CFPB Orders National Collegiate Student Loan Trusts to Pay At Least $19.1 Million, Thousands of Borrowers Now Eligible for Debt Relief
Director Richard Cordray and the CFPB have ordered National Collegiate Student Loan Trusts to pay at least $19.1 million.
Yesterday, the Consumer Financial Protection Bureau (CFPB) made a decision against National Collegiate Student Loan Trusts and their debt collector, Transworld Systems, regarding the effort made by the aforementioned trust to hunt down payments for student loans that lacked the proper paperwork to prove ownership.
The CFPB is requiring National Collegiate Student Loan Trusts to collectively repay at least $19.1 million to student loan borrowers that were harmed by potential lawsuits, the U.S. Treasury for relinquished funds, and as part of a civil money penalty.
Additionally, National Collegiate Student Loan Trusts’ debt collector, Transworld Systems, has been ordered to pay a $2.5 million civil money penalty.
The decision by the CFPB signals the potential end to a long process that involved thousands of student loan borrowers who were facing illegal student debt collection lawsuits. The trust will refund a minimum of $3.5 million to roughly 2,000 student loan borrowers impacted by this ordeal.
CFPB Director Richard Cordray issued the following statement for the bureau’s press release: “We’re ordering them (National Collegiate Student Loan Trusts and Transworld Systems) 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.”
Additionally, the CFPB’s order also calls for an independent audit of every single one of the 800,000 student loans in the National Collegiate Student Loan Trusts’ portfolio. Further, the trusts, and any company hired by them, are prohibited from attempting to collect, reporting negative credit information, or filing lawsuits on any of the 800,000 loans that the audit reveals as unverified or invalid.
The proposed punishment offered up by the CFPB was filed with the U.S. District Court for the District of Delaware. It will become effective if it is approved the presiding judge. The order filed against Transworld Systems that makes them responsible for a $2.5 million penalty is effective immediately.
Back in July, LendEDU reported that $5 billion in private student loan debt may be forgiven because of missing paperwork. National Collegiate Student Loan Trusts, an umbrella name for 15 Delaware statutory trusts, undertook a massive effort to find borrowers who had fallen behind on their student loan payments. The trusts were filing four new collection cases each day and had filed more than 10,000 lawsuits in the last five years. Collectively, the trusts held 800,000 private student loans worth $12 billion, although $5 billion of that debt had been in default.
The only problem? National Collegiate Student Loan Trusts lacked the necessary legal paperwork to prove ownership of the student loans. Many of the loans were written over a decade ago by various banks and were later packaged together and sold to investors. After the debt passed through a multitude of hands before reaching the trusts, the paperwork that clarified who owned the loans got lost along the way.
Image Copyright © Brookings Institution