A lawsuit against two major student loan services alleging failure to address borrowers' requests could lead to a financial windfall for the borrowers.
The Consumer Financial Protection Bureau (CFPB) on Monday filed the lawsuit in federal court in Scranton, Pennsylvania, against the National Collegiate Student Loan Trusts (NCSLT) and Pennsylvania Higher Education Assistance Agency (PHEAA) alleging failures to respond to borrowers seeking relief from student loan payments, including during the COVID-19 pandemic.
The CFPB proposed judgements which, if entered by the court, would require the NCSLT and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB's victims relief fund. They would also pay nearly $3 million in compensation to harmed borrowers.
"The CFPB has taken action against a web of investment trusts that failed student loan borrowers, including at the height of the pandemic," CFPB Director Rohit Chopra said in a news release. "Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs."
Because they are issued by private lenders, typically banks, the loans don't qualify for the Biden administration's federal student loan forgiveness plan or repayment plan options, Newsweek reported Friday.
The NCSLT is a group of 15 securitization trusts organized under Delaware law, the CFPB said. It acquires, pools, and securitizes student loans, which they then service. As of February, it collectively held approximately 163,000 private student loans with approximately $907 million in outstanding balances.
The PHEAA is a public corporation organized under the laws of Pennsylvania, the CFPB said. As of December, the PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicing agent for active loans held by the NCSLT since at least 2006.
The CFBP lawsuit alleges the NCSLT and PHEAA harmed consumers by failing to ensure responses to borrower requests, failing to provide accurate information to borrowers and incorrectly denying forbearance requests.
The consumer group claims in the news release the NCSLT's internal processes for handling borrower requests broke down in 2015, "and they failed to take the steps necessary to fix them. Thousands of borrowers waited months and even years for responses to their requests, and many received no answer at all."
It also claims the PHEAA misrepresented to consumers that certain requests would be answered when the company knew that they would not. The company also failed to inform borrowers that forbearance requests submitted to the NCSLT would not be appropriately processed and that other payment relief options were available. Also, the group claims the PHEAA denied or failed to timely respond to eligible borrower requests for COVID-19-related natural disaster forbearance.
A PHEAA spokesperson said it was pleased to resolve the matter with the CFBP.
"While we maintain that PHEAA had no authority to decision unique borrower requests without instruction from 2016-2021, we are pleased to bring this multiyear review by the CFPB to a resolution," the spokesperson said in a statement emailed to WPMT-TV in York, Pennsylvania, according to Newsweek.
"The parties have come together to finalize a plan for the impacted borrowers and have agreed upon procedures for addressing similar borrower requests in the future. PHEAA will continue to work cooperatively with the CFPB and trust parties to ensure the best outcomes for borrowers."
Newsweek reported it reached out to the Wilmington Trust Company, on behalf of the NCSLT, for comment.
Michael Katz ✉
Michael Katz is a Newsmax reporter with more than 30 years of experience reporting and editing on news, culture, and politics.
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