing practices in the $1.2 trillion student lending market, including charging illegal late fees, allocating payments to maximize late fees and misrepresenting minimum payments.
The agency also found that servicers were not providing accurate tax information, misled borrowers about potential bankruptcy protections and made collection calls very early in the morning or late at night.
"Students are already struggling with crushing amounts of loan debt," CFPB Director Richard Cordray said in a statement. "Student borrowers deserve better than illegal practices as they work to pay back their loans."
The areas identified by the CFPB are likely to be the focus of potential enforcement actions against student loan servicers and banks supervised by the CFPB.
The study follows another report released earlier in the month that analyzed consumer complaints and found some student loan borrowers were being "driven into default" with very few alternatives.
In its most recent report, the CFPB faulted servicers for allocating payments in a way designed to maximize fees. Typically, servicers handle multiple loans for a borrower and combine them into a single account so a borrower can make one payment. But the CFPB said it found that when a borrower paid less than their minimum amount due, the payment was allocated proportionately across all loans, resulting in several late fees. The agency said servicers should have instead allocated the payment so that it satisfied the minimum requirement of at least some of the loans.
The CFPB also found that some servicers were charging late fees when payments were received during a grace period and that there were instances when servicers inflated the minimum payment due on account statements by including amounts that were in deferment and not actually due.
Examiners also said that some servicers erroneously told student loan borrowers that their debt could never be discharged - even through bankruptcy. But that is untrue if the borrower is able to prove "undue hardship" in court.
The agency also specifically cited illegal debt collection calls. The CFPB found one instance where 48 calls were made to one consumer during a 45-day period and identified more than 5,000 calls made during times that were considered inconvenient.