The CFPB’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices.
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Of the $18.5 million that Discover must pay, $16 million of that will be returned 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.
“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits”, Richard Cordray, the CFPB’s director, said in the release.
It says the institution also called borrowers early in the morning and late at night, an illegal debt-collection practice. Discover sometimes even called borrowers before 7 a.m. and after 10 p.m., the order said. Discover learned about those calling violations in October 2012 but didn’t address the problem until February 2013, the bureau said.
Neglected to give borrowers specific information about the amount and source of the debt, as well as the borrowers’ right to contest the charges.
Now a high-ranking official at the Center for Responsible Lending, Maura Dundon, a former regulator at the Federal Trade Commission, told the HP Discover’s transparency issues are representative of a big-picture problem. As a result, more and more borrowers let their loans go into deferment or default because they don’t know the options available to them.
Discover also misrepresented how much interest some students paid.
When contacted by ACA global, Discover Bank did not have a statement on the Bureau’s consent order at this time. Last year, the Bureau expanded its examination program to supervise the largest nonbank participants in the student loan servicing market. Evidently, the organization engaged in illegal student loan practices.
The Discover settlement applies only to private loans, many of which it acquired from Citibank, but CFPB officials have made clear that they are also anxious about the quality of loan servicing for borrowers who owe money directly to the U.S. Department of Education for federal student loans.
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In May of this year, the CFPB initiated a public inquiry into servicing practices “that can make paying back loans a stressful or harmful process for borrowers”.
