The Consumer financial protection bureau (CFPB) has announced a proposed judgment requiring the National collegiate student loan trusts (NCSLT) to pay $2.25 million in compensation to borrowers. The decision comes after years of litigation over alleged improper debt collection practices. If approved, the judgment could bring relief to borrowers impacted by these practices.
NCSLT, a group of 15 securitization trusts, purchases and pools private student loans, turning them into investment securities.
According to the CFPB, NCSLT has engaged in questionable debt collection practices, including filing lawsuits without the necessary documentation, presenting misleading affidavits, and attempting to collect debts past the statute of limitations.
The CFPB’s investigation revealed that these practices disproportionately harmed borrowers, particularly during the financial crisis when subprime-style student lending surged. According to Forbes, CFPB Director Rohit Chopra referred to NCSLT as a “web of investment trusts that failed student loan borrowers, including at the height of the pandemic.”
Key terms of the proposed judgment
Under the proposed judgment, which still awaits court approval:
- NCSLT must pay $2.25 million to the CFPB for borrower compensation.
- The Trusts are barred from continuing debt collection activities where documentation is lacking or debts are time-barred.
- All pending collection lawsuits tied to identified accounts must be dismissed, and post-judgment enforcement activities—such as wage garnishment—must cease.
As per Forbes, the CFPB emphasised that funds collected from NCSLT would be used to refund affected consumers, cover damages, or provide other monetary relief. Any remaining funds will be deposited into the US treasury.
Limitations of the proposed relief
It is important to note that not all private student loan borrowers will benefit from this judgment. Relief applies only to borrowers whose accounts have been flagged for lack of proper documentation or statute of limitations violations.
Additionally, the judgment does not include any provision for loan forgiveness or cancellation, a limitation consistent with the general lack of forgiveness options for private loans compared to federal student loans.
Borrowers covered by the judgment can contact the CFPB via its website or by calling (855) 411-CFPB (2372) for further details.
Implications for borrowers
The proposed judgment offers a partial resolution to years of alleged misconduct but raises questions about its broader impact.
As per Forbes, details on individual compensation amounts and the timeline for relief remain unclear. Borrowers are advised to stay informed and monitor updates from the CFPB.
