SBPC and NCLC Warn Education Department that Delaying “Operation Fresh Start” Will Deny Promised COVID-19 Protections to Millions of Student Loan Borrowers in Default

October 19, 2021

WASHINGTON — Today, the Student Borrower Protection Center and the National Consumer Law Center released the following statements in response to press reports that the U.S. Department of Education is weighing but has not yet taken steps to protect millions of struggling federal student loan borrowers from the harsh consequences of default — relief that is critically needed for millions in poverty or living in its shadow. The March 2020 CARES Act gave President Trump and President Biden authority to give these borrowers a pathway to a second chance. The Department must now use its authority to provide an automatic pathway out of default, referred to as “Operation Fresh Start.”

Statement from Student Borrower Protection Center Policy Director Mike Pierce:

“Before the pandemic, more than seven million student loan borrowers had already fallen through the cracks of our badly broken student loan system. Secretary Cardona and the Biden Administration must not fail these borrowers a second time. Instead, the Department of Education should keep its promises to borrowers in default and provide them with a clean slate.”

Statement from Persis Yu, Director of the National Consumer Law Center’s Student Loan Borrower Assistance Project:

“Without action on the part of the Department of Education, on February 1, millions of student loan borrowers are going to immediately lose access to much needed wages, social security benefits, and anti-poverty payments made through tax refunds – including the Child Tax Credit and Earned Income Tax Credits which have lifted millions of children out of poverty. Defaulted student loan borrowers – disproportionately women and people of color – desperately need relief in order to recover from the economic impacts of the pandemic. We call on the Department of Education to take all steps within its power, including cancellation and rehabilitation, to keep these borrowers from falling over the financial cliff on February 1.”


On October 18, 2021, POLITICO reported that “the Education Department is weighing a plan to automatically pull more than 7 million borrowers out of default on their federal student loans. The effort to help those borrowers, which has not been finalized, is being internally referred to as “Operation Fresh Start,” according to the sources familiar with the plan.”

In March 2020, Congress enacted the CARES Act, which suspended student loan payments, interest charges, and debt collection for tens of millions of borrowers who owe student loans held by the U.S. Department of Education. As part of this emergency legislation, Congress required the Secretary of Education to count each month during which payments were suspended as a month spent making progress toward the Education Department’s “loan rehabilitation” program for borrowers in default.

Beginning in September 2020, President Trump and President Biden have extended the suspension of student loan payments under the same terms as those enacted by Congress at the start of the COVID-19 pandemic.  As a result, all borrowers with defaulted student loans have now earned two years of credit toward “loan rehabilitation”– a program that ends student loan default and restores borrowers’ access to income-driven repayment and other consumer protections and safety net programs intended to help economically vulnerable borrowers make ends meet.

Because eligibility to rehabilitate loans out of default requires only nine qualifying months of payment, all of these borrowers are now eligible for rehabilitation, and the Biden administration should automatically remove all of them from default and give them a fresh start at repayment. If the Biden Administration fails to take this necessary action as authorized under the law, millions of student loan borrowers will be at the mercy of the Education Department’s out-of-control debt collection machine. Earlier this year SBPC and NCLC warned that millions of low-income student loan borrowers would be vulnerable to wage garnishment, offset of tax refunds and social security checks, and the seizure of President Biden’s signature Child Tax Credit.

Read the Letter: SBPC and NCLC Demand President Biden Give a Second Chance to Millions of Student Loan Borrowers in Default

Read the SBPC and NCLC Blog on Student Loan Default and the Child Tax Credit:  Without Action, Millions of Families Will Be Denied Biden’s Top Anti-Poverty Lifeline Because of Student Loans 

Revised COVID-19 Options for VA-Guaranteed Borrowers

October 13, 2021

This webinar will address the significant revisions to the options available for VA-guaranteed borrowers facing pandemic-related hardships.


Steve Sharpe, Staff Attorney at the National Consumer Law Center


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Bank Regulators’ Proposal on Third-Party Relationships Silent on Predatory Rent-a-bank Lending, Posing Risks for Banks and Consumers

October 19, 2021

WASHINGTON – Today, the National Consumer Law Center (NCLC), on behalf of its low-income clients, the Center for Responsible Lending (CRL), and the National Fair Housing Alliance released their comment letter to the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Reserve Board (FRB) on the regulators’ “Proposed Interagency Guidance on Third-Party Relationships: Risk Management.” The comments noted that the guidance is silent about rent-a-bank lending, whereby a bank rents out its charter to a financial company that is not a bank “to enable attempted avoidance of state consumer protection laws, in particular interest rate and fee caps, or state oversight through licensing regimes.” The groups criticized this glaring omission given the rise of rent-a-bank lending and Congress’s recent action in passing bipartisan legislation nixing an OCC rule that encouraged rent-a-bank arrangements. The groups’ comment letter is linked here.

“Federal bank regulators should make crystal clear that banks may not facilitate non-bank’s end-run around state consumer lending laws. Bank regulators must put an end to ongoing rent-a-bank schemes,” said National Consumer Law Center Associate Director Lauren Saunders.

“This guidance was proposed to support banks in reducing risk, but, as written, it could increase risk. If, in its final version, the guidance remains silent on rent-a-bank schemes, it could encourage this predatory practice – which threatens to harm both consumers and banks,” said Center for Responsible Lending Senior Policy Counsel Rebecca Borné.

“If it remains silent on harmful bank partnerships, this guidance could not only abdicate its responsibility, but also subvert consumer protections at the state and federal levels. This would echo the failures of federal regulators in the runup to the 2008 Financial Crisis which was largely driven by product risks,” said National Fair Housing Alliance Chief Tech Equity Officer Michael Akinwumi.

The groups’ letter states, in part:

“There are many legitimate purposes of bank partnerships with third parties, but assisting a third party in the violation or evasion of state laws is not one of them . . . . The core of our concerns with rent-a-bank schemes is that they facilitate predatory, unaffordable credit. Rent-a-bank relationships are especially risky to banks and harmful to consumers when they enable lending above the Military Lending Act’s (MLA) fee-inclusive 36% interest rate cap (MLA 36% APR). Lending above those rates violates the laws of a significant number of states and poses a number of other risks, including greater risk of (i) violating the MLA itself; (ii) predatory lending, consequent harms, and violation of other prohibitions against unfair, deceptive or abusive practices, including debt collection abuses associated with unaffordable loans; (iii) fair lending issues; (iv) litigation risk and risk that the scheme may be found unlawful, with the bank potentially responsible for conspiring to assist an attempted evasion of usury laws, given the greater disparity between permissible state interest rate limits and the loans made through the scheme; and (v) reputation risk when a bank attempts to enable a third party to offer a product it would not offer directly to its own customers and that is illegal across the country, often using underwriting guidelines it would not approve for its own customers.”

The letter, more broadly, highlights the harms and risks that high-cost lending through rent-a-bank schemes cause consumers and urges the FDIC to stop the schemes that six FDIC-supervised banks are currently engaged in on the FDIC’s watch.

Consumer and Privacy Advocates Push FCC to Require VoIP Providers to Be Vigilant Against Illegal Robocallers

October 15, 2021

On Thursday, the Electronic Privacy Information Center (EPIC) and the National Consumer Law Center (NCLC) on behalf of its low-income clients, submitted comprehensive comments urging the Federal Communications Commission (FCC) to significantly increase the accountability of VoIP providers who allow robocallers to access the American telephony system. The proceeding, required by Section 6 of the TRACED Act, which passed Congress at the end of 2019, requires the Commission to determine how to ensure that “providers of voice service . . . know the identity of [their] customers.”

“The TRACED Act requires that VoIP providers know who their customers are and ensure that they are not using the provider’s networks to make illegal robocalls into our telephone system,” said Chris Frascella, a fellow at EPIC.

On behalf of consumers, EPIC and NCLC urged the FCC to implement the following:

  1.   Explicit guidance to providers on exactly what activities should be considered indicators of an illegal robocall operation.
  2.   The methods providers should be required to use to maximize their opportunities to spot these indicators of an illegal robocall operation.
  3.   Specific actions providers should be required to take once the indicators are apparent.
  4.   A clear statement that a provider will be suspended from access to telephone numbers and possibly permanently expelled from it, if it fails to a) use either the Commission’s proposed methods of spotting illegal robocall operations or a different but equally effective method, and b) shut down access to the callers conducting an illegal robocall operation, will lead to the suspension and possible permanent expulsion of the provider from the numbering system.
  5.   Greater transparency to consumers and to providers regarding sources of potential robocall threats.

These measures will help to fulfill the mandates of the TRACED Act in a way that supports providers and consumers alike. EPIC and NCLC call on the FCC to impose stringent requirements on VoIP providers to help stop the flood of unwanted and illegal robocalls.

“Given the ongoing invasion of robocalls to America’s telephones, a strong and comprehensive set of mandates imposed on these providers is clearly much needed,” said Margot Saunders, senior attorney at the National Consumer Law Center. 

For more information, visit NCLC’s Robocalls & Telemarketing page.

U.S. Department of Education to Extend Federal Student Loan Servicing Contracts for Two Years

October 15, 2021

In response to the announcement that the U.S. Department of Education will be extending the federal student loan servicing contracts for 2 years, Persis Yu, the director of National Consumer Law Center’s Student Loan Borrower Assistance Project, issued the following statement:

“On January 31, 2022, the federal student loan payment suspension is set to end, putting tens of millions of borrowers into repayment. The end of the COVID-19 payment suspension poses an unprecedented challenge and is fraught with risk. If done wrong, tens of millions of borrowers could end up defaulting on their federal student loans and face the government’s punitive collection tactics (such as wage garnishment, social security offset, and tax refund offsets) that often push low-income households to or over the financial brink. High quality student loan servicing is paramount. 

“In the past year, four major federal student loan servicers have opted out of the government’s servicing contract. The combination of restarting repayments, along with the risks associated with large-scale loan transfers by servicers, will have dire consequences unless meaningful actions are taken to protect the interests of borrowers.

“We are pleased to see that in extending the contracts with the remaining federal student loan servicers, the Department of Education has taken some steps to provide improved service and accountability for student loan borrowers. In particular, we applaud the commitment to improve language access, enhance performance metrics, end servicers’ use of qualified immunity, and require servicers to comply with state consumer protection laws.

“But although important, these enhanced oversight and accountability measures are not enough to protect borrowers from anticipated problems with the transition into repayment nor do they provide relief to borrowers who have been harmed by servicing problems. Recent Department actions for public service workers have begun to acknowledge and address these harms. Yet more is needed. For example, of the over four million borrowers who have been in repayment for over 20 years, only 32 have had their loans canceled through income-driven repayment, undermining the program’s promise of eventual relief from the burden of student debt. Widespread administrative debt cancellation is immediately needed to remedy the failures of our student loan system.”

For more information:

CFPB Urged to Reverse Earned Wage Actions that Threaten to Create Dangerous Fintech Payday Loan Loopholes

October 12, 2021

Opinion and Order Under Former Director Kraninger Promote Evasions of Credit, Fair Lending, and Payday Loan Laws

WASHINGTON – A coalition of 96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics is urging the Consumer Financial Protection Bureau (CFPB) to revoke or significantly revise two actions taken in late 2020 regarding earned wage access (EWA) products. 

The groups’ letter argued that the CFPB’s EWA advisory opinion and PayActiv approval order, which declared certain EWA programs not to be “credit,” threaten to create loopholes in federal credit and fair lending laws and are being misused to promote fintech exemptions in state payday loan laws. The group letter was accompanied by a longer legal analysis, also released today, from the National Consumer Law Center and the Center for Responsible Lending.

“The CFPB’s sloppy legal opinion, issued with no public input, threatens to open a gaping hole in our lending and fair lending laws for fintech payday loans. But earned wage access products are loans – advances on pay, usually for a fee – and carving a loophole for them will just lead workers to get caught in debt traps and cycles where they are paying to be paid,” said Lauren Saunders, associate director of the National Consumer Law Center.

“PayActiv lobbyists are using the misleading imprimatur of CFPB ‘approval’ to push states to authorize a new form of fintech payday loan exempt from usury laws with no fee limits whatsoever,” said Mike Calhoun, president of the Center for Responsible Lending. “We urge the CFPB to revoke its PayActiv approval order to prevent the CFPB name from being used to carve holes in predatory lending laws,” he added.

Late last year, the CFPB took two actions under its “innovation” programs established under former CFPB Director Kathy Kraninger. A November 30, 2020 advisory opinion stated that certain free, employer-based earned wage access programs are not “credit” under the federal Truth in Lending Act (TILA). The two letters pointed out that the CFPB’s legal analysis might be used to support evasions by a variety of fintech credit products, including those that charge fees. Indeed, on December 30, 2020 the CFPB used the same reasoning to conclude that certain fee-based products offered by PayActiv also are not credit covered under TILA, issuing an “approval order”  to PayActiv through the Compliance Assistance Sandbox Program.That approval order gave PayActiv protection from legal liability, even if the CFPB’s conclusion was wrong. 

The NCLC/CRL legal analysis letter criticized the CFPB’s conclusion, pointing out that: 

  • earned wage access products “do not involve the employer paying its employees; they are third parties giving an advance on a future paycheck;”
  • “an employee could pay up to $36 a month, or $432 a year real money for the low-wage workers who frequently use these products”; and
  • “PayActiv’s right to receive repayment by payroll deduction from future, unearned pay also makes clear that PayActiv users are not receiving earned wages; they incur debt and defer its payment.” 

The separate 96-group letter emphasized: “The trend is for employers to offer these products for free, making it especially inappropriate to carve loopholes for fee-based products in consumer protection laws covering credit.” 

The groups also pointed out that the Equal Credit Opportunity Act uses a similar definition of “credit” as TILA: “At this critical moment in our nation’s history, we need to expand, not contract, the scope of our anti-discrimination laws.”

The groups highlighted how “the secretive, one-sided Advisory Opinion Program and Compliance Assistance Sandbox Program that led to the EWA actions are deeply flawed” and “give companies the ability to seek skewed interpretations of or exemptions from important consumer protection laws with no public input.”

The NCLC/CRL letter also included screenshots of PayActiv presentations and ads showing how PayActiv is misrepresenting the approval order and using it against competitors. In ads, PayActiv is claiming it is the “only CFPB-approved EWA provider,” even though the CFPB did not approve PayActiv itself or its programs overall, merely certain aspects of its program.

The letters urged the Bureau to:

  • Treat earned wage access products as credit and revoke the EWA advisory opinion or revise it to focus only on whether providers of free programs are “creditors” covered by TILA;
  • At minimum, revisit the PayActiv approval order and order PayActiv to cease misusing and misrepresenting the order;
  • Supervise EWA providers and direct-to-consumer faux EWA products under the Bureau’s authority over payday loans;
  • Conduct research on the impact of earned wage access programs; and
  • Terminate or significantly revise the Advisory Opinion Program and Compliance Assistance Sandbox program and revisit the Bureau’s other “innovation” programs.

California Prohibits Overdraft Fees on Fake Bank Accounts Receiving Government Payments

October 6, 2021

New law addresses evasions of CFPB prepaid card rule

WASHINGTON — California Governor Gavin Newsom late yesterday signed into law a bill by Senator Monique Limón (D-CA-9) that closes a loophole that prepaid card companies have been using to evade California and federal laws that limit overdraft fees. SB 497, which was sponsored by the National Consumer Law Center, passed both the California Assembly and Senate unanimously.

“Prepaid card companies like NetSpend should not be evading California and federal laws against overdraft fees by shifting their prepaid cards to fake bank accounts,” said Lauren Saunders, associate director of the National Consumer Law Center. “This new law will ensure that California funds used to support needy families are not drained off by overdraft fees on fake bank accounts. I applaud Senator Limón for her leadership on this bill and thank the entire legislature and Governor Newsom for supporting it.”

“This bill closes an important loophole to protect vulnerable families by making it clear that public assistance, including unemployment and disability benefits, are not subject to overdraft fees on deposit accounts offered by non-bank companies,” said Senator Limón. “I am proud to author SB 497, to protect Californians from overdraft fees that place low-income consumers in a vulnerable position.”

The new law extends California’s rules governing direct deposit of California government payments to so-called bank accounts offered through non-bank companies like NetSpend as well as to newer “fintech” accounts offered by non-banks like Chime. The law prohibits accounts from charging fees for overdrafts, including purportedly voluntary fees like “tips”, unless the account complies with the federal Consumer Financial Protection Bureau’s (CFPB) prepaid account rules. Those rules generally prohibit overdrafts except through separate credit accounts that comply with the federal rules governing credit cards. The new law does not impact overdraft fees on traditional bank accounts.

The new law applies to accounts used to receive direct deposit of California unemployment compensation, state-collected child support and public assistance. (The law does not cover debit cards sponsored and used by the State of California to make payments, which have never had overdraft fees.) Under existing California law, prepaid cards, to be eligible to receive certain California government payments, must carry deposit insurance and cannot have overdraft or credit features. Similarly, the CFPB enacted rules that went into effect in 2019 that effectively prohibit overdraft fees on prepaid cards.

While most prepaid cards have never had overdraft fees, many prepaid cards sold at payday loan stores did have overdraft fees prior to the CFPB rule. Some of those prepaid card companies, notably NetSpend, began to evade both California and federal law by launching so-called “bank accounts” that did not comply with the CFPB prepaid rules and the California overdraft fee prohibition. For example, the payday lender ACE Cash Express offers the NetSpend “ACE Flare Account by MetaBank,” which can incur up to $100/month in overdraft fees. The payday lender CURO (Speedy Cash, Rapid Cash) also offers “banking” through Revolve Finance debit cards that can have overdraft fees and do not comply with the CFPB’s prepaid card rules.

“This new law will protect California residents who receive government payments on non-bank debit cards, but the CFPB still needs to address the evasion of its rules prohibiting overdraft fees on all prepaid cards,” Saunders added

Companies have been evading the law by using a bank identification number (BIN) associated with bank accounts and calling the accounts “bank accounts,” “debit cards” or similar names, rather than using a BIN number associated with prepaid cards.

“Simply changing the name on a card from ‘prepaid card’ to ‘bank account’ or changing the technical back-end way the account is set up does not convert these accounts offered by non-bank companies into bank accounts or give them permission to charge overdraft fees that are prohibited by the CFPB’s prepaid card rules,” Saunders explained.

For more information:

Advocates Oppose Perdue for Senate Campaign Effort to Greenlight Ringless Voicemail

October 6, 2021

WASHINGTON — This week, a group of national organizations submitted comments to the Federal Communication Commission (FCC) in opposition to a request for a declaratory ruling submitted by Perdue for Senate, Inc. The groups argued that the campaign seeks a ruling that would allow unfettered voicemail messages to swamp consumers’ cellphones. The campaign is asking the FCC to exempt  voicemail messages that are inserted into consumers’ cellphone voicemail boxes without ringing the cellphones from the Telephone Consumer Protection Act (TCPA), consumers’ last line of defense against unwanted calls. 

“Ringless voicemail messages are just as invasive, expensive, and annoying as calls and texts to cellphones,” said Margot Saunders, senior attorney at the National Consumer Law Center. “Exempting ringless voicemail messages from the TCPA would allow all sorts of unwanted messages–including telemarketing, debt collection, and outright scams–overwhelm the voicemail boxes of consumers and small businesses. For many of us, our voicemail boxes would become useless, as they would be filled with unstoppable ringless voicemail.”  

Technologically, ringless voicemail messages are unquestionably calls to cellphones, as the cell phone telephone number must be used to deliver the message, and the wireless network is used by the recipient to access the message– the same technology used for texts. There is no technological or legal reason for ringless voicemails not to be covered by the same rules as conventional robocalls. 

The primary rationale offered by Senator Perdue’s campaign is that it hopes to avoid “costly TCPA litigation” by consumers attempting to stop the unwanted voicemail messages.  But the simpler way to avoid that litigation would be for the campaign to follow the law and avoid sending unwanted voicemail messages to consumers who have not consented to receive them.

“We strongly oppose the Perdue Petition,” Saunders added. “If left unregulated by the TCPA, ringless voicemail messages regarding telemarketing, debt collection, and outright scams could easily overwhelm the voicemail boxes of consumers.” 

The comments submitted to the FCC were signed by:

  • Consumer Action
  • Consumer Federation of America
  • EPIC
  • National Association of Consumer Advocates
  • National Consumer Law Center
  • U.S. PIRG

NCLC Welcomes Chopra at CFPB

September 30, 2021

WASHINGTON— The United States Senate today confirmed Rohit Chopra as Director of the Consumer Financial Protection Bureau. National Consumer Law Center Associate Director Lauren Saunders made the following statement:

“We welcome Rohit Chopra as Director of the CFPB. Chopra has deep experience and a track record of working to protect consumers from his days at the CFPB Student Loan Ombudsman to his work on issues posed by technology and scams as a Commissioner at the Federal Trade Commission. He knows the importance of confronting problems old and new and ensuring that the CFPB is a strong watchdog on behalf of consumers. Acting Director Dave Uejio has set the CFPB on the right track and done a lot of groundwork for Chopra so he can hit the ground running.

“Chopra will bring the creativity, insight, commitment, and deep knowledge that is needed to protect consumers and stop unfair, deceptive, and abusive practices in today’s pressing problems — from protecting homeowners, tenants and students struggling with the COVID economic crisis to addressing racial injustices through the financial system to stopping old abuses like overdraft fees and credit reporting problems and new ones like fintech evasions.  We look forward to working with him.”

The nonprofit National Consumer Law Center® (NCLC®) works for economic justice for low-income and other disadvantaged people in the U.S. through policy analysis and advocacy, publications, litigation, and training.

Advocates Testify Before House Subcommittee on Closed School Discharges

LAFLA and NCLC Advocates Testify Before House Subcommittee on Closed School Discharges

September 30, 2021

Washington — Representatives from the Legal Aid Foundation of Los Angeles and the National Consumer Law Center provided testimony today before the U.S. House of Representatives Subcommittee on Higher Education and Workforce Investment — offering perspectives on improving the federal loan discharge process for borrowers harmed by sudden school closures.

“The [U.S. Department of Education’s] failure to provide widespread and automatic closed school discharges to these borrowers has systematically removed wealth from economically disadvantaged families and communities, including communities of color, through the collection of burdensome and invalid debt, often through seizures of wages, tax refunds, and federal benefits,” testified Robyn Smith, senior attorney at the Legal Aid Foundation of Los Angeles (LAFLA) and of counsel to the National Consumer Law Center.

An abrupt school closure wreaks havoc on students, many of whom have given up jobs and spent months or years working toward a now-unattainable diploma or degree. Additionally, when a for-profit school closes, the students typically cannot transfer those units, rendering the units worthless. Students face having to repay thousands of dollars in federal loans, and sometimes private loans, without having earned any credits. Furthermore, many of these students are low-income and from the very communities most impacted by the COVID pandemic.

LAFLA client Karyn Rhodes provided testimony about her “thirty-year long journey with the Department of Education to get a closed school loan discharge” after her for-profit school abruptly closed in 1988. “Although, according to my legal aid lawyer, I was eligible for this discharge since 1994, I had never been invited to apply by my loan servicer or debt collectors, even when I explained my school had closed,” said Rhodes. “As a result, I experienced ruined credit and the constant threat of wage garnishment and tax refund offsets for debts that I should not have had to repay… This caused tremendous stress, and I felt the education system had failed me.”

Through the help of LAFLA, Ms. Rhodes received a student loan discharge in 2020, freeing herself and her family of $26,000 in debt. Her testimony sheds light on the hardships faced by low-income borrowers trying to further their prospects through higher education, only to come to the brink of financial ruin after their schools suddenly close: “My goal is to help anyone who is experiencing or has experienced a defaulted school loan as a result of a school closure,” said Ms. Rhodes.

A 1992 amendment to the Higher Education Act mandated the U.S. Department of Education issue loan discharges to student borrowers impacted by school closures, which began in 1994. However, “[m]ost borrowers, including some who have been struggling with debt for decades, have no idea that they are eligible for a discharge, while others have been unable to obtain a discharge without the assistance of an attorney,” Smith added. “It is time for the Department to finally comply with Congress’s mandate and grant all borrowers who are eligible for a closed school discharge, according to the Department’s records, automatic discharges without requiring applications.”

Ms. Smith concluded her testimony urging the Department of Education to:

  • Grant automatic discharges to all borrowers who attended schools that have closed since January 1, 1986, and who are eligible based on the Department’s records;
  • Send discharge information to all borrowers who were in attendance when their schools closed, as they may still be eligible for discharge even if they re-enrolled at another school; and
  • Develop more accessible application procedures for all borrowers, including those with limited English proficiency.