The Consumer Financial Protection Bureau has charged Wells Fargo Bank with illegal servicing of private student loans and fined the bank $3.6 million in civil penalties plus an additional $410,000 to reimburse affected borrowers.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” said CFPB Director Richard Cordray in a statement. “Consumers should be able to rely on their servicer to process and credit payments correction and to provide accurate and timely information.”
The problems at Wells Fargo, the nation’s second largest private student loan lender, had their origins in a procedural change at the bank, when it combined all of a borrower’s loans into one monthly billing statement and included a single payment coupon for the group. Before then, borrowers were given a coupon for each loan.
Under the single payment coupon procedure, if a borrower made a partial payment and did not designate how to allocate the payment among all loans in the group, the bank allocated the payment evenly across all the borrower’s outstanding student loans, according to the CFPB. If the allocation to a loan failed to meet the minimum payment due, the bank charged the borrower a late fee for that loan and any other loans similarly affected and reported the loans as delinquent to consumer credit agencies.
The problem, according to the CFPB, was that borrowers didn’t know about these procedures. The bank “failed to adequately disclose to consumers how it allocated payments across multiple loans, and that consumers have the ability to provide instructions for how to allocate payments.”