CFPB Releases Blog Post on the Dischargeability of Private Student Loans in Bankruptcy | Troutman Pepper

On April 12, the Purchaser Money Defense Bureau (CFPB) launched a website publish titled “Busting myths about bankruptcy and non-public student loans.” In the website put up, the CFPB argues that selected private education and learning financial loans can be discharged in individual bankruptcy. Exclusively, the CFPB argues that the pursuing non-public student loans can be discharged with no a demonstrating of undue hardship and an adversary continuing:

• Financial loans where by the bank loan sum was increased than the value of attendance (these types of as tuition, books, room, and board), which can manifest when a mortgage is compensated instantly to a buyer.
• Financial loans to pay for instruction at educational institutions that are not eligible for Title IV funding, such as unaccredited colleges, a college in a foreign country, or unaccredited coaching and trade certificate applications.
• Loans made to address charges and living bills incurred while finding out for the bar exam or other specialist tests.
• Loans designed to deal with expenses, living expenses, and shifting expenses affiliated with health care or dental residency.
• Loans to a pupil attending school less-than-50 %-time.

The CFPB then depends on its personal prior investigate to make the situation that customers count on servicers to deliver details about non-public student loans and cites precise purchaser problems as evidence that student mortgage homeowners, lenders, servicers, and collectors unlawfully gather on personal student loans that should — according to the CFPB — have been discharged.

This site publish is a further illustration of the seemingly higher stage of impact the CFPB requires from the Scholar Borrower Safety Middle (SBPC). In our blog post on the CFPB’s “discrimination as a UDAAP” position, we noted that the SBPC experienced unveiled a report just about a year prior to the CFPB’s announcement, arguing that discrimination ought to be enforced as an unfair act or observe. The CFPB’s playbook appears to be the identical below. In January of this calendar year, the SBPC unveiled a report titled “Morally Bankrupt: How the College student Financial loan Sector Stole a Generation’s Suitable to Personal debt Aid.” The report can make the case that only certain private student loans encounter limitations to dischargeability in bankruptcy, and contends that businesses will need to “use the equipment of customer fiscal defense to safeguard borrowers and to maintain business accountable” for any alleged wrongdoing on this subject matter. The CFPB’s current weblog article appears to be to suggest that it has taken up the problem urged by the SBPC.

Commonly, the CFPB takes advantage of these kinds of blog posts and pronouncements as a precursor to motion on a specific difficulty. Having publicly discovered what it perceives to be a challenge, the CFPB will then consider action to appropriate that trouble by targeting people marketplace participants engaged in any alleged wrongdoing. It feels inevitable that this private college student loan blog site put up will final result in the very same type of scrutiny.

Troutman Pepper will continue to keep track of any developments connected to the CFPB and its supervision and enforcement of the university student mortgage business.