The US federal watchdog—Consume Financial Protection Bureau—has announced this week an order for the National College Student Loan Trusts, and its debt collector Transworld Systems Inc, to pay at least $21.6 million as the firm had attempted to collect on possibly non-existent or out-of-date loans.
The US CFPB alleges that the companies have sued borrowers without the ability to prove how the debt was accrued or owed or that these companies have pursued collection on loans that are far too old to sue over and also relied on false and/or misleading legal documents to do so. According to the CFPB, these trusts had filed at least 486 lawsuits on debt which had passed the expiration for the statute of limitations on collections.
As a result of this, consumers had made payments of at least $3.5 million on debt they did.
The new settlement comes after three years of investigation. Of course, a federal judge still has to sign off on these penalties. And the CFPB says that the collection of 15 trusts which have been purchased and securitized more than 800,000 private student loans and sold to other investors. To look at it another way, the National Collegiate Student Loan Trusts has approximately $8 billion in bundled student loan debt and more than half of this debt (about $5 billion) is currently in default.
As such, an insurer who covers investor losses has warned that now they might need to assign about $200 million as a result of the settlement.
Vantage Capital Group founder Donald Uderitz—who also happens to be the beneficial owner of the trust—said that they have collaborated with the federal agency on this agreement and that they would continue to work until the job was finished.
“We frankly welcomed the intervention of the CFPB,” he attests, “to help us to put an end to these appalling practices.”
All in all, Transworld said that it disagrees with many of the CFPB’s characterizations and has decided to settle in order to avoid far more costly litigation. Uderitz goes on to say, “This is independent verification of problems we’ve been investigating ourselves for three years.”