Some student-loan companies are ‘ignoring’ court orders and continuing to collect borrowers’ debt after they received relief through bankruptcy, a federal consumer watchdog finds

College graduates.

The CFPB found some student-loan companies have continued to collect on debt that was discharged in bankruptcy.
The agency on Thursday put those companies on notice, ordering them to return the payments back to borrowers.
It comes after the Education and Justice Departments reformed bankruptcy guidance for borrowers last year.

A top federal consumer watchdog is putting student-loan companies on notice for potentially illegal behavior that’s harming borrowers.

On Thursday, the Consumer Financial Protection Bureau (CFPB) released a report detailing recent findings that some student-loan companies have engaged in unlawful behavior by sending borrowers’ loans back to collections after a bankruptcy court approved a discharge of their debt. The CFPB is directing those companies to “return illegally collected payments to affected consumers and immediately cease these unlawful collection tactics,” and it will continue to examine how companies are handling loans that are discharged in bankruptcy to detect illegal behavior.

“When a court orders the discharge of a loan, lenders and servicers should not treat this as a suggestion,” CFPB Director Rohit Chopra said in a statement. “The CFPB has found that some servicers are ignoring bankruptcy court orders. The student loan servicing industry should ensure that their collection practices are compliant with the law.”

While the CFPB’s report did not explicitly name which companies have engaged in misconduct, it elaborated on the types of actions by companies that harmed borrowers. For example, it found that companies were in violation of consumer protection laws by resuming collections on debt that was already discharged by a bankruptcy court, which was “likely to cause substantial injury to consumers because the representations made to consumers in billing statements and other collection attempts were likely to result in consumers making payments they did not owe.”

“In fact, …read more

Source:: Businessinsider

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