Some borrowers with student loan debt may be getting a refund check from Discover thanks to the Consumer Financial Protection Bureau (CFPB).
Discover is being ordered to refund $16 million to consumers and pay a $2.5 million penalty for overstating the minimum amounts due on billing statements, denying borrowers information they needed to obtain federal tax deductions, and engaging in illegal debt collection tactics.
The announcement comes as the agency celebrates four years in operation and student debt tops $1.2 trillion.
Discover and its affiliates, Student Loan Corporation and Discover Products, are responsible for providing basic services to borrowers, including accurate periodic account statements, supplying year-end tax information, and contacting borrowers regarding overdue amounts. The company in 2010 acquired more 800,000 accounts from Citibank.
The CFPB this week also took action against Citibank for a slew of illegal activities that are unrelated to student loans. You can read more about that here.
Borrowers started encountering problems with Discover as soon as their loans became due.
Discover started by overstating the minimum amount due for certain borrowers. The minimum payment due incorrectly included interest on loans that were still in deferment and were not required to be paid. This caused borrowers to divert money from other bills to their loans when it wasn't necessary. Some borrowers failed to make the payments in full because they couldn't afford it and accrued penalties.
Borrowers who pay more than $600 in interest can deduct that amount on their tax return. Student loan processors are required to furnish this information. Discover failed to provide Citibank private student loan borrowers with that information unless they filled out a form. Discover also failed to notify borrowers that they needed to fill out the form in order obtain the information. When Discover's website incorrectly showed zero interest paid, borrowers incorrectly thought they did not qualify for the deduction.
Borrowers that are in default found Discover calling them early in the morning and late at night, which is prohibited by law. It then took Discover four months to address the problem. When Discover inherited from Citibank a portfolio of defaulted debt, it failed to provide information to borrowers about the amount and source of the debt and the borrower's right to contest the debt's validity.
As a result of Discover's actions, the company is required to return $16 million to more than 100,000 borrowers and pay a $2.5 million civil penalty to the CFPB.
Going forward, the company must accurately represent the minimum periodic payment, send clear and accurate interest and tax information to borrowers and stop making collection calls early in the morning or late at night unless the borrower expressly allows it.
A copy of the consent order can be found here.