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From Banking and Finance Law Daily, August 22, 2016

Bank penalized for illegal student loan practices

By John M. Pachkowski, J.D.

Wells Fargo Bank, N.A., the country’s second-largest private student lender, has entered into a consent order with the Consumer Financial Protection Bureau to resolve the bank’s private student loan servicing practices that resulted in violations of the Dodd-Frank Act’s prohibition on unfair and deceptive acts and practices, as well as the Fair Credit Reporting Act.

UDAAP claims. According to the consent order, the CFPB found that the bank violated the prohibition on unfair and deceptive acts and practices by:

  1. Failing to adequately disclose to consumers how it allocated payments across multiple loans and providing instructions on how consumers could allocate payments resulting in the consumers being unable to effectively manage their student loan accounts and minimize costs and fees.
  2. Misrepresenting the value of making partial payments which, in turn, could have deterred borrowers from making partial payments that would have satisfied at least one of the loans in their account; thereby allowing them to avoid certain late fees or delinquency.
  3. Charging illegal late fees even though a consumer had made timely payments.

FCRA violation. The bank violated provisions of the Fair Credit Reporting Act by failing to update and correct inaccurate, negative information reported to credit reporting companies about certain borrowers who made partial payments or overpayments.

Redress. To address the UDAAP violations, Wells Fargo is required to improve student loan servicing practices by allocating partial payments made by a borrower in a manner that satisfies the amount due for as many of the loans as possible, unless the borrower directs otherwise.

Also, the bank must provide consumers with enhanced disclosures with their billing statements explaining how the bank applies and allocates payments and how borrowers can direct payments to any of the loans in their student loan account.

To resolve the FCRA violations, Wells Fargo must remove any negative student loan information that has been inaccurately or incompletely provided to a consumer reporting company.

Finally, the consent order provides that the bank must pay at least $410,000 to compensate consumers for illegal late fees and also pay $3.6 million to the CFPB’s Civil Penalty Fund.

Commenting on the consent order, CFPB Director Richard Cordray said, "Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information and we will continue our work to improve the student loan servicing market."

Companies: Wells Fargo Bank, N.A.

MainStory: TopStory CFPB DoddFrankAct EnforcementActions FairCreditReporting Loans UDAAP

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