National Collegiate Student Loan Trusts, one of the largest owners of private student loan debt, and Transworld Systems, its debt collector, have been ordered to pay at least $21.6 million to settle claims by the Consumer Financial Protection Bureau for wrongfully filing thousands of lawsuits against student loan borrowers.

On Monday, the CFPB announced a settlement with National Collegiate, which is made up of 15 Delaware trusts that own more than 800,000 private student loans. National Collegiate will pay at least $19.1 million to settle the claims, including at least $3.5 million in restitution to more than 2,000 consumers. The borrowers made loan payments after being sued by the trusts, in which documents were missing or the statute of limitations had expired, the CFPB said.

Richard Cordray, former director of the Consumer Financial Protection Bureau.
“The National Collegiate Student Loan Trusts and their debt collector sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country,” CFPB Director Richard Cordray said. Bloomberg News

The proposed judgment would also require National Collegiate to conduct an independent audit of all its student loans.

Under a separate consent order, Transworld Systems, a California-based debt collector that does business in Fort Washington, Pa., was ordered to pay a $2.5 million civil money penalty.

“The National Collegiate Student Loan Trusts and their debt collector sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country,” CFPB Director Richard Cordray said in a press release. “We’re ordering them to pay at least $21.6 million, stopping them from filing illegal lawsuits, and requiring the trusts to thoroughly audit their loan portfolios to identify any other consumers who were harmed.”

National Collegiate has no employees and could not immediately be reached for comment. Transworld, a debt collector that hires law firms to file collections lawsuits on behalf of the trusts, also could not be immediately be reached for comment.

In July, New York Attorney General Eric Schneiderman opened an investigation into National Collegiate after an article in The New York Times described how judges had dismissed dozens of cases filed by the trusts because of flawed or missing paperwork.

The CFPB alleges that the companies illegally sued consumers without having necessary documentation.

The CFPB said National Collegiate filed at least 486 collections lawsuits after statutes of limitations on the debt had expired. The complaint also alleges that many of the affidavits were improperly notarized because they were not sworn or signed in the presence of a notary.

Under terms of the proposed final judgment and the consent order, both companies are prohibited from filing collections lawsuits on debts that have expired, from suing borrowers without having proper documentation, or from collecting and reporting negative credit information without having documentation.

The companies are required to ensure that all documents are properly notarized. They also are prohibited from reporting negative credit information, or filing lawsuits on any loan that the audit shows is unverified or invalid.

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