The Consumer Financial Protection Bureau yesterday announced a settlement with the National Collegiate Student Loan Trusts (NCSLTs) to resolve allegations of defective debt collection practices. If approved by the court, the stipulated judgment will require the NCSLTs to provide $2.25 million in redress to consumers and implement corrective actions to address the alleged violations.
The background
The CFPB’s investigation revealed that the NCSLTs, a group of 15 Delaware statutory trusts holding securitized private student loans, engaged in widespread improper debt collection practices. These practices were facilitated by subservicers acting on behalf of the Trusts. Specific allegations include:
- Unsubstantiated Debt Collection Lawsuits: Thousands of lawsuits were filed despite lacking the necessary documentation to prove debt ownership or the amounts owed.
- False and Misleading Affidavits: Affiants claimed personal knowledge of loan records without possessing such knowledge. Many affidavits were improperly notarized, including instances of backdated notarizations.
- Time-Barred Collections: Lawsuits were filed to collect debts after the expiration of the statute of limitations, misleading consumers about their obligations.
- Unfair Practices: The NCSLTs filed lawsuits without the intent or ability to substantiate claims if challenged, resulting in significant consumer harm.
These practices were alleged to violate the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive, and abusive acts or practices.
Key Settlement Terms
Under the proposed settlement, the NCSLTs will:
- Provide Monetary Redress: Pay $2.25 million in consumer redress to borrowers harmed by improper debt collection practices.
- Cease Certain Collection Activities: Halt collection efforts on debts identified as defective or time-barred. This includes withdrawing pending lawsuits, ceasing post-judgment enforcement, and discontinuing settlements related to these debts.
- Implement Compliance Measures: Establish and maintain policies to prevent similar issues in the future, including oversight of subservicers and legal representatives involved in debt collection.
Legal Developments
The settlement follows a March 2024 ruling by the United States Court of Appeals for the Third Circuit, which affirmed that the NCSLTs are “covered persons” under the Consumer Financial Protection Act. The Trusts’ appeal to the Supreme Court was declined in December, leaving the Third Circuit decision intact.
Additional Details
- The CFPB’s complaint, originally filed in 2017, outlined systemic deficiencies in the NCSLTs’ documentation and litigation practices.
- The Trusts’ subservicers were responsible for managing over 800,000 private student loans acquired through securitization during a boom in subprime student lending prior to the 2008 financial crisis.
- Over 2,000 lawsuits were filed without adequate documentation, resulting in judgments totaling more than $21 million against consumers.
- Improper notarizations occurred on more than 25,000 affidavits, according to court filings.
