CFPB Orders Bank to Refund $3.75 Million to Consumers and to Pay $2.75 Million Fine for Student Loan Servicing Failures

The CFPB recently entered into a Consent Order with a major bank for student loan servicing failures that harmed borrowers by allegedly deceiving them about tax benefits, incorrectly charging late fees and interest, and sending misleading monthly bills and incomplete notices.  The CFPB found that the bank engaged in deceptive acts or practices in violation of the Consumer Financial Protection Act of 2010.

First, the bank allegedly misrepresented important information on borrowers’ eligibility for valuable tax deductions by making statements that suggested borrowers had not paid qualified interest, or that the borrowers were not eligible for the qualified interest tax deduction.  As a result, borrowers did not seek this tax benefit, even though they may have been eligible.  Next, the bank allegedly incorrectly charged late fees and added interest to student loan balances of borrowers who were still in school and eligible to defer their loan payments.  According to the Order, the bank erroneously cancelled in-school deferments for certain borrowers based on inaccurate information about their enrollment status and then failed to refund late fees and erroneously charged interest even after discovering the error.

In addition, the bank also allegedly misled borrowers by overstating the monthly minimum payment amounts in monthly bills.  According to the Order, the bank presented monthly statements that included the actual minimum amount due and interest on loans that were still in deferment and thus, not yet required to be paid.  This inclusion of interest accrued on loans in deferment led to substantial overstatements of the minimum payment due.  Finally, the bank allegedly failed to disclose information required under the Fair Credit Reporting Act after denying borrowers’ requests to release loan cosigners.  In making a determination to release a cosigner, the bank would access the borrower’s credit report and score.  However, in a notice of denial, the bank failed to include the borrowers’ credit scores, the phone number of the credit reporting agency that generated the credit report, and the disclosure language confirming that the credit reporting agency did not make the decline decision.

The Consent Order requires the bank to pay $3.75 million in restitution to harmed consumers, to pay a $2.75 million fine to the CFPB’s Civil Penalty Fund, and to make changes to their servicing practices.

The Consent Order is available here.