CBA Letter to CFPB regarding Student Loan Payments


November 14, 2013


Mr. Rohit Chopra

Student Loan Ombudsman

Consumer Financial Protection Bureau 1700 G Street, NW

Washington, DC 20552 Dear Mr. Chopra:

The recent consumer advisory and sample letter regarding special payment instructions for private education loans have raised questions and concerns in the related servicing and lender communities. The Consumer Bankers Association (CBA) shares those concerns. This letter addresses the documents posted on the CFPB website as of October 16, 2013 at   student-loan-servicer/.


We appreciate the value of educating borrowers on the application of extra payments when applied to student loans.  Most private student loan lenders have established an automated systems methodology for applying extra payments when a borrower does not state a preference for how extra amounts should be applied. These methodologies are designed to be in compliance with the law and, in no case we are aware of, are they established with the goal of maximizing borrower interest payments   or late fees.  Furthermore, protocols are in place to adjust the application of “extra”                 payment amounts in accordance with the payment allocation preferences conveyed by the borrower with their payment or after the initial processing.


However, while the Bureau’s sample letter will help some borrowers, it might be counter-productive or confusing for borrowers who have different payment priorities. Moreover, we are concerned that the guidance and sample letter just won’t work in some situations. Many private student loan borrowers do not seek to simply pay down the loan with the highest interest rate first, when paying amounts above the regularly scheduled payment. In fact, customer preferences for applying “extra” amounts vary.  Borrower preferences are impacted by considerations including whether loans have a fixed or variable interest rate, whether they are cosigned, current, or delinquent, as well as the outstanding balances of individual loans.


Furthermore, the sample letter’s request for servicers to retain the payment instructions may ultimately be a source of confusion.  Borrower payment preferences are highly situational and often change on a month-to-month basis. Payment allocation processes can account for these changing preferences; therefore, it is preferable for the borrower to include specific instructions with each extra payment rather than submit a standing request.


In addition, the term “minimum amount due” as used in the letter, may be confusing, when used to refer to the amount due or scheduled payment amount.              “Minimum amount due” suggests that for


every scheduled payment there is a minimum amount due that is different than the full scheduled payment amount. While the concept of a “minimum amount due” applies in other consumer credit products (most notably credit cards), we respectfully submit that it is not applicable in the private student loan context.  Since lenders/servicers will always apply a payment – whether an underpayment, whole payment, or overpayment – towards the scheduled payment amount, use of “minimum amount due” unnecessarily risks confusing borrowers.


For the above reasons, CBA urges the CFPB to withdraw the sample letter, and amend its guidance to clarify that applying overpayments consistent with the best interests of borrowers – in cases where borrower preference is not communicated – involves consideration of a range of factors including those identified in this letter.  We also recommend the CFPB explain that the borrower’s best choice when it comes to applying “extra” payment amounts may be something other than simply applying the extra amount to the highest-interest loan (e.g., applying the extra payment to a delinquent loan, even if it bears the lowest interest rate of all of the borrower’s loans, to avoid negative credit reporting and late fees).


Thank you for your willingness to consider these issues.   CBA members are happy to meet with the CFPB to discuss these matters further.  We look forward to working with you to assure that the guidance offered by the Bureau works best for borrowers and contributes to simplifying the loan repayment process.



Steven I. Zeisel

Executive Vice President and General Counsel