Discover Financial Services will refund $16 million to its customers and has been fined a $2.5 million penalty. Evidently, the organization engaged in illegal student loan practices.
The Consumer Financial Protection Bureau (CFPB) has ordered Discover to fork out a total of $18.5 million over claims that the company abused student loans. The CFPB discovered that Discover regularly overstated minimum amounts due on billing statements. The company even withheld critical information from customers that they needed in order to obtain income tax benefits, reported HNGN.
Apart from such financial fraudulent techniques, Discover was fined for engaging in illegal debt collection tactics that amounted to harassment. Discover's debt collection agents regularly called customers at odd hours, like early in the morning and late at night, said CFPB director Richard Cordray.
"Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits. Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans.""Student loans" is one the largest sources debt in the United States. Considering federal and private loans, students across the nation collectively owe more than $1.365 trillion. A majority of the loans are federal debt, totaling $1.2 trillion. The rest is owed to the private lenders, like banks and SLM Corp. (Sallie Mae).
Student loan servicing companies like Discover are the primary, as well as main, point of contact for students. With such a lofty amount at stake, the "servicing" can become quite confusing, and many-a-times intimidating, to those who are repaying the loans. Already under the stress of mounting financial burden, such tactics and business practices can add to repayment challenges and hurdles for distressed borrowers, noted the CFPB, which was established mere four years ago by the Dodd-Frank Act, reported MSN.
In May of this year, the CFPB initiated a public inquiry into servicing practices "that can make paying back loans a stressful or harmful process for borrowers." Earlier reports have indicated that the student loan segment is being steadily treated as a "subprime-style" market, and that entails loan recovery practices which are undoubtedly quite stressful to the students who are struggling with finances.
Discover expanded its private student loan portfolio by purchasing more than 800,000 accounts from Citigroup Inc., shared the CFPB. It has been fined for servicing and debt collection practices that are not just illegal, but unethical, as well.
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