Almost three weeks after the Department of Education stopped sharing information with the Consumer Financial Protection Bureau, the bureau has ordered Collegiate Student Loan Trusts and its debt collector Transworld Systems to pay $21 million in fines and restitution for illegal debt collection lawsuits.
It was the agency’s second action involving questionable student loan practices in the past month.
In July the CFPB ordered Aequitas Capital Management to refund $183.3 million to 41,000 students for predatory loans they had received to attend the now defunct, for-profit Corinthian Colleges. Federal courts must rule on the proposed judgments in both cases before they can take effect.
In the latest case, “the National Collegiate Student Loans Trusts and their debt sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country,” said CFPB Director Richard Cordray in a statement.
The agency ordered the Trusts to pay $7.8 million to the U.S. Treasury, $7.8 million to the bureau’s Civil Penalty Fund and at least $3.5 million in restitution to more than 2,000 students who made payments after being sued by the Trusts for loans where documentation was missing or the statute of limitations had expired. (The $3.5 million restitution could grow if more students are identified in lawsuits involving loans that lack documentation or have exhausted statute of limitations.)
The CFPB also ordered Transworld Systems, the debt collector for those lawsuits, to pay $2.5 million to the agency’s Civil Penalty Fund.
In addition, it ordered the Trusts to conduct a thorough audit of all 800,000 student loans in its portfolio, to stop filing collection lawsuits on all debt that can no longer be sued over, including any additional problematic loans uncovered in its audit, and to stop filing false or improperly notarized legal documents.
The Trusts had purchased and securitized the loans, selling notes to investors that were secured by the loans. The proposed judgment has been filed with the U.S. District Court of the District of Delaware.
While the CFPB continues to pursue fraudulent and predatory practices involving student loans and other consumer cases, it has received renewed support from Democrats on Capitol Hill.
In a letter sent to the bureau Monday, Sen. Elizabeth Warren, D-Mass., who helped establish the agency, and Sen. Sherrod Brown (D-Ohio), the ranking member of the Senate Banking Committee, urged the CFPB to continue to protect students from “unfair, deceptive and abuse acts by federal student loan services and debt collectors” at a time when the Education Department is going “out of its way to protect its servicers from real oversight and accountability. No federal agency or department has done more to curb abusive practices in the student loan industry than the CFPB,” the senators wrote.
Last week 39 Democratic members of Congress, including Brown, wrote to Education Secretary Betsy DeVos, asking her to reinstate the data sharing arrangement between the Education Department and CFPB and explain the decision to end it.