Discover Bank in trouble for student loan abuses
The Consumer Financial Protection Bureau (CFPB) has ordered Discover Bank to pay $18.5 million for illegal student loan servicing practices, according to a statement the bureau issued Wednesday.
The payment will be split into a $2.5 million civil penalty and $16 million in reimbursement to more than 100,000 borrowers.
"Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to obtain federal income tax benefits," CFPB said in their statement.
CFPB also accused Discover of misrepresenting on its website the amount of student loan interest paid and illegally calling consumers early in the morning and late at night.
They said Discover made 150,000 calls to student loan borrowers before 8 a.m. and after 9 p.m. and learned about these violations in October 2012, but failed to address the issue until February 2013.
In addition to ordering the financial penalties, CFPB instructed Discover to "improve its billing, student loan interest reporting, and collection practices."
Discover has agreed to submit a redress plan and a compliance plan within 90 days, reports Bloomberg.
"Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits," said Richard Cordray, CFPB director. "Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market."
Legally, borrowers can deduct up to $2,500 in student loan interest from their taxes. Student loan providers like Discover are required to give borrowers a statement each January specifying how much interest they paid, as long as the amount is above $600. Discover didn't.
"More than 40 million student-loan borrowers in the U.S. use student-loan servicers. While borrowers choose which lender to get their loan from, they generally don’t have control over selecting the firm that services their loan while they repay it," notes The Wall Street Journal.
Discover failed to provide "the most basic functions of adequate student loan servicing" for a portion of the 800,000 loan accounts it bought from Citigroup Inc., the Journal reports.
Discover declined to comment in response to requests from Bloomberg, CNN, and The Wall Street Journal.
Discover’s practices have compounded problems faced by student loan borrowers, who are already bearing a disproportionate load of the nationwide debt crisis.
Debt from student loans in the US is currently $1.2 trillion – an amount that could fund more than 30 million semesters – and it’s increasing by $2853.88 a second, CNN Money notes.
It also finds almost 30 percent of the 40 million college students who use student loans drop out.
According to Vox, when students graduate, they owe an average of $29,400.
Student loan interest rates are some of the highest in the loan market, ranging from 4.29 percent to 6.84 percent – and they often cannot be refinanced.
Student debt has more than tripled over the last decade, says Vox, because "more students are going to college than they used to, a higher proportion are taking out loans, and they’re borrowing more than students did in the past."
