Thousands of private student loan borrowers could be compensated and have their debt wiped away as a result of recent action from the Consumer Financial Protection Bureau (CFPB). The consumer protection watchdog on Monday targeted National Collegiate Student Loan Trusts, which owns more than 800,000 private student loans, requiring the group to pay at least $19.1 million.
The National Collegiate Student Loan Trusts is made of 15 Delaware statutory trusts, according to the CFPB. The CFPB took action against group, along with its debt collector, Transworld Systems Inc., for "illegal student loan debt collection lawsuits." According to the CFPB, the companies sued private student loan borrowers for debt they could not prove was owed by the borrowers, or was too old to sue over, and relied on "false or misleading" legal documents in their cases.
As a result, the CFPB is requiring the National Collegiate Student Loan Trust to pay at least $3.5 million in restitution to the more than 2,000 affected borrowers who made payments after being sued by the trusts on loans lacking proper documentation or for which the statute of limitations had passed.
The trusts will also be required to conduct an audit – through an independent auditor that meets the CFPB’s standards – of all 800,000 loans in their portfolio, and stop filing collections lawsuits on debt for which the statute of limitations has expired or for which there is not proper documentation for ownership. The trusts have also been directed to pay $7.8 million in disgorgement to the U.S. Treasury, and to pay a $7.8 million penalty to the CFPB’s Civil Penalty Fund. The trusts’ debt collector, Transworld Systems, must also pay $2.5 million to the CFPB’s penalty fund.
"The National Collegiate Student Loan Trusts and their debt collector 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. "We’re ordering them to pay at least $21.6 million, stopping them from filing illegal lawsuits, and requiring the trusts to thoroughly audit their loan portfolios to identify any other consumers who were harmed."
Issues with the trusts were first brought to light in July when The New York Times reported that judges across the country had been dismissing lawsuits against borrowers because the trusts lacked the proper paperwork to prove who owned the loans. According to the CFPB, the trusts bought and securitized the private loans between 2011 and 2007, and then sold the secured notes to investors.
Moving forward, if an independent auditor identifies that any more of the 800,000 loans lack documentation for ownership, the trusts will be required to halt collection on those loans as well.
Publication Date: 9/19/2017