In the midst of the Consumer Financial Protection Bureau’s push to ensure adequate student loan servicing, the CFPB has ordered Discover Bank and its affiliates to pay a total of $18.5 million for illegal private student loan servicing practices. Many of the issues regarding Discover’s failure to provide “the most basic functions of adequate student loan servicing” began after Discover acquired more than 800,000 accounts from Citibank in 2010. The CFPB has found that Discover Bank’s violations include:
- Overstating the minimum amount due in billing statement
- Misrepresenting the amount of student loan interest paid
- Illegally and excessively calling consumers early in the morning and late at night, and
- Engaging in illegal debt collection tactics
Many of the cases that we have seen Citibank pursue consumers for have now been bought by Discover and, we frequently see the law firm of Zwicker and Associates litigating and collecting on these Discover loans.
The Dodd-Frank Act authorizes the CFPB to take action against “institutions engaging in unfair, deceptive, or abusive practices.” As a result, Discover will be required to return $16 million to more than 100,000 borrowers for the previously mentioned violations and pay $2.5 million to the CFPB’s Civil Penalty Fund. Additionally, Discover has been ordered to accurately represent the minimum periodic payments owed by consumers, send clear and accurate interest and tax information to borrowers, and cease making calls to consumers before 8 a.m. or after 9 p.m.
The student loan market has received widespread attention in recent years due to a nationwide focus of the necessity of higher education and corresponding funding. As the nation’s second largest consumer debt market, the student loan market is comprised of more than 40 million federal and private borrowers who owe more than $1.2 trillion. Additionally, of those 40 million, 8 million borrowers were found to be in default earlier this year. The CFPB’s action against Discover exemplifies a hopeful step in the right direction for adequate student loan servicing and borrower protection.