The Consumer Financial Protection Bureau (CFPB) has decisively moved to tackle alleged illegal debt collection practices by the National Collegiate Student Loan Trusts. According to a report by the CFPB, the trusts must now cough up $2.25 million in redress to borrowers who were wrongly targeted. This follows a March 2024 ruling from the United States Court of Appeals for the Third Circuit, which categorically stated that these trusts fall under the Consumer Financial Protection Act, despite their previous objections.
Here's the nitty-gritty: In the years brewing up to the financial crisis, companies like the National Collegiate Student Loan Trusts were transforming student loans into investable securities. These Trusts, organized under Delaware law, were essentially suing students en masse to collect debts, often without the necessary paperwork to prove ownership or validity of the alleged debts. To further complicate matters, the United States Supreme Court decided not to examine their appeal in December, effectively putting an end to the Trusts' argument against their classification under the Act.
Back in 2017, the CFPB initially filed suit against the Trusts, accusing them of unsavory practices, including launching defective lawsuits to collect debts and using false affidavits. As per the CFPB allegations, "The Trusts unlawfully filed thousands of cases although they did not have or could not find the documentation necessary to prove either that they own the loans or that the consumer owed the debt." In a nutshell, they were accused of strong-arming students without the proper arsenal to back up their claims.
The proposed stipulated judgment, once authorized by a court, would not only make the Trusts to pay the aforementioned sum but also halt the collection of certain debts related to the case, particularly those involving time-barred debt or debts lacking the proper documentation. This is a significant pivot for entities that operated with seemingly little regard for the financial havoc wielded upon individual lives.
Additionally, a separate action was taken against the Trusts in May 2024, together with the Pennsylvania Higher Education Assistance Agency (PHEAA), for not responding appropriately to borrowers during the COVID-19 national emergency in their quest for student loan payment relief. Consumers can report complaints regarding financial products and services through the CFPB website or via phone, and employees aware of federal consumer financial law violations can contact the CFPB whistleblower email.
