On August 22, 2016, the Consumer Financial Protection Bureau (CFPB) announced that it entered into a consent order with a large national bank in relation to the company’s private student loan servicing practices. The CFPB asserts that the bank’s practices allegedly increased costs and penalized certain borrowers, leading to illegal fees and inaccurate credit reporting. The CFPB order is based on alleged violations of the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5531, 5536, the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s-2(a)(2), and Section 1022.42 of Regulation V, 12 C.F.R. § 1022.42(a).
According to the order, the bank’s servicing process caused thousands of student loan borrowers to have issues with their loans or receive inaccurate information regarding their payment options. Specifically, the order states that the CFPB’s investigation found that the company: (1) processed loan payments such that it maximized late fees; (2) provided borrowers with inaccurate billing statements regarding the value of partial payments; (3) charged certain borrowers late fees even when those persons made timely payments; and (4) failed to update and correct borrower information such that it led to inaccurate credit reporting.
The consent order will require the company to pay at least $410,000 in consumer refunds of improper late fees, as well as an additional $3.6 million in civil penalties. The company will also be required to amend its policies and practices regarding the allocation of partial payments and consumer billing disclosures. The company must submit a compliance plan to the Regional Director of the CFPB within 90 days of the effective date of the order.