Lenders often encourage federal student loan borrowers to enroll in automatic payments. It can seem like a good idea to do so: Borrowers don’t need to worry about missing a payment and often get a slightly lower interest rate in exchange.
However, the decision can backfire in a lending space plagued by consumer abuses, according to a new report by the Consumer Financial Protection Bureau.
“Unfortunately, autopay errors were one of the most widespread, basic and consequential servicer errors we saw this year,” CFPB Student Loan Ombudsman Julia Barnard told CNBC. “These errors are incredibly costly and completely unacceptable.”
In some cases, borrowers had money pulled from their bank accounts despite never consenting to autopay, Barnard said. Other autopay users saw incorrect amounts taken or were charged multiple times in the same month.
CNBC wrote last year about a woman who was supposed to have a $0 monthly student loan payment under the plan she was enrolled in, but was charged $2,074 one month. After that unexpected debit, she worried she wouldn’t be able to pay her mortgage.
In March, one borrower told the CFPB that their student loan servicer took $6,897 from their account when they only owed $1,048.