Thousands of private student loan borrowers receive debt relief
The nightmare is almost over for thousands of people who faced illegal student debt collection procedures.
The Consumer Financial Protection Bureau on Monday took action against National Collegiate Student Loan Trusts that own more than 800,000 private student loans.
The trusts must pay at least $3.5 million to approximately 2,000 aggrieved consumers. Those borrowers made payments after being illegally sued, the CFPB said.
In most cases, the trusts did not have the documentation to show that the borrower owned the loan. In other cases, the statute of limitations (which varies by state) had expired.
The trusts bought and securitized these loans from banks between 2001 and 2007. According to the complaint, they initiated more than 94,000 collections against defaulting borrowers between 2012 and 2016.
More borrowers could eventually receive debt relief. The trusts are required to conduct an audit of all 800,000 loans in their portfolio to determine if the documentation required to prove ownership of other loans is missing. In the absence of documentation, the trusts must stop collecting those loans, under the proposed settlement, which still requires court approval.
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“The National Collegiate Student Loan Trusts and their debt collectors sued consumers for student loans they could not prove were owed, filing false and misleading affidavits in courts across the country,” CFPB Director Richard Cordray said in one Explanation.
The trusts agreed to pay a total of approximately $19 million in refunds and penalties. It has to pay more money if the audit finds that more borrowers are entitled to relief.
Its debt collector, Transworld Systems, will have to pay an additional $2.5 million in penalties under the proposed agreement.
Consumers do not currently have to take any action and will be notified directly if they are eligible for debt relief, the CFPB said.
Anyone with other grievances regarding the National Collegiate Student Loan Trusts may file a grievance with the CFPB here.
CNNMoney (New York) First published September 18, 2017: 7:27 pm ET