The nightmare is almost over for thousands of people who faced illegal student debt collections lawsuits.
The Consumer Financial Protection Bureau took action Monday against National Collegiate Student Loan Trusts, which owns more than 800,000 private student loans.
The trusts must refund at least $3.5 million to about 2,000 harmed consumers. Those borrowers made payments after being sued illegally, the CFPB said.
In most cases the trusts did not have the paperwork to prove the borrower had owned the loan. In other instances, the statute of limitations (which varies by state) had expired.
The trusts purchased and securitized these loans from banks between 2001 and 2007. It initiated more than 94,000 collections lawsuits against defaulted borrowers between 2012 and 2016, according to the complaint.
More borrowers could eventually receive debt relief. The trusts must conduct an audit of all 800,000 loans in its portfolio to see if it lacks the paperwork needed to prove ownership of other loans. If documentation is missing, the trusts must stop collection on those loans, according to the proposed settlement, which still needs court approval.
“The National Collegiate Student Loan Trusts and their debt collector sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country,” said CFPB Director Richard Cordray in a statement.
The trusts agreed to pay a total of about $19 million in refunds and penalties. It will have to pay more money if the audit finds that more borrowers are due relief.
Its debt collector, Transworld Systems, must pay an additional $2.5 million penalty, according to the proposed agreement.
Consumers don’t need to take any action at this time and will be notified directly if they are eligible for debt relief, the CFPB said.
Anyone who has other complaints regarding the National Collegiate Student Loan Trusts can file a complaint with the CFPB here.