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From Banking and Finance Law Daily, September 18, 2017

Student loan securitizer, collection contractor agree to $21.5 million settlement

By Richard A. Roth, J.D.

National Collegiate Student Loan Trusts and its debt collection contractor, Transworld Systems, Inc., have agreed to pay more than $21.5 million to settle Consumer Financial Protection Bureau charges arising from their delinquent student loan collection practices. NCSLT also has agreed to an independent audit of the more than 800,000 loans it holds in its portfolio and to refrain from any future improper collection efforts, according to the Bureau.

The CFPB says that between 2001 and 2007, NCSLT bought and securitized private student loans and that the 15 separate trusts that comprise NCSLT now own more than 800,000 loans. Transworld is responsible for collecting loans that become delinquent. Its employees sign and notarize documents in connection with collection suits, while it uses independent law firms to handle the litigation. Between Nov. 1, 2012, and April 25, 2016, more than 94,000 collection suits were filed across the country, according to the Bureau.

Alleged illegal actions. The CFPB claims that the two organizations engaged in three specific illegal tactics:

  1. More than 2,000 suits were filed to collect loans when the trusts could not produce documentation proving that they owned the loans or that the students owed the debts. In some cases, the note or payment agreement could not be found.
  2. Affidavits were filed by individuals who falsely claimed to have personal knowledge of account records. Additionally, more than 25,000 affidavits were notarized by notaries who had not witnessed the signatures.
  3. At least 486 collection suits were filed after the relevant statute of limitations had passed.

The Bureau’s complaint against NCSLT explicitly alleges that in some cases Transworld used "interns and mailroom clerks" to sign affidavits. It also claims that in some cases the company’s employees gave court testimony that was consistent with their false affidavits.

Agreed settlement. The two organizations have agreed to pay a total of at least $21.6 million. NCSLT will pay:

  • at least $3.5 million in restitution to more than 2,000 consumers who made payments after improper collection suits;
  • $7.8 million in disgorgement, which will be surrendered to the Treasury Department; and
  • an additional $7.8 million civil penalty to the CFPB’s Civil Penalty Fund.

Transworld has agreed to pay a $2.5 million civil penalty.

Conduct restrictions also are included in the settlement. To begin with, NCSLT will hire an independent auditor, who will be subject to the Bureau’s approval, to audit all of the loans in the portfolio. If the audit reveals accounts for which necessary documentation is missing, NCSLT will stop all collection efforts. NCSLT also is required to make any additional restitution the audit shows to be required.

Moreover, NCSLT and Transworld will stop attempting to collect loans if NCSLT does not have proper documentation. This goes beyond not filing suits to include not reporting negative information to consumer reporting agencies. When collection suits are filed, the organizations must not file false or misleading documents and must ensure that all documents that require notarization are notarized properly.

Case settlements. NCSLT agreed to settle the Bureau’s charges under a proposed judgment, which has been filed with the U.S. District Court of the District of Delaware and must be approved by the judge. Transworld has agreed to a consent order in a CFPB administrative proceeding, which does not require approval.

Companies: National Collegiate Student Loan Trusts; Transworld Systems, Inc.

MainStory: TopStory CaliforniaNews CFPB ConsumerCredit DelawareNews DoddFrankAct EnforcementActions Loans PennsylvaniaNews UDAAP

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