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Dive Brief:
- Some student loan providers charged borrowers late fees and interest despite payments being made on time, according to a new report on junk fees from the Consumer Financial Protection Bureau.
- The agency found that customer service representatives at multiple loan companies took credit card payments over the phone, despite the companies having policies against accepting credit cards to cover student borrowers’ outstanding debt.
- The lenders then reversed these charges once the processing errors were discovered and imposed penalties for the now-late payments, causing accounts to accrue interest and late fees, the report said. These charges in turn negatively impacted borrowers’ credit.
Dive Insight:
The flagged loan providers did not offer borrowers a chance to repay the voided charges and caused their customers “substantial injury,” according to the report.
“Consumers could not reasonably avoid the injury because they could not anticipate that servicers would reverse payments after initially accepting them, and the servicers did not send notices explaining the reversals in all cases,” CFPB said.
The companies have since reversed the late fees and negative credit reporting that resulted from the improperly accepted payments, the agency said. They also updated their payment processing systems to reject credit cards and trained customer service workers to verbally decline credit cards as a payment option.
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