The Consumer Financial Protection Bureau (CFPB) has reached a $18.5 million settlement with Discover Financial Services over what it claims were illegal practices in student loan servicing. According to the CFPB, Discover (and its affiliates, The Student Loan Corporation and Discover Products, Inc.) engaged in the following actions detrimental to borrowers’ good credit: overstatement of the minimum amounts due on billing statements, failure to provide student loan interest information required for the $2,500 student loan interest tax deduction, and telephoning borrowers early in the morning (prior to 8:00 a.m.) or late at night (after 9:00 p.m.) in violation of the federal Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform Act.
Discover Financial Services is a credit-card company which was recently spun off by Morgan Stanley. Discover began acquiring student loans from Citibank in 2010, obtaining over 800,000 such accounts. The settlement, which is based on servicing of some of these loans and is neither an admission nor denial of wrongdoing, requires Discover (and its affiliates, The Student Loan Corporation and Discover Products, Inc.) to pay $2.5 million to the CFPB, pay $16 million to 100,000 affected student loan borrowers, and correct the improper billing, interest reporting and collection practices.
Although the CFPB has frequently been in the news lately for its enforcement actions against lending institutions for financial products such as credit cards, this is the first one the federal agency has taken against a student loan servicer. Student loans represent a trillion dollar plus segment of the United States loan market.