Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 105013 

1 17 CFR 145.9. 

1 12 U.S.C. 5481 et seq. 

2 15 U.S.C. 1693, et seq.; 12 CFR part 1005, et seq. 

3 15 U.S.C. 1601, et seq.; 12 CFR part 1026, et seq. 

before submitting the collection to OMB 

for approval. To comply with this 

requirement, the CFTC is publishing 

notice of the proposed collection of 

information listed below. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid OMB control 

number. 

Title: Core Principles and Other 

Requirements for Swap Execution 

Facilities (OMB Control No. 3038– 

0074). This is a request for extension of 

a currently approved information 

collection. 

Abstract: Section 5h to the 

Commodity Exchange Act (‘‘CEA’’) sets 

forth the requirements concerning the 

registration and operation of swap 

execution facilities (‘‘SEFs’’), which the 

Commission has implemented in part 37 

of its regulations. These information 

collections are needed for the 

Commission to ensure that SEFs comply 

with these requirements. Among other 

requirements, part 37 of the 

Commission’s regulations imposes SEF 

registration requirements for a trading 

platform or system, obligates SEFs to 

provide transaction confirmations to 

swap counterparties, and requires SEFs 

to comply with 15 core principles. 

Collection 3038–0074 was created in 

response to the part 37 regulatory 

requirements for SEFs. 

With respect to the collection of 

information, the CFTC invites 

comments on: 

• Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information will have a practical use; 

• The accuracy of the Commission’s 

estimate of the burden of the proposed 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Ways to enhance the quality, 

usefulness, and clarity of the 

information to be collected; and 

• Ways to minimize the burden of 

collection of information on those who 

are to respond, including through the 

use of appropriate automated electronic, 

mechanical, or other technological 

collection techniques or other forms of 

information technology; e.g., permitting 

electronic submission of responses. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to https://

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from https://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the ICR will be retained in 

the public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

Burden Statement: The Commission 

is revising its estimate of the burden for 

this collection for SEFs. The respondent 

burden for this collection is estimated to 

be as follows: 

Estimated Number of Respondents: 

20. 

Estimated Average Burden Hours per 

Respondent: 764 (rounded). 

Estimated Total Annual Burden 

Hours: 15,275. 

Frequency of Collection: On occasion. 

There are no capital costs or operating 

and maintenance costs associated with 

this collection. 

(Authority: 44 U.S.C. 3501 et seq.) 

Dated: December 18, 2024. 

Robert Sidman, 

Deputy Secretary of the Commission. 

[FR Doc. 2024–30630 Filed 12–23–24; 8:45 am] 

BILLING CODE 6351–01–P 

CONSUMER FINANCIAL PROTECTION 

BUREAU 

Supervisory Highlights: Special 

Edition Student Lending 

AGENCY: Consumer Financial Protection 

Bureau. 

ACTION: Supervisory highlights. 

SUMMARY: The Consumer Financial 

Protection Bureau (CFPB or Bureau) is 

issuing its thirty sixth edition of 

Supervisory Highlights. 

DATES: The findings in this edition of 

Supervisory Highlights focus significant 

findings across the entire student loan 

market and cover select examinations 

that were generally completed in 2024. 

FOR FURTHER INFORMATION CONTACT: 

Jaclyn Sellers, Senior Counsel, at (202) 

435–7449. If you require this document 

in an alternative electronic format, 

please contact CFPB_Accessibility@

cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

1. Introduction 

Student loans represent the secondlargest form of U.S. consumer debt at 

around $1.77 trillion in total 

outstanding balances. While Federal 

student loans comprise the vast majority 

of the student lending market, private 

student loans present notable risks. The 

refinance market, for example, may offer 

certain benefits, but refinancing or 

consolidating Federal loans through a 

private lender results in the loss of 

important Federal protections. And 

institutional lending products—private 

loans made by the borrower’s school 

directly to the student—warrant special 

attention because of the uniquely close 

relationship between student and 

school. Additionally, the terms of 

private student loans are not 

standardized, and examiners have found 

certain loan terms problematic for 

consumers. Because of these substantial 

risks, the Consumer Financial 

Protection Bureau (CFPB) is actively 

engaged in vigorous oversight of all 

areas of the student loan market to 

ensure that entities comply with Federal 

consumer financial laws, including the 

Consumer Financial Protection Act 

(CFPA),1 the Electronic Fund Transfer 

Act and its implementing regulation, 

Regulation E,2 and the Truth in Lending 

Act and its implementing regulation, 

Regulation Z.3

This edition of Supervisory Highlights 

focuses on significant findings across 

the entire student loan market. The first 

group of findings relates to the refinance 

market. Examiners identified abusive 

misleading statements regarding loss of 

Federal benefits as well as regulatory 

violations in connection with the 

refinancing and consolidation of loans. 

The second group involves the offering 

by private lenders of illusory benefits, 

including unemployment and disability 

protections as well as rate reductions for 

autopay. The third group involves 

noteholder liability for claims of school 

misconduct. Examiners identified 

violations related to private student loan 

servicers’ treatment of borrowers whose 

loan contracts have provisions allowing 

them to assert any claims and defenses 

they have against their school, such as 

for fraud, against the subsequent 

noteholder. The fourth group of findings 

involves illegal collection tactics, such 

as contract provisions allowing schools 


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105014 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 

4 If a supervisory matter is referred to the Office 

of Enforcement, Enforcement may cite additional 

violations based on these facts or uncover 

additional information that could impact the 

conclusion as to what violations may exist. 5 12 U.S.C. 5531. 

6 12 U.S.C. 5535(a)(1)(B). See also CFPB, Policy 

Statement on Abusive Acts or Practices (Apr. 3, 

2023), https://www.consumerfinance.gov/ 

compliance/supervisory-guidance/policy-statementon-abusiveness/#1. 

to withhold academic transcripts of 

delinquent borrowers. 

The fifth and last group of findings 

relate to the servicing of Federal student 

loans. For over three years, payments on 

these loans were paused due to the 

COVID–19 pandemic. During that time, 

approximately 20 million borrower 

accounts were transferred to different 

Federal student loan servicers. In 

September 2023, interest began accruing 

on nearly $1.5 trillion in federally 

owned loans owed by approximately 43 

million consumers. 

In October 2023, loan payment 

obligations resumed for around 28 

million borrowers—including more than 

6 million entering repayment for the 

first time. Many of these borrowers 

applied for income-driven repayment 

(IDR) plans to reduce their monthly 

payment amounts. Our recent 

supervisory work identified significant 

and pervasive violations related to 

servicers’ handling of the return to 

repayment. These violations include 

failing to provide appropriate avenues 

for consumers to communicate with 

their servicers, sending deceptive billing 

statements, withdrawing excess 

amounts from borrowers’ deposit 

accounts, and numerous problems 

related to processing of IDR 

applications. 

To maintain the anonymity of the 

supervised institutions discussed in 

Supervisory Highlights, references to 

institutions generally are in the plural 

and the related findings may pertain to 

one or more institutions.4 We invite 

readers with questions or comments 

about Supervisory Highlights to contact 

us at CFPB_Supervision@cfpb.gov. 

2. Supervisory Observations 

2.1 Refining Student Loans 

Refinancing student loans poses risks 

for borrowers, including loss of benefits 

tied to Federal student loans. In 

addition to other benefits, Federal 

student loans offer access to various 

forgiveness programs. For example, 

under the Public Service Loan 

Forgiveness program, eligible borrowers 

can have their remaining loan balance 

forgiven after making 120 qualifying 

loan payments on an IDR plan, while 

working for a qualifying public service 

employer. Under the Teacher Loan 

Forgiveness program, teachers may be 

eligible to have a portion of their loans 

forgiven after working for five years in 

low-income public schools. When 

borrowers refinance or consolidate these 

loans through a private lender, they lose 

these benefits and protections. 

2.1.1 Deceptive Representations About 

Eligibility for Forgiveness Upon 

Refinancing Federal Student Loans 

Examiners found that private lenders 

offering to refinance Federal student 

loans engaged in deceptive acts or 

practices where their marketing and 

disclosure materials give a misleading 

net impression that refinancing Federal 

loans might not result in forfeiting 

access to Federal forgiveness programs, 

when, in fact, it was a certainty. A 

representation, omission, act, or practice 

is deceptive when: (1) the 

representation, omission, act, or practice 

misleads or is likely to mislead the 

consumer; (2) the consumer’s 

interpretation of the representation, 

omission, act or practice is reasonable 

under the circumstances; and (3) the 

misleading representation, omission, act 

or practice is material.5

Examiners observed that the lenders 

repeatedly disclosed some of the 

benefits borrowers would lose access to 

if they refinanced their Federal loans 

into private loans, but omitted the fact 

that borrowers would lose access to 

forgiveness plans. In one instance, the 

lenders said borrowers ‘‘may’’ lose 

access to Federal benefits, despite it 

being a certainty. In phone calls about 

refinancing Federal loans, the lenders 

scripted responses to direct questions 

about loan forgiveness that omitted the 

loss of forgiveness benefits upon 

refinance. 

These statements were misleading 

because they created the net impression 

that borrowers could refinance their 

loans with the lenders without losing 

access to forgiveness programs, which is 

false. The borrowers’ interpretation of 

the representations was reasonable, as 

borrowers are entitled to accept 

statements on the lenders’ website and 

the lenders’ responses to direct 

questions in assessing the pros and cons 

of refinancing Federal student loans. 

The representations are material as they 

may affect borrowers’ decisions 

regarding whether to refinance their 

Federal loans. 

2.1.2 Abusive Practices in Connection 

With the Loss of Forgiveness Benefits 

Upon Refinancing Federal Student 

Loans 

Examiners also found instances of 

abusive acts or practices by private 

lenders in connection with misleading 

statements about Federal forgiveness in 

connection with refinancing Federal 

loans by private lenders. An abusive act 

or practice: (1) materially interferes with 

the ability of a consumer to understand 

a term or condition of a consumer 

financial product or service; or (2) takes 

unreasonable advantage of: a lack of 

understanding on the part of the 

consumer of the material risks, costs or 

conditions of the product or service; the 

ability of the consumer to protect the 

interest of the consumer in selecting or 

using a financial product or service; or 

the reasonable reliance by the consumer 

on a covered person to act in the interest 

of the consumer.6

Examiners found that the lenders 

engaged in abusive acts or practices by 

taking unreasonable advantage of a lack 

of understanding on the part of 

borrowers regarding the material risks, 

costs, or conditions of refinancing 

Federal loans into private loans. The 

lenders took unreasonable advantage of 

borrowers where their representations 

misled borrowers about the Federal 

benefits at risk when borrowers 

refinance their student loans. Here, the 

lenders created the impression that 

refinancing Federal loans may not result 

in forfeiting access to Federal 

forgiveness programs. 

The lenders profited from borrowers 

paying the full amount of their loans, 

when the borrowers otherwise 

potentially could have had some or all 

of those loans forgiven. They also 

gained customers who might not 

otherwise refinance their loans with the 

lenders, expanding their market share. 

And they increased loan amounts when 

borrowers consolidated Federal loans 

with private loans, which increased 

their revenue from interest on the loans. 

Borrower complaints evidenced a lack 

of understanding about the impact on 

eligibility for loan forgiveness and 

confusion based on the lenders’ 

representations. 

2.1.3 Failure To Re-Amortize 

Consolidated Loans After Borrowers’ 

Requests To Exclude Certain Loans 

Examiners found that student loan 

originators engaged in unfair acts or 

practices by failing to re-amortize or 

offer to re-amortize a consolidated 

refinanced student loan when the 

borrower requested a modification to 

the loan package to exclude certain 

loans during the three-day cancellation 

period. An act or practice is unfair 

when: (1) it causes or is likely to cause 

substantial injury to consumers; (2) the 

injury is not reasonably avoidable by 


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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 105015 

7 12 U.S.C. 5531 and 5536. 

8 12 CFR 1026.48(d). 

9 12 CFR 1026.47(c). 

consumers; and (3) the injury is not 

outweighed by countervailing benefits 

to consumers or to competition.7 When 

seeking to refinance private student 

loans, borrowers noticed that lenders 

erroneously included Federal student 

loans in the refinance package and 

requested, within the applicable threeday cancellation period, to have the 

Federal loans excluded. Lenders failed 

to exclude the loans from the refinance 

package before the new loan funded and 

the lenders had paid off the Federal 

loans. Upon realizing that they should 

not have included the Federal loans in 

the package, the lenders subsequently 

removed the Federal loans and 

recouped the payoff amounts. But rather 

than re-amortizing or offering to reamortize the refinanced loan, they 

merely reduced the principal. This 

tactic lowered the amount owed and 

shortened the loan term but did not 

change the monthly payment. 

This practice was unfair because it 

caused or was likely to cause substantial 

injury to borrowers because they were 

charged monthly payments larger than 

what they would have been charged had 

the Federal loans not been included and 

not given a choice about how to allocate 

their funds. Borrowers could not 

reasonably avoid the injuries because 

they could not control lenders’ 

decisions not to re-amortize or offer to 

re-amortize the loans. The injuries 

outweighed any countervailing benefits 

to consumers or competition. 

2.1.4 Failure To Cancel Loans During 

Three-Day Cancelation Period 

Examiners found that student loan 

originators violated Regulation Z8 by 

not allowing borrowers to cancel private 

education loans without penalty before 

midnight of the third business day 

following the date on which the 

borrower received the disclosures as 

required.9 Specifically, lenders violated 

the regulation by failing to cancel the 

refinancing of Federal loans as 

requested by borrowers within the 

three-day cancellation period. 

2.2 Illusory Benefits Offered by Private 

Lenders 

2.2.1 Unfair Denial of Disability 

Benefits 

Examiners found that lenders engaged 

in unfair acts or practices by denying 

borrowers’ applications for discharge 

based on Total and Permanent Disability 

for reasons other than those identified 

in the loan note where they otherwise 

satisfied the criteria for discharge based 

on Total and Permanent Disability. 

Examiners observed that borrowers’ 

loan notes provided for Total and 

Permanent Disability discharge based on 

the criterion that borrowers were unable 

to engage in any substantial gainful 

activity due to a physical or mental 

impairment of a certain type. The 

lenders denied applications for Total 

and Permanent Disability discharges 

based on criteria not included in the 

loan note. 

This practice caused substantial 

injury because borrowers were required 

to continue to make loan payments on 

loans that should have been discharged 

according to the contract terms. 

Borrowers may be required to pay down 

loan balances of thousands of dollars 

each. The injury is not reasonably 

avoidable because borrowers have no 

way to prevent the lenders from 

applying additional criteria to their 

discharge applications. The injury does 

not outweigh any countervailing 

benefits to consumers or competition. 

2.2.2 Deceptive Misrepresentations 

Regarding Autopay Discount 

Examiners found that private student 

lenders engaged in deceptive acts or 

practices by inaccurately representing 

that their autopay discount was not 

available to borrowers with certain 

types of loans when in fact they were 

eligible. 

The lenders had policies providing 

qualifying borrowers with a discount of 

0.25% on their student loan interest rate 

if they sign up for autopay. On their 

online borrower portals, the lenders 

represented that certain types of loans 

did not qualify for an autopay rate 

reduction, just before a link to enroll in 

autopay. However, these types of loans 

had become eligible for the autopay 

discount five years earlier. 

This representation misled or was 

likely to mislead borrowers, as it 

misstated that certain borrowers were 

not eligible for the autopay discount 

when they were, in fact, eligible. 

Borrowers’ interpretation of the 

representation was reasonable, as it is 

reasonable for borrowers to take at face 

value an express claim on their lender’s 

portal regarding its policies for autopay 

eligibility. The representation is 

material, as borrowers often enroll in 

autopay to receive the discount on their 

student loan interest rate. Some 

borrowers who believe they are 

ineligible for the autopay rate reduction 

because they accepted the lenders’ 

misleading misrepresentations may not 

sign up for autopay, and they may pay 

more in interest than they would have 

otherwise. 

2.2.3 Illusory Unemployment Benefits 

Private student loan originators 

advertised on their websites and on 

phone calls with borrowers that private 

student loan borrowers could suspend 

their loan payments if they lost their 

job. Examiners found that the lenders 

continued to advertise this as an 

attribute of their private student loans, 

even after the lenders unilaterally 

replaced the unemployment program 

with a less generous one that only 

allowed borrowers to reduce their 

payments during unemployment, but 

only if the borrower met new ability-topay eligibility criteria. 

Examiners identified two law 

violations related to advertising this 

unemployment program, unilaterally 

eliminating the benefit, and then failing 

to honor it. 

Examiners found that entities offering 

private student loans engaged in 

deceptive acts or practices by falsely 

advertising that private student loan 

borrowers could suspend their 

payments for short periods of 

unemployment when, in fact, the 

lenders no longer allowed borrowers to 

do so. 

The statements were likely to mislead 

reasonable borrowers into believing that 

suspension of the payments would be 

available if they lost their job. In fact, 

after a point, the lenders no longer 

offered this benefit. Borrowers may 

reasonably take the websites and 

lenders’ statements at face value 

regarding the ability to suspend their 

payments during unemployment. These 

representations were material because 

they were likely to affect borrowers’ 

choice to originate or refinance their 

student loans based on the availability 

of the advertised benefit. 

Examiners also found that private 

student loan originators engaged in 

abusive acts or practices by taking 

unreasonable advantage of borrowers’ 

inability to protect their own interest in 

selecting or using a consumer financial 

product or service by prominently 

advertising unemployment protections 

and then eliminating or not providing 

those protections after the borrower had 

already elected the loans. 

Lenders took unreasonable advantage 

of borrowers by promoting the ability to 

suspend payments for periods of 

unemployment to attract borrowers, and 

then reducing costs by significantly 

rolling back the unemployment 

protections. Some private student loan 

borrowers were unable to protect their 

interests because the lenders did not 

eliminate the unemployment benefit 

until after the borrower had taken out 

the loan. Once they were unemployed, 


ddrumheller on DSK120RN23PROD with NOTICES1
105016 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 

10Press Release, DOE, Biden-Harris 

Administration Approves $6.1 Billion Group 

Student Loan Discharge for 317,000 Borrowers Who 

Attended The Art Institutes (May 1, 2024), (https:// 

www.ed.gov/about/news/press-release/biden-harrisadministration-approves-61-billion-group-studentloan). 

11 16 CFR 433.2. 

borrowers also had few options to 

refinance their private loans with 

another lender. And the borrowers had 

no control over the lenders’ decision to 

discontinue the protections. 

2.3 Noteholder Liability Related to 

Claims of School Misconduct 

Student loan borrowers sometimes 

allege their schools fraudulently 

induced them to enroll and to secure 

private student loans to finance their 

education. These borrowers may be able 

to discharge certain loans due to their 

school’s misconduct under numerous 

State and Federal laws and protections. 

For example, the Borrower-Defense-toRepayment regulation, 34 CFR 685.400 

et seq, allows borrowers to challenge the 

validity of Federal loans that they 

believe were originated due to school 

misconduct. If the borrower is 

successful, the borrowers’ Federal 

student loans are completely expunged 

and any amounts they paid on those 

loans refunded. As of May 1, 2024, the 

U.S. Department of Education (DOE) 

had discharged $28.7 billion dollars for 

1.6 million borrowers who were cheated 

by their schools, saw their institutions 

precipitously close, or are covered by 

related court settlements.10

The Borrower-Defense-to-Repayment 

regulation does not apply to private 

student loans. However, other legal 

protections may allow borrowers to seek 

to have their private student loans 

discharged based on school misconduct. 

Many private student loans include a 

contractual guarantee in the promissory 

note—which may be required by the 

Federal Trade Commission’s Holder-inDue-Course Rule 11—that the borrower 

can assert against any subsequent loan 

holder any claim the borrower has 

against their school. In other words, 

provisions in borrowers’ private student 

loan contracts often ensure that a 

borrower can assert school misconduct 

as a basis for loan discharge regardless 

of who holds the loan. 

Examiners identified two violations 

related to private student loan servicers’ 

treatment of borrowers whose loan 

contracts have provisions allowing them 

to challenge their loans against 

subsequent noteholders and who allege 

misconduct by their schools. 

2.3.1 Misleading Borrowers About 

Their Contractual Rights To Challenge 

Fraudulent Loans 

Examiners reviewed private student 

loan servicers’ practices in connection 

with borrower contracts that contained 

language stating that any holder of the 

contract is subject to all claims and 

defenses that the borrower would have 

been able to assert against their school. 

They found that the servicers engaged in 

deceptive acts or practices when they 

implied to these borrowers that they 

could not challenge their loans using 

claims or defenses they could have had 

against their schools. In email responses 

to borrower complaints (both those 

made directly to servicers and to 

complaints referred by the CFPB), 

servicers stated that there was no 

discharge program available to these 

borrowers. In fact, provisions in their 

loan notes guaranteed their right to 

allege fraud by their schools as a claim 

or defense against repayment. 

This statement was likely to mislead 

borrowers by implying that they could 

not challenge their loans using claims or 

defenses they could have had against 

their school. The borrowers’ 

interpretation of the statement to mean 

that they had no avenues for challenging 

their private loans based on their 

school’s conduct is reasonable under the 

circumstances, as they are entitled to 

accept that their servicers are providing 

accurate information about the 

borrower’s rights. The servicers’ 

representations were material because 

they likely affected the borrowers’ 

decisions regarding whether to pursue 

their claims. 

2.3.2 Failure To Consider Borrowers’ 

Allegations of Fraud in Contravention of 

Contract 

Examiners found that private student 

loan servicers engaged in an unfair act 

or practice by failing to consider most 

borrowers’ challenges to their loans 

related to school misconduct, using 

claims or defenses they could have had 

against their schools. The servicers 

lacked policies and procedures to 

effectively consider most borrowers’ 

challenges regarding their schools and 

failed to do so even though provisions 

in the borrowers’ loan notes guaranteed 

the borrowers’ right to assert such 

challenges. Servicers considered 

borrowers’ claims against their schools 

only if the borrowers retained attorneys. 

This practice resulted in substantial 

injury to consumers because it caused 

borrowers to forgo further attempts to 

challenge their loans or required them 

to incur the costs necessary to obtain an 

attorney. Borrowers could not 

reasonably avoid the injury because 

they could not know that the servicer 

would disregard contractual provisions 

in their loan notes providing that any 

holder of the contract is subject to all 

claims and defenses that the borrower 

would have been able to assert against 

the seller. The injury is not outweighed 

by any countervailing benefits to 

consumers or competition. 

2.3.3 Corrective Actions—Process for 

Considering Borrower Claims of School 

Misconduct 

To address these UDAAPs related to 

noteholder liability, Supervision 

directed the private student loan lenders 

and servicers to maintain and publicize 

a robust process to consider borrower 

claims of misconduct by their school. 

More specifically, Supervision directed 

the entities to implement a claimsreview process that is not unduly 

burdensome for the borrowers and gives 

due deference to findings of the DOE or 

courts regarding claims of misconduct, 

fraud, or misrepresentation by a 

borrower’s school; that is public and 

easily accessible; and that ensures any 

denials are individualized and detailed. 

With respect to private student loans 

where the entity had actual notice that 

the DOE or a court had made a finding 

of fraud, misconduct, or 

misrepresentation by the school that 

resulted in discharge of loans to attend 

that school, Supervision further directed 

the entities to suspend collections until 

they provided the borrower with a 

detailed reason why their private loans 

were not the result of similar 

misconduct. 

2.4 Illegal Loan Collection Tactics 

2.4.1 False Threat of Legal Action 

Examiners found that private student 

loan servicers engaged in deceptive acts 

or practices when they included 

language in collection letters that gave 

the misleading impression that the 

servicers would take legal action against 

borrowers who fell behind on loan 

payments. Servicers sent letters to 

borrowers that included language about 

enforcing collection of debts and adding 

legal costs to borrowers’ debts if the 

borrowers did not pay. In fact, the 

servicers had no practice of bringing 

legal actions and incurred no legal costs 

associated with pursuing past due 

amounts during the exam period. 

Instead, the servicers returned severely 

delinquent accounts back to the 

noteholder. 

This act or practice was likely to 

mislead borrowers because they could 

reasonably understand the letters to 

mean that the servicer may bring legal 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 105017 

12Examiners previously found that institutions 

engaged in abusive acts or practices by withholding 

official transcripts as a blanket policy in 

conjunction with the extension so credit. See CFPB, 

Supervisory Highlights, Issue 27 (Fall 2022), https:// 

files.consumerfinance.gov/f/documents/cfpb_

student-loan-servicing-supervisory-highlightsspecial-edition_report_2022-09.pdf. 13 12 CFR 1005.10(b). 

action against borrowers when, in fact, 

the servicer had no policy of bringing 

legal actions. This understanding is 

reasonable because borrowers have no 

way of knowing that the servicers do not 

bring legal actions to collect debts as a 

matter of policy. The representation is 

material because it is likely to affect 

borrowers’ decisions regarding making 

payments on their debts. 

In response to these findings, 

servicers removed the language 

referencing legal actions from their 

letters. 

2.4.2 Withholding Transcripts as a 

Remedy for Default 

Academic transcripts are certified 

records of a student over their course of 

study. They provide information about 

courses taken, courses completed, 

grades, credits earned, certain 

credentials like majors or minors, and 

graduation status. Transcripts provide 

essential documentation of consumers’ 

post-secondary education histories. 

When requested, institutions provide, or 

authorize third parties to provide, 

official transcripts to prospective 

employers, State licensing or 

credentialing agencies, and other postsecondary institutions. 

Employers or licensing agencies 

require official transcripts for a range of 

reasons. For example, some employers 

may require transcripts to confirm the 

accuracy of applicants’ resumes, and 

licensing authorities use them to 

demonstrate that applicants obtained 

the requisite training. 

Consumers also need transcripts 

when applying to other post-secondary 

institutions as transfer students or for 

higher level degrees or credentials. 

Students may need to demonstrate their 

completed coursework to obtain credit 

for that education and progress toward 

a terminal degree or credential. 

Moreover, even when consumers do not 

need or wish to receive credit for any 

prior education, some post-secondary 

institutions still require the consumer to 

provide official transcripts prior to 

enrollment. 

During examinations of entities that 

created and distributed model retail 

installment contracts to schools, 

examiners identified contracts that 

contained language that allowed for the 

withholding of transcripts in situations 

where student borrowers were in default 

on their education loans. The model 

contracts contained language allowing 

educational institutions, as a remedy for 

default, to ‘‘withhold [the student]’s 

transcripts [or] course completion 

certificates.’’ Schools used these model 

contracts to originate institutional loans 

and reassigned the loans back to the 

entities for servicing. 

Examiners found that the entities 

risked engaging in an abusive act or 

practice by taking unreasonable 

advantage of consumers’ inability to 

protect their interests when they created 

and distributed to their clients’ 

contracts for institutional student loans 

that contained language allowing, as a 

remedy for default, unconditional 

withholding of official transcripts as a 

blanket policy.12 The entities risked 

gaining unreasonable advantage from 

the act or practice of creating contracts 

that permitted educational institutions 

to engage in blanket withholding of 

transcripts. Even though the entities did 

not directly benefit from the contract 

provision, the provision enabled their 

partner schools to engage in strong-arm 

collection tactics and could provide 

them with an advantage by boosting 

their market share or revenue. 

Borrowers were unable to protect their 

interests because at the time they 

needed an official transcript for a job, 

credential, or access to continued 

education, they were unable to protect 

themselves by seeking another 

education elsewhere or seeking credit 

elsewhere, since other lenders were 

unlikely to provide credit to borrowers 

of these schools who are in this 

position. Nor could the borrowers have 

protected themselves by choosing an 

alternative provider at the time of 

origination of the loan, as they cannot 

bargain over transcript withholding 

provisions, and borrowers are unlikely 

to select a school or loan based on these 

provisions, as opposed to factors 

relating to the education itself. 

In response to these findings, the 

entities removed the contract language 

and advised their client schools to cease 

utilizing the contract provision. 

2.4.3 Preventing Access to Education 

as a Remedy of Default 

Examiners conducted reviews of 

entities that created and distributed 

model retail installment contracts to 

schools who then originated 

institutional loans and then assigned the 

loans to the entities for servicing. The 

model contracts required repayment 

during the in-school period and 

contained language allowing, as a 

remedy for default, educational 

institutions to ‘‘deny Buyer access to 

classes, computers, final exams, and 

other education services at the School, 

terminate or suspend Buyer’s 

enrollment, deny or cancel Buyer’s 

registration for additional classes, . . . 

and take other similar actions affecting 

Buyer’s status as a student at the 

School.’’ 

Examiners found that entities risked 

engaging in unfair acts or practices by 

distributing to their clients’ contracts for 

institutional student loans which 

required repayment during the in-school 

period that contain language stating that 

a remedy for default is to deny students 

access to classes or other services 

related to ongoing education. This 

language created a risk of injury to 

consumers because if they defaulted, 

then schools could deny them access to 

education programs that consumers had 

already paid for, including potentially 

with other loans or savings. 

Additionally, since jobs that require 

advanced education generally pay more, 

this practice reduces the chances that 

consumers can earn their degree, and in 

turn reduces consumers’ potential 

earnings, making repayment of the 

underlying debt more difficult. 

Borrowers are unlikely to select a school 

or loan based on these provisions, as 

opposed to factors relating to the 

education itself. Consumers generally 

do not expect to default, do not consider 

consequences of default when making 

product decisions, and cannot bargain 

over contractual terms. Once the 

consumer defaults, there is no way to 

avoid the injury of missing classes and 

other education benefits because the 

school controls access to classes. The 

injury caused by the practices were not 

outweighed by countervailing benefits 

to consumers or competition. 

In response to these findings, the 

entities removed the contract language 

and advised their client schools to cease 

utilizing the contract provision. 

2.4.4 Debiting Funds Early 

Many student-loan borrowers make 

payments through auto debits, known as 

electronic fund transfers. Under 

Regulation E, the servicer, or designated 

payee, must obtain written 

authorization before transferring funds 

from consumers’ accounts.13 The 

written authorization specifies the date 

the payment will be withdrawn. 

Examiners found that servicers violated 

this provision when they obtained 

written authorizations to withdraw 

funds on a specified date but instead 

withdrew the amounts one to three days 

prior to the date in the written 

authorization. Because the funds were 


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105018 Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 

14CFPB, Supervisory Highlights, Issue 34 

Summer 2024,https://www.consumerfinance.gov/ 

data-research/research-reports/supervisoryhighlights-issue-34-summer-2024/. 

15 12 CFR 1005.10(d)(1). 16 12 U.S.C. 5531 and 5536 

not withdrawn on the date in the 

written authorization, the payee did not 

have written authorization for the 

transfers and violated Regulation E. In 

response to these findings, servicers are 

revising their policies and developing a 

remediation plan. 

2.4.5 Failing To Notify Consumers of 

Changed Preauthorized Electronic 

Funds Transfer Amounts 

Examiners continue to identify issues 

with failures to notify consumers of 

preauthorized electronic fund transfers 

that vary in amount.14 Consumers 

entered into agreements to withdraw the 

monthly payment amount, and the 

servicer took the monthly payment 

amount, but did not inform consumers 

when that amount had changed from the 

previous month. Regulation E requires 

the designated payee of a preauthorized 

electronic fund transfer from a 

consumer’s account to provide the 

consumer with written notice of the 

amount and date of the transfer at least 

10 days before the scheduled transfer 

date if the amount will vary from the 

previous transfer under the same 

authorization or from the preauthorized 

amount.15 Examiners found that 

servicers violated this provision when 

they did not provide written notices to 

consumers before withdrawing an 

amount that exceeded the previous 

transfer under the same authorization. 

In response to these findings, servicers 

are revising their policies and 

developing a remediation plan. 

2.5 Federal Student Loan Servicing 

During the Return to Repayment 

2.5.1 Extended Failure To Provide 

Adequate Avenues for Borrowers To 

Manage Key Loan Issues by Phone 

Federal student loan servicers operate 

call centers through which they offer 

borrowers various services to address 

key loan issues by phone. These issues 

include resolving disputes, inquiring 

about account status, enrolling in 

Federal repayment programs, and 

making loan payments. Despite 

purporting to offer the ability to address 

key loan issues by phone, servicers 

failed to provide, for extended time 

periods, adequate avenues for borrowers 

to manage key aspects of their loans 

over the phone. 

During the return to repayment in the 

fall of 2023, examiners reviewed metrics 

the servicers provided on a biweekly 

basis regarding how they handled 

incoming calls from student loan 

borrowers. These metrics covered 

average call-hold time, abandonment 

rate, callback speed, and call-center 

staffing levels. In this period, borrowers 

calling their servicers faced key average 

call hold times of 40–58 minutes. 

Average hold times exceeded 30 

minutes during 57–91 percent of 

operating hours. And more than 41 

percent of borrowers abandoned their 

calls before connecting with an agent. 

The periods of unavailability lasted 

multiple weeks. 

Examiners concluded that that a lack 

of oversight contributed to these 

failures. Servicers’ boards did not 

provide for the appropriate staffing 

levels to handle the influx of calls 

generated from the Federal return to 

repayment process. 

Supervision found that the servicers’ 

failures to provide, for an extended 

period, an adequate avenue for 

borrowers to timely resolve disputes, 

inquire about account status, or in 

enroll in Federal repayment programs, 

when they offered the option of 

addressing these issues by phone 

amounted to unfair acts or practices in 

violation of 12 U.S.C. 5531 and 5536. 

The failures caused or were likely to 

cause borrowers substantial injury by 

wasting time, delaying information, and 

delaying their ability to apply for 

benefits, which can result in increased 

payment amounts or delayed loan 

forgiveness. Borrowers cannot avoid this 

injury because they do not choose their 

loan servicer and have no control over 

its level of service, and other methods 

of seeking assistance like online account 

access or callbacks were unavailable or 

ineffective. And they cannot resolve 

individualized issues through other 

channels such as online accounts. This 

injury is not outweighed by any 

countervailing benefits to borrowers or 

competition. 

Supervision also found that these 

failures violated the CFPA’s prohibition 

against abusive acts or practices.16 The 

servicers took unreasonable advantage 

of the borrowers’ inability to protect 

their own interests. Borrowers could not 

protect their own interests because they 

do not choose their loan servicer, nor 

can they control their servicer’s level of 

service. The servicers’ conduct 

prevented borrowers attempting to 

protect their own interests in timely 

resolving disputes or in accessing 

benefit programs by reaching out to 

their servicer—as instructed—from 

actually speaking to a representative 

who could help them. Many borrowers 

also could not protect their interests in 

avoiding extensive hold times because 

they could not resolve some of their 

individualized issues through 

alternative channels, such as online 

accounts. The servicers gained an 

unreasonable advantage as they saved 

on operational expenses, including from 

understaffing their call centers, which 

resulted in extensive wait times that 

many borrowers could not avoid. 

In response to these findings, 

Supervision directed servicers to 

maintain adequate avenues for 

borrowers to timely resolve disputes, 

inquire about account status, and enroll 

in Federal repayment programs by 

phone (including by ensuring against 

unreasonably long average call-hold 

times and unreasonably high call-drop 

rates for any extended period); develop 

and maintain plans to address 

reasonably foreseeable spikes in 

borrower communications demand to 

ensure that, regardless of demand, 

borrowers consistently have adequate 

avenues to manage their loans; identify 

the borrowers who attempted to call 

their servicers, waited more than an 

hour before abandoning their call, and 

within three months took significant 

action on their loan; and provide 

information on borrower remediation. 

2.5.2 Deceptive Billing Statements 

Examiners found that Federal student 

loan servicers engaged in a deceptive act 

or practice by providing borrowers with 

inaccurate payment amounts and due 

dates on billing statements and 

disclosures. 

Federal student loan servicers 

provided borrowers inaccurate monthly 

payment amounts due to both system 

weaknesses and miscalculations. Some 

of the miscalculations were due to the 

servicers misapplying Federal poverty 

guidelines, using the wrong family size 

or income, or failing to include spousal 

debt. Examiners also reviewed billing 

statements or disclosures with incorrect 

payment due dates. These included 

providing borrowers incorrect due dates 

prior to October 1, 2023, the end of the 

Federal student loan payment pause, 

and giving repayment dates to 

borrowers with pending and approved 

borrower defense applications. 

Borrowers with pending or approved 

borrower defense applications should 

have been in a forbearance until the 

discharge or decision process was 

completed. 

These misrepresentations were likely 

to mislead borrowers about the amount 

they owed and when their payment was 

due. Borrowers reasonably interpreted 

billing statements and disclosures from 

their Federal student loan servicers as 

an accurate and reliable source of 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices 105019 

17 12 CFR 1005.10(b). 

information on the amount due and due 

date for their payments. Express 

misrepresentations or 

misrepresentations regarding central 

characteristics such as cost or payment 

due dates are material. 

2.5.3 Debiting Unauthorized Amounts 

Regulation E requires the designated 

payee to obtain written authorization 

before transferring funds from 

consumers’ accounts.17 Examiners 

observed that student loan servicers 

obtained authorizations that allowed 

them to withdraw the monthly payment 

amount, but the servicers then withdrew 

amounts that exceeded the written 

payment amount, in some cases instead 

withdrawing the entire outstanding loan 

balance. Because the authorizations 

allowed the servicers to withdraw only 

the monthly payment amounts, the 

preauthorized electronic funds transfers 

were not authorized in writing and 

therefore violated Regulation E. 

In other instances, consumers signed 

authorizations that allowed servicers to 

withdraw monthly payment amounts for 

certain loans from one deposit account 

and monthly payment amounts for other 

loans from a different deposit account. 

The servicers then withdrew payments 

for all the loans from one of the two 

deposit accounts. Because the 

authorization only allowed the servicers 

to withdraw the monthly payment 

amounts for specific loans and they 

instead withdrew monthly payment 

amounts for other loans, the 

preauthorized electronic funds transfers 

were not authorized in writing and 

therefore violated Regulation E. 

2.5.4 Excessive Delays in Processing of 

Applications for Income-Driven 

Repayment Plans 

Federal student loan borrowers are 

eligible for a number of repayment plans 

that base monthly payments on their 

income and family size; these plans are 

called IDR plans. To enroll in IDR plans, 

consumers must submit applications to 

their servicers who process the 

applications. 

Examiners found that servicers 

engaged in unfair acts or practices when 

they caused consumers to experience 

excessive delays in processing times for 

IDR applications. In many reviewed 

files, it took more than 90 calendar days 

for servicers to process the IDR 

applications. These delays caused or 

were likely to cause substantial injury as 

interest continued to accrue while 

servicers processed IDR applications, so 

excessive delays likely resulted in 

unnecessary accrued interest. In 

addition, the delays may have prevented 

borrowers from making payments which 

count towards loan forgiveness. These 

delays also caused borrowers 

considerable frustration and wasted 

time as they repeatedly tried to obtain 

information from servicers about the 

status of their applications. Consumers 

could not reasonably avoid the injury 

because they do not choose their 

servicer and have no control of how 

long it takes servicers to review and 

evaluate borrowers’ applications. The 

injury to consumers was not outweighed 

by countervailing benefits to consumers 

or to competition. 

2.5.5 Improper Denials of Applications 

for Income-Driven Repayment 

Examiners found that servicers 

engaged in unfair acts or practices when 

they improperly denied consumers’ IDR 

applications. Examiners found that 

servicers denied consumers’ 

applications for failing to provide 

sufficient income documentation 

despite consumers providing sufficient 

documentation of income. Examiners 

also found that servicers denied 

consumers’ applications because they 

had ineligible loan types, when in fact 

the consumers had eligible loans. These 

improper denials caused or were likely 

to cause substantial injury because 

consumers who are improperly denied 

paid or were at risk of paying higher 

monthly payments. Additionally, some 

consumers may have spent time and 

resources addressing the denials. 

Consumers could not reasonably avoid 

the injury because servicers are 

responsible for processing IDR 

applications in accordance with 

processing requirements and consumers 

do not choose their servicers. And the 

injury to consumers is not outweighed 

by countervailing benefits to consumers 

or competition. 

2.5.6 Providing Inaccurate Denial 

Reasons in Response to Income-DrivenRepayment Applications 

Examiners found that servicers 

engaged in deceptive acts or practices 

by providing inaccurate denial reasons 

to consumers who applied for IDR 

plans. The denial letters misled or were 

likely to mislead borrowers as the denial 

reasons were not accurate, and in 

multiple cases, erroneously denied 

eligible consumers. It is reasonable for 

borrowers to expect servicers to 

properly evaluate their eligibility for 

IDR plans and for denial letters to 

accurately explain the reasons why 

servicers denied their IDR applications. 

The misleading representations were 

material as the inaccurate denial reasons 

were likely to influence borrower 

choices with respect to applying for IDR 

plans by, for example, leading to 

borrowers’ confusion about eligibility 

criteria and discouraging borrowers 

from re-applying for an IDR plan by 

telling them to find and provide 

unnecessary additional information in 

order to qualify. 

2.5.7 Failure To Advise Consumers of 

the Option to Verbally Provide Income 

in Connection With Income-DrivenRepayment Applications 

During the COVID–19 pandemic and 

through February 29, 2024, the 

Department of Education allowed 

consumers to apply for IDR plans by 

providing an attestation of income over 

the phone or in writing, this process 

was referred to as self-certification. 

Examiners found that servicers 

engaged in unfair acts or practices by 

failing to advise consumers that they 

could self-certify their income when 

applying for an IDR plan. Consumers 

contacted their servicers to discuss their 

pending IDR applications that were 

delayed due to missing income 

documentation, but the servicer 

representatives did not advise 

consumers that they could provide the 

missing information by making an oral 

attestation during the call. These acts or 

practices caused or were likely to cause 

substantial injury because it caused 

servicers to deny consumers’ 

applications, preventing lower payment 

amounts, potential interest subsidies, 

and credit towards loan forgiveness. 

Consumers could not avoid this injury 

because they do not choose their 

servicers and relied on the servicers to 

provide relevant information regarding 

IDR applications. The injury to 

consumers is not outweighed by 

countervailing benefits to consumers or 

competition. 

Rohit Chopra, 

Director, Consumer Financial Protection 

Bureau. 

[FR Doc. 2024–30758 Filed 12–23–24; 8:45 am] 

BILLING CODE 4810–AM–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

[Transmittal No. 21–19] 

Arms Sales Notification 

AGENCY: Defense Security Cooperation 

Agency, Department of Defense (DoD). 

ACTION: Arms sales notice. 

SUMMARY: The DoD is publishing the 

unclassified text of an arms sales 

notification. 


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