Wall Street Is Fighting a CFPB Deal Over Billions in Defaulted Student Loans

"It seemed like the kind of case regulators had resolved countless times before: Debt collectors are accused of using flawed documentation and lawsuits to collect unpaid loans. A fine is levied, a promise to reform is made, and everyone moves on," according to Bloomberg. "Not this time. A maelstrom of banks, insurers, debt collectors, and hedge funds enveloped the U.S. Consumer Financial Protection Bureau when it tried to settle allegations of shoddy collection practices on billions of dollars in student loans. A novel settlement proposal between the regulator and a private equity firm meant to clear up the matter has Wall Street warning of expensive consequences for future student borrowers."

"In the runup to the financial crisis, private student loans—like mortgages—were eagerly extended to people who were ill-prepared to repay them. The loans, like mortgages, were quickly bundled into securities to be sold at a premium. Then, in 2008, the bottom fell out.

Fast-forward a few years. Debt collectors working for National Collegiate Student Loan Trusts, a group of 15 investment vehicles and one of the nation’s largest owners of private student debt, were accused of squeezing millions of dollars out of debtors using deceptive legal documents. A paper trail submitted to regulators stretched back years, and a resulting CFPB investigation focused on whether laws had been broken.

In September, the regulator and Florida-based Vantage Capital Group LLC, which controls the National Collegiate trusts, hammered out a settlement by agreeing to a third-party audit of the more than 800,000 loans that have been held by the 15 vehicles. The audit would enable Vantage to find out which loans it can really pursue and which loans it can’t. While the audit proceeds, all payments to investors in securities based on those loans would be placed into escrow. The proposed deal also calls for $19 million in fines and restitution for thousands of borrowers sued by debt collectors."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.

 

Publication Date: 11/9/2017

View Desktop Version