Alleging that student loan borrowers were illegally sued for private student loan debt that the companies which made the loans couldn’t prove was owed or was too old to sue over, the Consumer Financial Protection Bureau has imposed multi-million-dollar fines and an audit against a loan trust and its debt collector.
Overall, CFPB said in a press release, the action affects all 800,000 loans held by the trust; the companies will pay at least $21.6 million and stop suing for invalid or unverified debts, CFPB stated in a release.
CFPB stated that the proposed judgment – against National Collegiate Student Loan Trusts and its debt collector, Transworld Systems, Inc. – requires an independent audit of all 800,000 student loans in the portfolio of National Collegiate. Further, the proposed judgment prohibits the company – and any company that it hires – from attempting to collect, report negative credit information, or file lawsuits on any loan the audit shows is unverified or invalid.
Also, the proposed judgment requires National Collegiate to pay at least $19.1 million, which includes initial redress to harmed consumers, relinquished funds to the Treasury, and a civil money penalty. Under a separate consent order, Transworld Systems, Inc. is ordered to pay a $2.5 million civil money penalty.
CFPB stated that National Collegiate Student Loan Trusts are 15 Delaware statutory trusts that own more than 800,000 private student loans. “Between 2001 and 2007, the trusts purchased and securitized the loans, and then sold notes secured by the loans to investors,” CFPB stated. “The trusts have no employees but instead use service providers to interact with consumers about their loans.”
Transworld Systems, Inc., the agency stated, is a nationwide debt collector incorporated in California, with a principal place of business in Ft. Washington, Penn. Transworld Systems employees complete, sign, and notarize sworn legal documents for collections lawsuits brought on behalf of the trusts. Transworld Systems hires a national network of law firms to file and prosecute collections lawsuits on behalf of the trusts in courts across the country.
The complaint against National Collegiate and the Bureau’s consent order regarding Transworld Systems include allegations and findings that the companies violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by filing false affidavits and for pursuing collections lawsuits they could not have won, if contested.