The Consumer Financial Protection Bureau yesterday took action against the National Collegiate Student Loan Trusts and their debt collector, Transworld Systems, Inc., for illegal student loan debt collection lawsuits. Consumers were sued for private student loan debt that the companies couldn’t prove was owed or was too old to sue over. These lawsuits relied on the filing of false or misleading legal documents. The proposed judgment requires an independent audit of all 800,000 student loans in the National Collegiate Student Loan Trusts’ portfolio. It prohibits the National Collegiate Student Loan Trusts, and any company they hire, from attempting to collect, reporting negative credit information, or filing lawsuits on any loan the audit shows is unverified or invalid. In addition, it requires the National Collegiate Student Loan Trusts to pay at least $19.1 million, which includes initial redress to harmed consumers, relinquished funds to the Treasury, and a civil money penalty. Under a separate consent order, Transworld Systems, Inc. is ordered to pay a $2.5 million civil money penalty.
The CFPB's full press release, along with links to the complaint and consent order, is here.
This is welcome news, and it looks big. But let’s put it in perspective.
Considering the penalty amount relative to the nominal value of the entire population of securitized private student loans, it’s rather small.
(Earlier this year, in Houston, a single attorney debt collector who filed a few thousand lawsuits in a Downtown JP court against debtors who did not live in the county had a $25mil+ judgment entered against him, his law firm, and his debt-buying company for wrongful litigation conduct, mostly for venue violations. State of Texas vs Samara Portfolio Management LLC and Joseph O Onwuteaka et al.).
With NCSLT, the number of loans and the total dollar volume is gigantic. The total value of the last of the many securitization transactions (NCSLT 2007-4, ten years ago tomorrow) was $1.02 billion, and the First Marblehead Corporation took $88,424,309 million of that up front (“payable on the Closing Date”). These are big numbers.
“The National Collegiate Student Loan Trust 2007-4 (the “Trust”) was formed on September 11, 2007 pursuant to an interim trust agreement between The National Collegiate Funding LLC (“NCF”) and Wilmington Trust Company. On September 20, 2007, the Trust issued $1,464,000,000 in principal amount of student loan asset-backed notes (the “Notes”). The Trust used $1,083,424,117 of the net proceeds from the sale of the Notes to purchase private student loans (the “Student Loans”) guaranteed by The Education Resources Institute, Inc. (“TERI”).” The (under) securitization created a huge nine-figure surplus! Where did all that money go?
http://debt-suit-litigation-in-texas.blogspot.com/2017/09/this-day-in-history-when-first.html
That said, the moratorium on collection activity and restitution of payments made on ill-gotten judgments will provide real relief to affected student borrowers struggling with these loans (many of them high-interest, especially those originated toward the end of the SLAB (student asset backed security) frenzy in 2007.
The relief/restitution provisions will be especially beneficial to those student borrowers who already had default judgments entered against them thanks to the mass-produced NCO/TSI affidavits (and often had the balances augmented with thousands more in attorney’s fees). Some of them had their bank accounts emptied through writs of garnishments.
— Wolfgang Demino