On September 12, 2024, the Consumer Financial Protection Bureau (CFPB) filed a proposed order which, if entered by the court, will ban a student loan servicer from servicing federal student loans and require it to pay $120 million—$20 million in civil money penalties and $100 million in redress for harmed borrowers—for what is described as “wide-ranging student lending failures” resulting in violations of the Consumer Financial Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act.

The CFPB filed a federal lawsuit against the servicer back in 2017 alleging that, among other unlawful activity, servicer illegally deprived student borrowers of opportunities to enroll in more affordable income-driven repayment plans and steered them into forbearance instead. Such practices, while cheaper for the student loan servicer, severely disadvantaged borrowers. Specifically, the CFPB’s investigation of the loan servicer revealed that it:

• Misled borrowers about income-driven repayment plans. The loan servicer failed to adequately notify borrowers who enrolled in income-driven repayment plans about the requirement to annually recertify their enrollment, which failing to do so would result in an increase in their monthly payments and delay loan cancellation.
• Botched payment processing. When borrowers that had multiple student loans with varying interest rates and monthly payments made payments meant to cover multiple loans, the loan servicer misallocated the payments and also misapplied payments made to a particular loan, which resulted in late fees, interest accrual, and negative credit reporting.
• Harmed the credit of disabled borrowers, including severely injured veterans. The loan servicer “tarnished the credit reports of borrowers” that received a discharge on their federal student loans due to a total and permanent disability.
• Deceived borrowers about the loan servicer’s requirements for cosigner release. The loan servicer failed to honor representations it made to some private loan borrowers that if they paid down their loans in a certain way, they could apply for their cosigners to be released.
• Mislead borrowers about improving credit scores and the consequences of federal student loan rehabilitation. The loan servicer’s debt collection arm promised credit reporting relief to student loan borrowers if they completed a rehabilitation program but did not honor any of such promised relief.

Putting it into Practice: The student loan servicer’s ban from servicing federal student loans makes for a good press release; however, the company had already announced in July 2021 that it would exit servicing federal student loans, and subsequently announced in early 2024 that it would stop servicing student loans altogether. In its press release, the CFPB noted that the student loan servicer is a repeat offender with a long history of regulatory violations underscoring a theme with this Bureau in increasing penalties for repeat offenses (previously discussed here and here)

Brandon Mohamad also contributed to this article.

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