Life as a student is new and exciting with much to experience, but it can also be worrying. This may be your first experience seeking a loan or borrowing a significant amount of money. And, this comes with its own set of concerns. Fortunately, there are laws in place to protect student consumer rights and to make sure students get a good deal when they borrow money.
Read on to discover more.
What Is Consumer Rights and Customer Protection Law?
Put simply, consumer rights and consumer, or customer, protection laws are a set of rules and regulations designed to give the consumer a voice.
Traditionally, businesses and other organizations are large-scale, and can draw upon a great deal of legal resources. Conversely, the individual consumer often cannot draw upon such resources. Consumer rights and protection laws redress this balance, and give the consumer legal recourse to stand up against poor or malicious business practices.
These rights and protections work in a number of different ways, but let’s use the sale of credit cards as an easy example to explore the concept.
Let’s say that:
- The credit card salesperson was pushy and bullying, pressuring the consumer into signing up for the card.
- The consumer falls victim to penalties and fees that were not discussed in the initial meeting.
- Interest rates on the credit card balance are extremely high.
- The collection agency is bullying and intimidating as they chase the outstanding balance.
All of these above elements could be considered to be in violation of consumer rights law. The consumer would, therefore, have a legal framework with which to protect themselves against the credit card company.
However, these laws can be enforced in different ways. The following are all used to enforce consumer rights and protections:
- Government agencies
- Attorney general offices
- Individual action lawsuits
- Class action lawsuits
The Consumer Rights of Students in America
As a student in the United States, you are a member of society. As such, you are afforded the same legal protection and defense as any other member of that society.
When you go about your day-to-day routine, perhaps visiting the gym, using bars and restaurants, buying clothes, books, or sports equipment, or handling bank transactions, you are acting as a consumer. Of course, whether you are a freshman undergrad, a student in their final year of a PhD, or anywhere in between, you are subjected to the same legal rights and responsibilities as anyone else. Basically, if you get a raw deal as a consumer, you are protected.
But what about some of the situations that are unique to the student experience? How about the consumer-vendor relationships that students engage in but others don’t? For example, when seeking a student loan.
Most students need loans if they are to complete their education. While loans from the federal government provide much of the funding needed, there is often a shortfall, which leads students to seek loan products from private sources instead.
When weighing up these loan products, it is important to remember the following:
- Students are protected by consumer rights and protection laws.
We’ve already mentioned this one, but it is worth reinforcing. Students enjoy the same protections as anyone else in this country. And, while some companies may try to intimidate or bully students, the consumer is always protected.
- There are a number of federal laws that provide solid protection for student loan borrowers.
Federal laws such as the Fair Credit Reporting Act, the Federal Trade Commission Act, the Consumer Financial Protection Act, the Equal Credit Opportunity Act, and the Truth in Lending Act all provide protection for student loan consumers. These protections extend to both federal student loan and private student loan borrowers.
- Consumer protections and rights extend to the collection of debts.
A student loan, like any other kind of loan, has a balance that needs to be paid back. As a borrower, it is your legal responsibility to pay this balance back. However, this does not mean that collection companies or other agencies can just treat you in any way they see fit.
- Loan companies cannot pressure or bully borrowers into accelerating their repayments, especially if the conditions of repayment are already being met. Loan companies who engage in such practices may find themselves in violation of the Fair Debt Collection Practices Act, and may have to pay a flat fee of $1,000 to the victim. This payment may be augmented further if a lawsuit arises.
- Student borrowers have the option to restructure their loans if they need to. This may involve refinancing the initial loan, or consolidating a number of different loans into one more manageable facility. This can lead to more money being paid back over time because of the interest period, but it can make life easier in the short term.
- In some circumstances, student borrowers may be allowed to defer their loan repayments. This is not guaranteed as a legal right.
- In some and even less common circumstances, student borrowers may be granted a discharge from the terms of their loan. This is rarely granted, and is certainly not a legal right. However, it is a real option for students.
- Students may be able to access Pay As You Earn (PAYE) schemes, or Income-Based Repayment (IBR), which will make it easier for them to repay the balance of their student loan.
- Students have the right to dispute the word of the loan company.
Students are not necessarily obligated to take the word of the lender as the gospel truth. In fact, student borrowers are advised to keep on top of their own finances to make sure that they are not paying for something they shouldn’t be paying for. For example, if the student believes that the loan company’s records are wrong and that they do not owe the amount they are alleged to owe, or if the student can prove that a loan was taken out by someone other than them and that identity fraud has taken place, they do have legal recourse.
The dispute can be raised at a civil level, and the loan company may be presented with evidence that leads them to agree with the student borrower. However, there may be the need to escalate the dispute to a state or even federal level. In these cases, Borrower Defense rulings protect the borrower in the case of fraudulent activity.
All of this underlines the fact that student borrowers are not alone when facing down loan and collection companies. Nor are they alone if they feel like they are being defrauded. But how do these protections work in practice? And what are the different types of consumer protection cases that student borrowers may encounter?
Different Types of Consumer Protection Cases
While lenders do not have any kind of a duty of care towards consumers, they do have a responsibility to treat consumers considered vulnerable in the right way. Vulnerable consumers may include those who are inexperienced in the loan market, or those who may underestimated their ability to repay. Students may fall into both of these categories.
Harassment Outside of Normal Hours
Loan and collection companies are allowed to chase up missed payments. However, they are not permitted, by law, to harass consumers with early morning or late night phone calls and other intrusions.
Predation on the Part of Lenders
Again, this type of consumer protection case is subjective, and hinges upon definitions of “reasonable.” Basically, loan companies can market their wares in a number of ways, but they are not permitted to use unreasonable pressure to sell these products.
No one is allowed to falsely advertise a product, and this includes lenders advertising their loan facilities. If any advertising materials contain falsehoods or misrepresentations, the borrower could have cause to raise a dispute.
This portion of consumer law mainly relates to physical goods that do not work in the way that they should. However, it can also be extended to loans. If the loan is not fit for purpose, or does not perform in the way advertised, this could be a violation of the law.
Fraud and Identity Theft
Fraud and identity theft are classed as criminal activities in the United States. If these activities can be proved, the borrower will benefit from high levels of legal protection.
Student loans will be covered by warranty periods. These warranty periods must be delivered as advertised, with no discrepancy or sleight of hand that misrepresents the terms and conditions.
In most cases, a loan consumer should not be pressured to join a forced arbitration panel. If a loan provider does pressure the consumer in this way, it could be considered illegal. After all, the consumer should always have the option to raise a real dispute if they believe they have been treated badly.
The Fair Debt Collection Practices Act
This act is designed to give consumers additional protection when it comes to debt collection. Its wording outlines how abusive practices have been rife in the student loan market, and that the previous set of regulations were simply not adequate.
The legislation redresses this shortcoming. Basically, loan companies and collection agencies must adhere to the following.
- When collecting location information, the agent must:
- Disclose their identity and their role
- NOT disclose the existence of debt
- NOT ask the same person repeatedly, or harass them
- NOT communicate by postcard
- Ascertain whether an attorney can be contacted, then direct communication to them
- When going about their other tasks, the agent must:
- NOT use or threaten violence
- NOT swear
- NOT make any details of the case public, or threaten to do so
- NOT advertise the sale of the debt
- NOT repeatedly telephone the consumer, with the intent to annoy or abuse that person
- Disclose their identity immediately during all communications
It is good to know that such protections exist, but how do they work in practice? How have related class action lawsuits played out over the years?
What Have We Learned from Class Action Lawsuits Over the Years?
There have been a number of class action lawsuits against lenders over the last 10 to 15 years, but what can we learn from them, and how do they relate to the current situation with student loans?
Mortgage Companies in Crisis in 2008
The 2008 financial crisis sent shock waves across the world, but it began right here in the USA, with the subprime mortgage crisis.
Basically, the big banks adopted a cavalier attitude to the mortgages they sold. Many mortgages were sold without the proper checks being carried out, while some banks knowingly sold defective mortgages to their consumers.
Of the subprime loans that were awarded in 2007, 21.9 percent had been defaulted on within 12 months. This was one of the key factors behind the global financial crash of the following year.
It is unsurprising that this led to a number of lawsuits and class actions. Homeowners brought actions against mortgage lenders, home builders, appraisals, and realtors, while mortgage insurers brought actions against mortgage lenders. Employees brought actions against their employers, and banks against mortgage lenders and brokers.
One of the biggest lawsuits resulted in a $40 million settlement from Lehman Brothers, after the investment bank was found guilty of filing misleading documents relating to the credit quality on billions of dollars’ worth of loans.
Parallels with Student Loans
It was ruled that lenders could no longer play fast and loose with consumers. Instead, they were bound by increased restriction and legislation, which has led to better protection for student loan consumers.
Timeshare Companies Since 2012
Timeshare companies sell dreams to consumers in search of affordable luxury homes in stunning locations. However, some of these dreams have been found to be false or fraudulent.
In 2015, Wyndham Vacation Resorts was found to have misled its customers. The company was then ordered to pay hundreds of thousands of dollars to timeshare buyers in Wisconsin and Tennessee after lawsuits were brought against it.
This was not the first time that Wyndham had found itself in trouble, though. In 2010, Trish Williams entered a legal battle for wrongful dismissal after whistleblowing on fraudulent practices targeting elderly and vulnerable customers. Williams was awarded $20 million.
In 2019, Wyndham was yet again the subject of a lawsuit, thanks to its unscrupulous advertising of timeshare deals. This time, a class action saw the holiday property giant accused of fabricating many of the details of their advertisements, ranging from the value of the timeshare points through to the features of the timeshare properties themselves, and even the cleaning services available at the resorts.
A class action was launched, seeking punitive damages for breach of contract, fraudulent advertising, and more.
Parallels with Student Loans
Just like timeshare companies, student loan providers cannot advertise deals and offers that do not exist. Nor can they apply fees and charges that are in breach of their contract conditions. Similar to the buyers of timeshares, student loan consumers are protected against such practices.
Student Loan Companies in 2012
Back in 2017, Navient found themselves in trouble after misallocating student loan payments, mishandling vulnerable borrowers, and misleading student loan consumers. This led to a number of state and federal lawsuits, as well as class actions in 2019.
The US Consumer Financial Protection Bureau eventually sued Navient, the student loan servicer in question, with a view to achieving compensation for all borrowers who suffered harm. However, Navient has disputed the CFPB’s claims, and it has proved difficult for victims to access the compensation they need.
One of the key barriers to compensation is Navient’s claim that current standards are being applied retroactively. With this in mind, it becomes clear that modern borrowers are better protected. However, it is always worth taking steps to make sure that your loan provider is acting responsibly.
You Have the Right to Ask About These Topics
To help you make sure that your school or loan provider is on the level, and to get the information you need, ask questions about the following:
- Names of the school’s accreditors
- What programs the school offers, what facilities are available, who is on the faculty
- What financial assistance can be offered, covering all aid programs
- Aid program application deadlines
- Aid program application criteria
- How financial needs are defined
- To what extent your financial needs have already been met
- How much the payment will be
- The different components of aid in the package
- Interest rates and total loan amount, as well as loan terms and key dates
- The hours, terms, and conditions of any work-study positions
- The ongoing academic conditions of the aid package
- Handicap facilities and services
Be sure to ask about the above, and to be aware of your rights and responsibilities before you enroll in your course or accept any financial aid.
Basically, you are in your rights to access all of the information above, so don’t be afraid to ask. You also have the right to question the loan or financial aid after you have begun if you think any mistakes have been made.
A quick note to accompany your rights as a student. It is up to you to review and carefully consider all of the information at your disposal before you sign up. If you find this information overwhelming, or confusing, it is up to you to reach out to someone who can help you, or to seek clarification. All of this comes down to you – read the fine print carefully, understand your options, and enjoy the full protection that state and federal law offers you both as a student and as a consumer.
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