WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) announced a settlement with the National Collegiate Student Loan Trusts, resolving claims that the Trusts engaged in unlawful debt collection practices affecting student loan borrowers. The agreement, awaiting court approval, would require the Trusts to provide $2.25 million in redress to borrowers harmed by these practices.
The settlement follows a protracted legal battle, culminating in a March 2024 ruling by the United States Court of Appeals for the Third Circuit. The court determined that the Trusts qualify as “covered persons” under the Consumer Financial Protection Act (CFPA), rendering them subject to CFPB oversight. A subsequent Supreme Court decision in December left the Third Circuit’s ruling intact by declining to hear the Trusts’ appeal.
Allegations Against the Trusts
The National Collegiate Student Loan Trusts, a group of 15 securitization trusts organized under Delaware law, was accused by the CFPB of employing subservicers to file improper debt collection lawsuits against student loan borrowers. These Trusts pool and securitize private student loans acquired from lenders, passing the risks and rewards to investors. However, the CFPB alleged that their efforts to collect on some of these loans violated federal consumer protection laws.
Among the key allegations were practices that exposed borrowers to unfair and deceptive debt collection actions. These included the filing of lawsuits for debts the Trusts could not prove were owed, submitting false or misleading affidavits in court proceedings, and attempting to collect debts after the statute of limitations had expired.
Specifically, the CFPB identified instances where affidavits used by the Trusts falsely claimed personal knowledge of debts, misrepresented the proper notarization of the documents, or falsely asserted their legal right to recover time-barred debts. According to the CFPB, the lawsuits often lacked the necessary documentation to verify the existence or ownership of the loans, placing hundreds or thousands of borrowers at risk of unjust financial harm.
Terms of the Proposed Settlement
If entered by the court, the agreement will impose critical obligations on the National Collegiate Student Loan Trusts to address the alleged violations and prevent further harm to borrowers. The key provisions of the settlement include:
- $2.25 Million in Consumer Redress: The Trusts will pay these funds to the CFPB, which will direct the amount toward providing financial relief to affected borrowers.
- Cessation of Certain Debt Collection Efforts: The Trusts will halt debt collection activities on certain cases where time-barred debt or inadequate documentation makes recovery efforts improper. This will include closing pending lawsuits and ceasing all attempts to recover on debts identified as unlawful under the CFPB’s claims.
Broader Context
The CFPB first filed its lawsuit against the National Collegiate Student Loan Trusts in 2017, citing widespread improper debt collection tactics. These practices were part of a broader issue stemming from subprime-style student lending practices that emerged in the years leading up to the financial crisis. Student lenders and investment banks collaborated to securitize private student loans, leading to high-risk lending products and aggressive recovery measures when borrowers defaulted.
By targeting these practices, the CFPB seeks to ensure accountability within private student loan markets and protect borrowers from unjust debt collection practices. Under the CFPA, the Bureau has the authority to hold financial institutions responsible for “unfair, deceptive, or abusive acts or practices” and to secure redress for harmed consumers.
Legal Implications
The Third Circuit decision was pivotal in affirming the CFPB’s authority over entities like the National Collegiate Student Loan Trusts. By classifying the Trusts as “covered persons,” the ruling reinforced the Bureau’s jurisdiction over non-bank entities that engage in consumer financial activities.
The case also underscores the importance of accurate documentation in debt collection practices. The settlement serves as a warning to other financial institutions and debt collectors about the risks of pursuing legal action without sufficient evidence to substantiate claims.
Looking Ahead
The CFPB’s action against the National Collegiate Student Loan Trusts exemplifies its broader efforts to protect student borrowers and ensure fairness in debt collection practices. Should the court approve the settlement, it will mark a significant step toward remedying past harms while discouraging similar misconduct in the future.
For millions of student loan borrowers, this resolution could symbolize a renewed effort to restore trust and accountability in the private student lending market.
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