The National Collegiate Student Loan Trusts (NCSLT) are set to pay $2.25 million to borrowers harmed by alleged deceptive debt collection practices, stemming from claims made by the Consumer Financial Protection Bureau (CFPB). This proposed settlement, filed for court approval on January 16, aims to resolve long-standing legal disputes concerning unlawful actions taken by the Trusts against private student loan borrowers.
The case originated from complaints filed by the CFPB back in 2017, which accused the NCSLT of engaging in unfair collection practices, including filing lawsuits based on false affidavits and attempting to collect debts beyond the statute of limitations. Data from the Education Data Initiative indicates the significance of the issue—while the majority of student loan debt is federal, about 7.57 percent is tied to private loans, directly impacting the borrowers potentially eligible for this settlement.
According to the CFPB's findings, NCSLT’s actions included filing lawsuits without proper documentation and using affidavits claiming personal knowledge of loans when such claims were proven false. The settlement mandates NCSLT to cease all collections on debts involved in the lawsuits and to provide restitution to affected borrowers, ensuring proper practices are implemented moving forward.
Under the terms of the settlement, the Trusts must not only deliver financial compensation but also halt collections related to time-barred debts and those contested without appropriate documentation. Eligible borrowers for payment are those who were sued by the NCSLT without adequate evidence of debt validity, who were afflicted by the use of false affidavit claims, or whose debts were pursued even after the expiration of the legal time limit for collection.
Tia Elbaum, speaking on behalf of the CFPB, emphasized the importance of the proposed judgment, which also requires the Trusts to take corrective actions concerning any active collections lawsuits filed between November 1, 2012, and September 18, 2017, involving debts without substantiations or time-limit violations. These actions include dismissing such lawsuits and terminating unlawful wage garnishments.
Legal experts have noted this settlement serves as a warning to other debt buyers and trusts about maintaining accurate records and the consequences of misleading borrowers. Jay S. Fleischman, who works with student loan borrowers, remarked on the implications this ruling may have on the future validity of lawsuits filed by NCSLT and how this empowers borrowers as they navigate collection processes.
The recent ruling by the U.S. Court of Appeals for the Third Circuit confirmed the CFPB's position by stating the NCSLT is subject to federal consumer protection laws. This development was pivotal as it cleared the path for the proposed settlement to take effect, clarifying the legal status of the Trusts under the Consumer Financial Protection Act (CFPA).
Rohit Chopra, the director of the CFPB, expressed the necessity of holding investment trusts accountable for their roles in the student loan market, especially considering the challenges faced by borrowers during the pandemic. The settlement aims to enforce compliance with consumer protection laws to prevent similar deceptive practices from recurring.
The next stage for affected borrowers involves awaiting court approval of the settlement. If granted, the process for distributing restitution payments will commence, providing much-needed relief and accountability for the harm caused by NCSLT’s debt collection practices. Borrowers curious about their eligibility or seeking more information can find resources on the CFPB's official website.
While the settlement does not impact federal student loan borrowers, it highlights the considerable issues within the private student loan sector. Those managing private student loans must adhere to strict regulations to protect consumer rights as this case brings to light the extensive challenges borrowers have faced and reinforces the necessity for transparency and accountability from financial institutions.