Many borrowers find it difficult to manage student loan debt. However,
the challenges become exaccerbated when a loan servicer mishandles accounts en-masse.
In recent news Discover Financial has come under heavy fire by the Consumer
Financial Protection Bureau (CFPB). This ordeal has it's roots in
2010 when Discover acquired over 800,000
private student loans from CitiBank. Since the acquisition of these loans, Discover has in the
time since committed a plethora of mistakes ranging from simple errors
to downright egregious actions.
Last month after a massive investigation the CFPB determined that Discover
Financial was engaging in widespread violations with respect to student
loan servicing. The investigation found that in some situations, Discover
was overstating the minimum balances due, failing to provide basic information
for tax breaks and even practicing illegal debt collection practices such
as calling debtors at unusual hours.
What Did Discover Do Wrong With Student Loans?
The CFPB’s investigation of Discover found them in violation the
of Dodd-Frank Wall Street Reform and Consumer Protection Act and the Fair
Debt Collection Practices Act (FDCPA) on numerous counts. Dodd-Frank of 2010 prohibits unfair and deceptive
acts and practices by corporations, banks and financial institutions.
In regards to Dodd-Frank violations, Discover was found to be overstating
the minimum balance due by adding interest on accounts that were still
in deferment. As a direct result of this many borrowers were unable to
make their minimum payments causing them to be hit with additional fines.
beyond this they failed to inform Borrowers of important information needed
for tax breaks while additionally misrepresenting the amount of interest
paid on loans.
In 2010 President Barack Obama introduced the American Opportunity Tax
Break, which over a 4 year period allows borrowers up to a $2500 yearly
tax credit on the interest paid by a borrower. Discover failed to provide
borrowers with the paperwork to grant borrowers their proper information
on the interest they paid causing the interest paid to appear as $0.00.
This resulted in borrowers believing they did not qualify for the tax
credit. Beyond this in the cases where borrowers were self-informed enough
to seek out the paperwork on their own, Discover didn’t bother to
inform those borrowers of the tax break.
Violating the Dodd-Frank is not completely surprising as the law is relatively
new. However, beyond the Dodd-Frank violations Discover was also found
to be in violation of the FDCPA. The FDCPA dictates the standards and
practices of debt collection. In direct violation of the FDCPA Discover
called borrowers in reference to debt collection outside of the appropriate
hours of 8 a.m. and 9 p.m. on over 150,000 occurrences. Beyond this Discover
upon acquiring the loan portfolio’s from CitiBank failed to borrowers
with the debts specifications regarding the amount of the loan or the
source of the debt. They also, failed to provide borrowers with the needed
information contest the debt. Under the FDCPA this information is required
to be disclosed to the borrower on the initial communication informing
of the portfolio’s acquisition.
What is the penalty against Discover?
Following the investigation of Discover, the CFPB has taken appropriate
action. As a result of the allegation, Discover has been ordered to return
$16 Million to violated parties plus pay an additional $2.5 million to
the CFPB’s Civil Penalty Fund. Additionally the CFPB listed out
procedural orders for Discover to follow in order to “clean up their