Advocates Refer MOHELA to Federal Regulators for Prosecution
October 10, 2024 | WASHINGTON, D.C. — The Student Borrower Protection Center and AFT sent a series of letters to the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), warning federal financial regulators about potentially unlawful practices by the scandal-plagued student loan company MOHELA.
Under federal law, borrowers have a right to obtain financial products and services free from deception and abuse. MOHELA, which is paid hundreds of millions of dollars to provide timely, accurate information on loans owed to the federal government and big banks, is now telling borrowers that it cannot be relied upon to do so correctly. As millions of its customers prepared to make loan payments following the COVID-19 payment pause, the company quietly updated its website terms of service to, among many things, prohibit student loan borrowers from sharing screenshots of information provided to them, publicize basic information provided by MOHELA related to the repayment of their student loans, and share information about their accounts with anyone—potentially including government regulators and consumer protection officials.
“This is corporate misbehavior at its worst,” said AFT President Randi Weingarten. “First, MOHELA refuses to properly service borrowers. Then, it bullies advocates who call it out. Third, it fights to dismiss lawsuits that try to hold it accountable, using the MAGA Missouri AG to assist it. And now it almost secretly tries to get the same consumers it has not serviced to waive their rights. This is despicable.”
- A copy of the letter to the Consumer Financial Protection Bureau is available here: https://protectborrowers.org/cfpb-mohela-website-waiver-letter/
- A copy of the letter to the Federal Deposit Insurance Commission is available here: https://protectborrowers.org/fdic-mohela-website-waiver-letter/
- A copy of the letter to the Office of the Comptroller of the Currency is available here: https://protectborrowers.org/occ-mohela-website-waiver-letter/
- A compendium of MOHELA’s Terms of Use across multiple websites is available here: https://protectborrowers.org/mohela-terms-of-use-examples/
MOHELA has a long track record of allegedly making misleading and deceptive statements on its website and in routine correspondence with its customers. Today’s letters reveal that, rather than tell the truth and follow the law, MOHELA requires its customers to agree to hold the financial services giant harmless for its abuses. These letters include new evidence that MOHELA is compelling its customers to waive rights protected under federal and state consumer laws. MOHELA presses its customers into waiving their rights when using websites MOHELA maintains as a service provider to banks and the federal government.
MOHELA Appears Engaged in the Unlawful Practice of Forcing Borrowers to Waive Their Rights
In 2023, the CFPB brought an enforcement action against the financial technology company Chime and its business unit Sendwave for a range of unlawful practices, including the practice of forcing its customers to waive their rights under federal consumer financial law as part of Sendwave’s Terms of Use. In that case, CFPB found that this practice violated the Electronic Funds Transfer Act and the Consumer Financial Protection Act.
In today’s letters, SBPC warns regulators that MOHELA is engaged in a similar, potentially unlawful set of practices on websites it maintains in the course of its business as a third-party student loan servicer. MOHELA’s clients include the United States Department of Education as well as the national banks SoFi and Key Bank (d/b/a Laurel Road). Today’s letter to the CFPB warns about MOHELA’s practices across the student loan market. Today’s letters to the FDIC and OCC focus on MOHELA’s practices as a service provider to banks that lend and own private student loans.
Background
MOHELA was created in 1981 by the Missouri legislature “to assure that all eligible postsecondary education students have access to student loans” and is considered a “quasi-governmental entity,” as the law empowers MOHELA to act independently of the State. Despite its legal independence, MOHELA is arguably most infamous for its central role in Biden v. Nebraska, in which the Supreme Court determined that the State of Missouri had standing to challenge President Biden’s debt relief plan because of potential harm to MOHELA—leading to the denial of critical debt relief to 40 million federal student loan borrowers.
But MOHELA’s role in the $1.7 trillion federal student loan market goes beyond depriving borrowers of one-time debt relief. No longer a small Missouri-based company, MOHELA is now one of the largest federal student loan servicers, servicing the accounts of federal student loan borrowers in every state. Since 2021, MOHELA has more than tripled its portfolio of Department of Education (ED)-held federal loans. At the same time, MOHELA continues to serve as the exclusive loan servicer for private student loans made by banks like SoFi and KeyBank (d/b/a Laurel Road). In early February, the company expanded once more, taking on the servicing of all of Navient’s private and federal loans—making it now one of the largest servicing companies in the country.
Throughout its brief tenure as a dominant participant in the student loan servicing market, MOHELA has shown it is unable to operate without causing widespread financial harm to millions of people.
- In October 2023, the U.S. Department of Education disclosed that MOHELA failed to send monthly student loan bills to 2.5 million borrowers, resulting in 800,000 borrowers missing a monthly payment.
- In February 2024, AFT and SBPC published The MOHELA Papers, the product of a years-long investigation into the company’s mismanagement of its federal student loan servicing business.
- In March 2024, AFT and SBPC petitioned the Inspector General for the U.S. Department of Education to audit MOHELA’s performance under its federal servicing contract.
- In April 2024, the U.S. Senate Banking Committee held a hearing examining MOHELA’s ‘truly shocking’ track record of borrower harm.
- In July 2024, AFT sued MOHELA for a wide range of unlawful practices, including illegally executing a “call deflection” scheme to deny service to borrowers who need help.
- In September 2024, over 50 Members of Congress, led by Congressman Jim Clyburn and Senator Elizabeth Warren, called on the U.S. Department of Education to probe MOHELA’s servicing practices under its federal contract and take action to protect borrowers “including the potential termination of MOHELA’s federal contract…”
Further Reading
A copy of the lawsuit filed in AFT v. MOHELA is available here: https://protectborrowers.org/mohela-lawsuit/
A fact sheet outlining the specific claims brought by AFT against MOHELA is available here: https://protectborrowers.org/mohela-factsheet/
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About Student Borrower Protection Center
Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.