The Consumer Financial Protection Bureau (CFPB) on Monday filed a complaint against two major private student loan servicers, alleging failure to address borrowers' requests.
The CFPB accused the National Collegiate Student Loan Trust (NCSLT), a group of 15 securitization trusts, and the loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA) of failing to respond to borrowers seeking relief from student loan payments.
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Filed in federal court in Pennsylvania, the complaint alleges violations of the Consumer Financial Protection Act of 2010. If the complaint is accepted by the court, the proposed stipulated judgments would facilitate compensation to the impacted borrowers.
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. The expected increase in federal student loan interest rates do not apply to private loans. According to the Education Data Initiative, the average private student loan debt is about $55,000 per borrower.
Newsweek reached out to PHEAA, CFBP and the Wilmington Trust Company (on behalf of the National Collegiate Student Loan Trust) for comment.
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The loan servicers might have to cough up more than $5 million, with $2.15 million in fines. If the court sides with the CFPB, the NCSLT will pay a $400,000 penalty while the PHEAA will pay a $1.75 million penalty. All of the collected funds will enter the CFPB's victim relief fund.
In a statement, the CFPB said the two entities would pay "nearly $3 million in redress to harmed borrowers, "which would include "$200 payments to borrowers who did not receive timely responses."
The CFPB claims that the defendants harmed consumers by "failing to ensure responses to borrower requests, failing to provide accurate information to borrowers, and incorrectly denying forbearance requests." In the statement, the CFPB noted the failure to address borrowers seeking payment relief during the COVID-19 pandemic.
The CFPB has the authority to take legal action against institutions violating the Consumer Financial Protection Act.
"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 statement. "Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs."
This is the CFPB's second public enforcement action against the NCSLT, which, according to the CFPB, held 163,000 private student loans as of February. The loans have about $907 million in outstanding balances.
Since 2006, PHEAA "has been the primary servicer for active loans held by the National Collegiate Student Loan Trust" the CFPB said in a statement, adding that PHEAA services a portfolio of nearly $17.8 billion in student loans.
A spokesperson for PHEAA 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 multi-year review by the CFPB to a resolution," the spokesperson said in a statement emailed to WPMT in York, Pennsylvania.
"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."
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