The Consumer Financial Protection Bureau (CFPB) has settled with student loan servicers Discover Bank, The Student Loan Corporation and Discover Products (collectively Discover) in a 2015 case for unlawful practices, and Discover will have to pay $10 million in customer redress, a press release says.
The case stems from an earlier order from CFPB based on finding that Discover had been misstating the minimum amounts due on billing statements along with tax info customers needed to help get federal income tax benefits.
In addition, CFPB found that Discover had been engaging in illegal debt collection practices.
Upon finding that information, CFPB ordered Discover to pay $16 million to consumers affected, pay a penalty and fix its unlawful practices. However, the release says this was not what happened. Instead, Discover reportedly misrepresented the minimum loan payments owed, the amount of interest customers paid and other information, and also didn’t provide all the customer redress owed.
According to CFPB, Discover withdrew payments from over 17,000 customers without valid authorization and canceled payments for over 14,000 customers without telling them. In addition, Discover also misrepresented the amount of minimum payments owed and interest paid to thousands of customers, the release says.
The order from CFPB on Tuesday (Dec. 22) prevents Discover from taking those actions in the future, according to the release, and “Discover must pay at least $10 million in consumer redress and a $25 million civil money penalty.”
Bad student loans are a problem for Americans, with taxpayers slated to take a $435 billion hit from borrowers not repaying student loans correctly, PYMNTS writes. That figure is close to banks’ losses from the 2008 sub-prime mortgage crisis.
According to the analysis by the U.S. Department of Education and two private consultants, borrowers who owe $1.37 trillion combined will pay back around $935 billion. That didn’t factor in the $150 billion held by private lenders but backed by the federal government.
One analyst, the University of Chicago’s Constantine Yannelis, said because it was so easy for the government to bail out itself for making bad loans, it was unlikely they’d take measures to change things.