Last Monday, the Consumer Financial Protection Bureau (CFPB) fined National Collegiate Student Loan Trusts, and its debt collector, Transworld Systems, for going after students for debts aggressively without having proper documentation. Moreover, they were going after people for debts that they couldn’t prove were owed or the debts themselves were too old to sue over.
The judgement brought down upon them includes “an independent audit of all 800,000 student loans in National Collegiate Student Loan Trusts’ portfolio, prevents the company and any other company they hire from collecting, report negative credit information, or filing lawsuits on any loan the audit shows is unverified or invalid.” Moreover, the CFPB requires them to pay $19.1 million, “which includes initial redress to harmed consumers, relinquished funds to the Treasury, and a civil money penalty.” In addition to the $19.1 million, Transworld Systems must pay a $2.5 million civil money penalty.
CFPB Director Richard Cordray stated that “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.”
According to The New York Times, National Collegiate will be setting aside $3.5 million for refunds for 2,000 borrowers that made payments after being sued over debts were by law not collectable. But this may just be the beginning, for many borrowers may have their debts set aside after the indepnedent auditor has reviewed the company’s portfolio.
In response to these allegations, Transworld Systems stated that it “disagrees with the CFPB’s characterizations, and with many of the alleged facts,” according to USA Today. “Management has worked diligently to enhance the compliance management system,” they stated.
Founder of Vantage Capital Group, David Uderitz, whose company is the beneficial owner of the trusts of National Collegiate, said in an interview that he was pleased with the outcome. He stated that, “This is independent verification of problems we’ve been investigating ourselves for three years. The audit will allow us to figure out the scope, come up with a compliance plan and make the changes that need to be made.”
In comparison to federal loans, private loans do not have as many consumer protections. Currently, private student loan debt is sitting at $100 billion. It would seem that Mr. Uderitz since buying interest in the trust back in 2009 has been trying to end certain collection practices that he deems are abusive and illegal.
This result has given a boost in hope to advocacy groups who will use this as a model to pursue other student loan debt collectors. As stated by Robyn Smith who works as a lawyer for National Consumer Law Center, “this is a great precedent, but unfortunately National Collegiate are not the only ones engaging in this behavior.” In a 2014 report, she concluded that “many [debt collectors] use shoddy and inaccurate paperwork to pursue legally flawed cases.” The judgment that has been brought against National Collegiate Student Loan Trusts and their debt collector awaits approval by a judge in United States District Court in Delaware.