Tags: discover | fined | student | loan | servicing | abuse

Discover Fined by Feds for Student Loan Servicing Abuse

Image: Discover Fined by Feds for Student Loan Servicing Abuse
Student loans total more than a trillion dollars. (REUTERS/Russell Boyce)

By    |   Thursday, 23 Jul 2015 07:11 AM

Discover Bank was fined by the Consumer Financial Protection Bureau for what the agency called illegal private student loan servicing practices.

In a statement on its website on Wednesday, the bureau said Discover will have to refund $16 million to consumers and pay a $2.5 million penalty, along with improving the way it billed students, its loan interest reporting and collection practices.

The Consumer Financial Protection Bureau said it believed Discover overstated the minimum amounts due on billing statements and refused to give customers information they needed to get federal income tax benefits.

The bureau also charged that Discover with used illegal collection practices, including making calls early in the morning or late at night.

"Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits," said bureau 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."

Discover offers undergraduate loans with interest rates beginning at 6.15 percent, a rate higher than the 4.29 percent coming with some federal loans, CNN Money reported. The federal loans, though, are limited to $12,500 under its students loan program.

College students often seek out private loans if the expenses soar beyond the federal loan limits.

Student loans total nearly $1.2 trillion, most of that going to the federal debt, reported Bloomberg Business. Private lenders cover less than 15 percent of the market.

The Consumer Financial Protection Bureau had received more than 30,000 comments when it started taking public inquiries in May about student loan servicing practices "that can make paying back loans a stressful or harmful process for borrowers," noted Bloomberg.

"Today's action demonstrates how Discover failed at providing the most basic functions of adequate student loan servicing for a portion of the loans that were transferred from Citibank," said the CFPB.

"… The CFPB concluded that the company and its affiliates violated the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibitions against unfair and deceptive acts and practices, and also the Fair Debt Collection Practices Act."

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Discover Bank was fined by the Consumer Financial Protection Bureau for what the agency called illegal private student loan servicing practices.
discover, fined, student, loan, servicing, abuse
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2015-11-23
Thursday, 23 Jul 2015 07:11 AM
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