October 2021A Servicing Health Check
As older servicing infrastructure reaches the end of its life, complaints to the Consumer Financial Protection Bureau about servicing are growing. A recent report published in September 2021 by the bureau revealed that complaints from consumers making regular payments increased by 15%. Complaints from consumers whose payments are delinquent increased by 2%.
In other words, complaints from desirable borrowers are growing more than seven times as fast as complaints from borrowers who struggle to pay back their obligations.
The complaints included in the report, Consumer complaints throughout the credit life cycle, by demographic characteristics , covered a gamut of lending products from credit cards to mortgages. Complaints about bank accounts, money transfer services, and other financial products that did not primarily involve an extension of credit were excluded.
At least two effects of the coronavirus pandemic showed up in the data. There were significant declines in the volume of student loan servicing complaints, possibly reflecting the relief provided by the U.S. Department of Education’s Office of Federal Student Aid and the CARES Act. The Act paused payments, suspended interest, and ceased collections on defaulted loans. It is possibly responsible for the 3.6% decline in the number of consumers who filed complaints around delinquent servicing overall.
Complaints about servicing from customers in good standing skewed toward wealthier communities, compared to complaints about loan origination and credit reporting, which the bureau also tracks. Consumers with the highest area median income submitted complaints about servicing at a frequency that was 67% greater than consumers with the lowest area median income.
Segmenting the data further revealed an unmistakable relationship between class and ethnicity. White, non-Hispanic Americans who submitted servicing complaints about performing loans were twice as likely to come from the most affluent communities as the least affluent communities. With Black or African Americans, the relationship was inverted. Black or African Americans who submitted servicing complaints were twice as likely to come from the least affluent communities. Hispanics fell in between and were about 30% more likely to come from the least affluent communities.
As the authors of the CFPB report noted, the differences are not particularly surprising “giving the scale and persistence of the racial wealth divide … but they do highlight the active role that consumers in Black or African American communities take in trying to address credit issues.”
One takeaway: Better servicing of performing loans will help everyone and disproportionately help racial and ethnic minorities for less affluent communities.
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