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CBA Comment Letter re CFPB RFI Payback Playbook
June 10, 2016
Office of the Executive Secretary
Bureau of Consumer Financial Protection
1700 G Street, NW
Washington, DC 20552
Re: Request for Information Regarding Student Loan Borrower Communications; Docket No. CFPB-2016-0018
Dear Ms. Jackson,
The Consumer Bankers Association (CBA) is pleased to have the opportunity to comment on the Payback Playbook examples provided by the Bureau as well as provide feedback on topics raised by the Bureau in the Request for Information (RFI). CBA members include private sector lenders who make the majority of private student loans to help families finance a college education. In addition, our members include organizations that are generally experienced in working with federal student loans, having participated in the Federal Family Education Loan Program (FFELP) and, in some cases, currently holding FFELP loans.
These comments seek to ensure borrowers have access to complete information about the repayment plans available and their repayment obligations while developing a process that works for all entities involved in servicing the loan. The feedback provided in this letter not only covers several questions listed in the RFI, but it also applies to all three Payback Playbooks, since Playbook A and B are nearly identical and Playbook C is simply a replica of one column.
Existing Federal Resources
In general, we recommend that the Bureau modify its approach to the Playbook. Instead of having the Bureau calculate the repayment amount as is done in the examples provided, it would make more sense to use an interactive calculator where the borrower could input the essential data, such as family size and total income. We have found that supplying interactive tools online that customers can input information into is far better than pre-populating data from several sources that would likely be inaccurate.
The Department of Education’s Office of Federal Student Aid already has a calculator operating on its website that includes many of our recommended features. The Bureau’s initiative seems to duplicate that existing calculator which is of concern because in cases where the Bureau’s and the Department of Education’s calculators provide differing information to the same borrower, confusion is bound to occur. The Department of Education calculator can be accessed at the following link: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action.
Many borrowers have both federal and private student loans. As such, the Playbook should make clear that they provide repayment information on federal loans only. This will avoid confusion by borrowers.
The introduction should state there is a right to request a new repayment plan since all borrowers are not eligible for Pay As You Earn (PAYE) plans. All borrowers can become eligible by consolidating, but it is misleading to indicate that all borrowers have a right to a PAYE plan and could lead to unfair complaints. We note that the examples listed in the Playbook leave out other examples that are available to borrowers, such as the Revised Pay As You Earn (REPAYE) and Income Based Repayment (IBR). Offering clear, concise information about all the federal programs rather than just the PAYE programs would be to the customer’s benefit. We also suggest that the introductory information for borrowers who are not delinquent should clearly emphasize that there is a cost to stretching out the time to repay before presenting the plan options. Currently, a reference is made to the potential costs of switching plans at the bottom of the page after the plan options are presented.
Repayment Plan Information
The repayment plans should contain more information including the total cost of the plan to the borrower, not just the monthly payment. Including the number up front would make the format more transparent and help borrowers make an educated choice among repayment plans.
The Graduated Repayment and PAYE disclosures fail to include essential information. Highlighting only a current monthly payment is extremely misleading since in both cases the monthly payment may rise. In the case of a Graduated Repayment plan, payments will certainly rise without regard to income. At the least, there needs to be a link to a schedule of payments included in the Graduated Repayment column.
In the case of PAYE, the text discloses that the current estimated payment could drop to zero, but it fails to disclose why a payment could go up. The wording is confusing and seems designed to encourage borrowers to choose PAYE when that may not always be the best plan for the borrower. The text needs to state clearly that payments will rise or fall each year based on income. For example, the monthly payment listed in the form should clarify that it is the initial monthly payment. It could also include a range of possible payments.
In addition, the Playbook does not make clear what family size means. The definition needs to specify whether it means dependents or not. It should also note that family sizes can change, especially with regard to dependents.
The PAYE column fails to cover the problem of a non-amortizing loan. In other words, interest will accumulate and be added to the loan balance, meaning that some borrowers will see their loan balance continue to grow even though they are making payments. This is a particular problem for borrowers who for any of a number of reasons are removed from the PAYE plan and find themselves with even higher payments because of accumulated (capitalized) interest.
The Playbook also should disclose that under current law, the forgiven balance may be subject to federal and possibly state income taxation as income in the year the balance is forgiven, requiring a potentially substantial cash payment at that time.
There are some serious operational challenges that would have to be addressed by the Bureau, the Department of Education and student loan servicers if the Playbook were utilized. Drawing information from multiple channels and then combining it to create the various repayment amounts, as if the loans have been consolidated, will be difficult and will require complex interactions.
Private Loans Have a Consumer-Tested Disclosure Regime and Should Not Be Impacted by the Playbook
Section III, Question 5 of the RFI is an open-ended question that seeks relevant information about the applicability of personalized information to private students and FFELP loans in addition to Direct Loans. Private loan holders currently regularly provide their customers with complete, personalized information on their loans. The adequacy of that information is reflected in the extremely high performance of private loans in repayment. It is not clear what additional information the Bureau is interested in requiring, but we would suggest that intervention to require a standardized, government approved format is not desirable or necessary in the case of private student loans.
The Higher Education Opportunity Act of 2008 included an amendment to the Truth in Lending Act that listed a series of disclosures that lenders of private student loans (as well as federal and state-issued loans not covered by Title IV of the Higher Education Act) must provide to potential borrowers. The Federal Reserve Board issued regulations that took effect in 2010 setting forth the exact language of the required disclosures. This set of 18 disclosures must be repeated three separate times before a covered education loan can be issued. These disclosures are extensive and somewhat repetitive, but private lenders have adopted them.
Given the extensive disclosures currently required of private loan lenders, it would not make sense to add an additional and somewhat different set of disclosures via the Playbook. It seems clear that private loan borrowers understand the terms and conditions of their loans since the non-payment rates are extraordinarily low – between 2 and 3 percent, according to the authoritative survey of the private loan lenders that make up two-thirds of these loans. Such outstanding performance allows private lenders to offer no-origination-fee loans with low interest rates and the choice of a fixed or variable rate. In addition, some private lenders currently list repayment program information online and provide phone numbers to call, which allows lenders to provide and obtain eligibility information by phone. Based on the high performance of these loans, this process seems to be working.
In the competitive market for private loans, lenders offer varying products which are flexible and can be tailored to the needs of their individual customers, unlike federal loans which have interest rates and fees as well as repayment plans set by law. The availability of a variety of loan types and the continuing innovation of such products are hallmarks of the private sector that could be squelched by a one-size-fits-all, on-line form.
Finally, most private loans are co-signed, a process the results in lower interest rates for student borrowers. Providing ongoing information via the Playbook as shown in the Bureau’s examples would require populating the various fields in the on-line form with personal information gathered both from the student borrower and their co-signer. This is a serious privacy issue that could concern one or both of the parties. In order to have such information readily available, private lenders would need to maintain constant access to sensitive personal information from co-signers which otherwise would not normally be shared. CBA is concerned that such a process would result in the unnecessary collection and electronic transmission of sensitive information that is not necessary and probably not even helpful to customers.
We thank you again for the opportunity to respond to this RFI on student loan borrower communications. As CBA’s members comprise organizations that are communicating every day with large numbers of borrowers, we would be happy to lend our expertise to the Bureau as it continues to consider its options. If you have any questions or wish to discuss these issues further, please feel free to contact me at (202) 552-6363 or at firstname.lastname@example.org.
Steven I. Zeisel
Executive Vice President & General Counsel
 12 CFR 226.46