Consumer Finance Litigation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act”) was passed in an effort to provide financial stability and relief in response to the ongoing Coronavirus pandemic. Amongst other types of aid, the CARES Act provides immediate relief to obligors of certain student loans. See Pub. L. No. 116-136 § 3513 (March 27, 2020).  That relief, however, applies only to federal student loans which now include the vast majority of the nation’s student loan debt.  But, there remain millions of other commercially-held and private student loans that are not covered by the Act. Particularly, loans under the Federal Family Education Loan (FFEL) Program held by commercial lenders, Perkins loans held by institutions, as well as those non-federal student loans owned by banks, credit unions, schools, or other private entities do not qualify for relief at this time. Thus, extra care should be exercised servicing these non-federal, commercially-held, and private student loans during the ongoing Coronavirus pandemic.

Notably, even before the passage of the CARES Act, financial regulators had directed financial institutions to “work constructively with borrowers and other customers in affected communities.” See Joint FED/FDIC/OCC/CFPB/NCUA News Release 2020-30 (March 9, 2020). In doing so, however, the regulators did not define or provide other guidance relating to what would or would not amount to “constructive” work with borrowers. In this ever changing and uncertain environment, the standard for non-federal student loans is likely to be informed, at a minimum, by the provisions of the CARES Act applicable to federal student loans.

As written, the CARES Act automatically suspends payments on covered loans until September 30, 2020, and provides that interest shall not accrue during the suspension.  To the extent possible under the existing circumstances, servicers of non-federal student loans should promptly notify borrowers about any similar relief they may be able to provide to borrowers and the requirements for obtaining such relief. Examples may include, but are not limited to:

• Income-driven repayment plans,
• Forbearances, or
• Deferments.

Servicers of private student loans should also take into account, if possible, a borrower’s inability to satisfy any loss mitigation requirements during the course of the pandemic.

The Act also provides that suspended payments for federal student loans are deemed to have been made for purposes of any loan forgiveness or rehabilitation program the borrower may have been qualified or seeking.  Particularly, under the CARES Act, the suspended payments on federal student loans will be treated as if they were timely regularly scheduled payments for credit reporting purposes.  Because of the general obligation to only report accurate information under the Fair Credit Reporting Act, that option is not likely available to non-federal student loan servicers.  See 15 U.S.C. § 1681s-2(a).  It also remains unclear whether the Coronavirus pandemic constitutes a “natural disaster” for credit reporting purposes.  Absent further guidance, furnishers of information relating to non-federal student loans should consider temporarily suppressing credit reporting relating to affected borrowers in the absence of any affirmative requirement that reporting continue.

Lastly, the Act also prohibits involuntary collection activity, such as garnishment proceedings, relating to federal student loans.  To the extent those activities remain ongoing with respect to non-federal student loans, both prudence and goodwill suggest that those proceedings be suspended during the ongoing crisis.