Two months after private student loan lender National Collegiate Student Loan Trust came under scrutiny amid reports that the company, along with its debt collector TransWorld, filed illegal student loan debt collection lawsuits against defaulted borrowers without citing proper or correct paperwork, federal regulators have ordered the companies to pay $21.6 million in refunds and penalties, and revise their collection practices.
The Consumer Financial Protection Bureau announced today that National Collegiate Trusts must pay at least $19.1 million in refunds and penalties to borrowers, while TransWorld must pay a $2.5 million penalty for taking part in illegal student loan debt collection lawsuits, and allegedly having otherwise-shoddy record-keeping.
National Collegiate, which hired TransWorld to collect the student loans on its behalf, currently holds more than 800,000 student loans worth about $12 billion.
According to the CFPB complaint [PDF], the companies violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by filing thousands of false affidavits and pursuing thousands of collection lawsuits they could not have won, if contested.
When a borrower defaulted on one of National Collegiate’s loans, TransWorld would file a lawsuit against the debtor seeking to require the borrower repay the debt. In order to sue to collect debts, however, the person or company filing suit must be able to prove that the consumer owed the debt and that the company owns the loan being collected.
However, in the case of National Collegiate Trust and TransWorld, the CFPB alleges that the companies filed 1,214 lawsuits against borrowers even though documentation needed to prove debtors actually owed the loans was missing.
In many cases, the missing paperwork was likely the result of the way in which loans are issued and then sold.
In National Collegiate Trust’s case, the company holds loans that were made years ago by a plethora of banks, then bundled together and sold to investors. Over time, records on these loans can disappear, which appears to be the case for many of these lawsuits.
For instance, the CFPB claims that in at least 812 collection lawsuits, there was no documentation that the loans were actually transferred to National Collegiate Trusts. In another 208 lawsuits, the promissory note to prove that a debt was owed did not exist or could not be located.
According to the CFPB, National Collegiate Trusts and TransWorld also filed at least 486 lawsuits after the applicable statute of limitations on the debt collection had expired.
As a result of these allegedly illegal lawsuits, borrowers paid more than $21.8 million in judgments. This despite the fact that in many instances judges have ruled in the borrower’s favor, wiping away their debt, because National Collegiate couldn’t prove it owns the student loans.
The CFPB claims that from Nov. 1, 2012 to April 25, 2016, 94,046 lawsuits were filed on behalf of National Collegiate Trusts citing allegedly falsified affidavits and documents supporting the company’s right to collect debts.
The notarized affidavits purported to show that employees had personal knowledge of the student loans. However, in many cases, the CFPB claims this wasn’t actually the case.
While many individuals swore that they reviewed the chain of title records regarding the debts, in reality, the CFPB contends that these people were simply told to look at a screen to verify the information. They did not have knowledge of where this data came from, the CFPB claims.
In some cases, the Bureau claims that when affidavits piled up, interns and mailroom clerks were instructed to sign the documents.
According to the CFPB, when employees raised concerns about signing the affidavits, they were told to continue signing the documents. Many continued this practice as they felt bullied by management or feared losing their jobs.
Of the affidavits signed between Nov. 1, 2012 and Aug. 3, 2014, the Bureau claims 11,412 documents were improperly notarized.
Under the CFPB’s proposed judgment [PDF] resolving the case, National Collegiate Trusts must conduct a thorough audit of the more than 800,000 student loans in its portfolio.
If the audit identifies any additional student loans for which the Trusts lack the documentation needed to prove the consumer owed the debt, the National Collegiate Student Loan Trusts will cease all collections on those loans.
National Collegiate Trusts must pay at least $3.5 million in restitution to more than 2,000 borrowers who made payments after being sued by the trusts on a loan where documentation was missing or the statute of limitations had expired.
The company must also provide refunds to any customers who are identified through the upcoming independent audit.
National Collegiate and TransWorld [PDF] must also revamp their collection practices, ceasing the filing of collection lawsuits for debt that is no longer owed or for which they do not have proper documentation.
Additionally, the company must pay $7.8 million to the U.S. Treasury and a $7.8 million penalty to the CFPB’s Civil Penalty Fund.
As for TransWorld, the collection agency must pay $2.5 million to the CFPB’s Civil Penalty Fund.