Discover Bank rapped for illegal student loan servicing practices

Discover Financial Services has been ordered to pay $16 million to consumers and an additional penalty of $2.5 million by the Consumer Financial Protection Bureau (CFPB), which claims that the company engaged in illegal student loan servicing practices, according to Bloomberg.

The Discover settlement applies only to private loans, many of which it acquired from Citibank, but CFPB officials have made clear that they are also anxious about the quality of loan servicing for borrowers who owe money directly to the U.S. Department of Education for federal student loans.

“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits”, CFPB Director Richard Cordray said. Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank.

Of the $18.5 million that Discover must pay, $16 million of that will be returned to more than 100,000 borrowers.

CFPB also accused Discover of misrepresenting on its website the amount of student loan interest paid and illegally calling consumers early in the morning and late at night. Leverage this guide as a starting point for getting help for your student loan debt.

College students often seek out private loans if the expenses soar beyond the federal loan limits.

Failed to give student loan borrowers customary tax information that could have enabled them to seed federal tax deductions for interest payments of more than $600 on the loans.

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices.

“If a servicer like Discover can’t even correctly disclose basic information”, she said, “it raises serious concerns about the industry overall being able to perform the complex hands-on work of helping distressed borrowers”. A marriage license will now cost $77. About 5,000 victims will receive these credits. In October, the Bureau released an edition of Supervisory Highlights identifying a range of illegal student loan servicing practices at one or more companies.

“More than 40 million student-loan borrowers in the U.S. use student-loan servicers”.

In May of this year, the CFPB initiated a public inquiry into servicing practices “that can make paying back loans a stressful or harmful process for borrowers”.