CFPB Orders Private Student Loan Trust Company and Debt Collector to Pay $21.6 Million

9/18/2017 4:49 PM

The CFPB also ordered the companies to stop suing to collect on delinquent student loan debt without proper documentation and accurate affidavits to substantiate the debt.


Federal consumer regulators on Monday entered into a consent judgment with National Collegiate Student Loan Trusts (“Trusts”), a group of 15 trusts that purchase and securitize private student loans, and a consent order with Transworld Systems, Inc. (“Transworld”), a nationwide debt collection agency.  The orders resolve allegations by the Consumer Financial Protection Bureau that each party violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by filing student loan debt collection lawsuits that were unfair and deceptive to consumers.  The companies agreed to pay a combined $21.6 million in refunds and penalties, audit 800,000 student loans in its portfolio, and stop attempting to collect and suing consumers for debt without proper documentation and affidavits. 

Transworld said in a statement that it had settled to avoid costly litigation. “TSI disagrees with the CFPB’s characterizations, and with many of the alleged facts in the Consent Order.  Since assuming control of the Attorney Network in November 2014, Company management has worked diligently to enhance the compliance management system for the Attorney Network business unit to reflect TSI’s company-wide culture of compliance.  TSI’s current practices in the Attorney Network business unit adhere to all federal and state consumer protection laws, and embody best practices in the industry, including well-trained affiants, proper documentation for any legal claims, and diligent local law firms that review these cases in their entirety prior to taking any action in court.” 

The bureau said that between 2001 and 2007 the Trusts acquired pools of student loans, issued notes secured by the student loan pools, and provided the servicing and collection administration of such loans.  Since the Trusts do not have any employees, the bureau said the Trusts retained Transworld to service the student loans and to collect delinquent student loan debt.  The bureau reported that Transworld’s student loan debt collection practice included completing, signing and notarizing sworn legal documents, which were filed in courts across the country by a national network of law firms Transworld hired to prosecute collection lawsuits on behalf of the Trusts.

Following an investigation, the CFPB criticized these alleged illegal practices, claiming the companies filed lawsuits to collect delinquent student loan debts that were potentially inaccurate, lacked documentation or were not legally enforceable.  Specifically, the CFPB’s orders with the companies included findings that lawsuits were filed on an insufficient evidentiary basis because the Trusts could not find or did not have complete documentation about who owned the loans or who owed the debts.  The CFPB investigation also uncovered that the companies filed suits that allegedly relied on improperly notarized affidavits signed by witnesses who did not have the requisite knowledge to affirm the validity of the debts.  And the CFPB discovered that the companies filed student loan debt collection lawsuits that were barred by the applicable statute of limitations. 

In addition to the monetary enforcement action, the bureau also directed the companies to audit all of their student loan accounts for lack of documentation, and stop collecting, reporting, and suing on student loan debts unless they have proper documentation and accurate affidavits properly notarized to prove their claims regarding loan ownership and obligation to pay.   

As with any CFPB consent order or consent judgment, the Trusts and Transworld orders are only binding on the party respondents.  However, they do contain guidance for all collection industry participants that collect consumer debt, including the importance of up-front due diligence to the debt collection process. Specifically, these consent orders make clear that debt collectors must have documentation sufficient to substantiate claims before proceeding to suit, and affiants must have personal knowledge before executing affidavits that affirm that validity of the debts.  

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