Wells Fargo must reform its practices and pay a $3.6 million fine for actions that federal consumer protection officials say misled student loan borrowers and resulted in some paying unnecessary fees.
In the order filed Monday leveling the penalty, theConsumer Financial Protection Bureau said the bank acted illegally, charging on-time payers with late fees, failed to inform borrowers of steps they could take to minimize fees and left credit report errors uncorrected.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” bureau Director Richard Cordray said in a statement. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information.’’
“Today’s report is a stunning indictment of the Department of Education’s oversight of student loan servicers, exposing the extraordinary lengths to which the department will go to protect these companies when they break the law,” Sen. Elizabeth Warren (D-Mass.) said in a prepared statement.
The U.S. Department of Education conducted a bogus investigation into allegations that student loan giant Navient Corp. violated its lucrative government contract, leading the Obama administration to mislead the public last year when it proclaimed the company didn’t cheat servicemembers on federal student loans, according to an auditby the department’s inspector general released Tuesday.
And thanks to the department, which had contradicted federal prosecutors with its announcement, Navient not only kept its contract — it got a raise, too.
The scandal is likely to revive concerns about the department’s sloppy policing of the student loan industry and its cozy relations with loan contractors, many of which have employed former department officials. These contractors together receive about $800 million annually from taxpayers to collect borrowers’ monthly payments and counsel them on their repayment options.
Glad I don’t live in Houston, Texas!
Are you behind on your student loans? Do you live in Houston, Texas? Then hold my hand because I have bad news. U.S. Marshals there are arresting people who are late on their federal college debt.
Fox 26 reported an anonymous U.S. Marshal source who said they’re going to serve 1200 to 1500 warrants to people who are behind their federal student loans.
Then there’s Paul Aker:
He told Fox 26 in a Monday report that feds with automatic weapons recently arrested him for a $1500 student loan from 1987, with allegedly no previous contact about his late bill. They reportedly took to him to court, “surrounded by seven marshals,” with no legal representation, and no rights read to him. And the prosecuting attorney allegedly wasn’t from the government, but a private debt collector.
U.S. Congressman Gene Green also spoke to Fox about this, explaining that private, student loan debt collectors are allowed to contract the feds for work.
Here is the video.
Federal student loans made in recent years resemble the toxic subprime mortgage loans that helped cause the Great Recession, new data show.
Rather than paying down their balances after leaving school, borrowers with recent federal student loans are experiencing an increase in debt as they fail to make enough payments to offset the accumulating interest on their loans.
The situation parallels subprime mortgages before the financial crisis, when lenders gave borrowers loans they couldn’t afford by allowing them to make payments that didn’t actually reduce their balances.
But while borrowers with toxic subprime loans largely defaulted and lost their homes as their lenders recorded losses, borrowers with federal student loans are likely to have their suffering drawn out for years thanks to a stagnant economy in which wages are barely rising, and existing law and Education Department practices that make it nearly impossible for struggling borrowers to discharge their debt in bankruptcy.
The federal consumer bureau has enough evidence to indicate the company violated federal consumer protection laws.
Federal regulators are considering suing Navient Corp., the nation’s largest student loan company, for allegedly cheating borrowers, the company said Monday.
The Consumer Financial Protection Bureau, which has been investigating the company for nearly two years, sent Navient a letter on Aug. 19 telling its executives that the agency’s enforcement staff had found enough evidence to indicate the company violated consumer protection laws, Navient disclosed Monday in a filing with the Securities and Exchange Commission. The CFPB also told Navient that the agency’s senior officials would now consider whether to sue the company in court.
The agency sent similar letters to for-profit college chains Corinthian Colleges Inc. and ITT Educational Services before it later sued them. Representatives for the CFPB didn’t respond to requests for comment.
Concerns are mounting among policymakers that the nation’s growing $1.3 trillion student loan tab risks slowing economic growth, as millions of households either struggling to make payments or cut back in other ways. And regulators and experts worry that shoddy loan servicing may be partly responsible, as many borrowers complain they’re routinely mistreated and forced to stump up larger monthly payments than required.
Discover’s Illegal Servicing Practices Affected Private Student Loan Borrowers Transferred from Citibank
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) took action against Discover Bank and its affiliates for illegal private student loan servicing practices. The CFPB found that Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to obtain federal income tax benefits. The company also engaged in illegal debt collection tactics, including calling consumers early in the morning and late at night. The CFPB’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices.
“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market.”
Whereas earlier today we presented one of the most exhaustive presentations on the state of the student debt bubble, one question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a number which few if any lenders and colleges openly disclose for fears the general public would comprehend not only the true extent of the student loan bubble, but that it has now burst. This is a question that we specifically posed a month ago when we asked “As HELOC delinquency rates hit a record, are student loans next?” Ironically in that same earlier post we showed a chart of default rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically undercutting the amount of bad debt in the system.
Luckily, this is a question that has now been answered, courtesy of the Department of Education, which today for the first time ever released official three-year, or much more thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number, for all colleges, stood at a stunning 13.4% for the 2009 cohort. The number is stunning because it is nearly 50% greater than the old benchmark, which tracked a two year default cohort, and which was a “mere” 8.8% for the 2009 year. Broken down by type of education, and using the new improved, and much more realistic benchmark, for-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent. In other words, more than one in five federal student loans used to fund private for-profit education, is now in default and will likely never be repaid!
And while it is impossible using historical data to extrapolate with precision what the current consolidated federal student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else has certainly deteriorated), there is now at least $122 billion in federal student loan defaults. And surging every day.
Ladies and gentlemen: meet the new subprime.