The Consumer Financial Protection Bureau found that Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to receive federal income tax benefits. The company also engaged in illegal debt collection tactics, including calling consumers early in the morning and late at night.
The bureau’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices.
Discover Bank’s student loan affiliates – The Student Loan Corporation and Discover Products – are also being charged in bureau’s action, announced Wednesday.
Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank.
Student loans make up the nation’s second largest consumer debt market. Today there are more than 40 million federal and private student loan borrowers and who owe more than $1.2 trillion.
Earlier this year, the bureau reported that more than 8 million borrowers were in default on more than $110 billion in student loans, a problem that may be driven by breakdowns in student loan servicing, Cordray said. Although private student loans are a small portion of the overall market, they’re generally used by borrowers with high levels of debt who also have federal loans.
The bureau found that the company:
- Overstated the minimum amount due in billing statements.
- Misrepresented on its website the amount of student loan interest paid.
- Illegally called consumers early in the morning and late at night, often excessively.
- Engaged in illegal debt collection tactics, including failing to provide consumers with specific information about the amount and source of the debt and the consumer’s right to contest the debt’s validity.
Under the terms of the consent order filed Wednesday, Discover is required to:
- Return $16 million to more than 100,000 borrowers. Discover will:
- Provide an account credit to the consumers who were misled about their minimum payments, up to $500. About 5,200 victims will get this credit.
- Reimburse up to $300 in tax preparation costs for consumers who amend their 2011 or 2012 tax returns to claim student loan interest deductions. For consumers who don’t participate in this tax program or didn’t take advantage of earlier ones offered by the company, Discover will issue an account credit of $75 for each tax year. About 130,000 consumers will receive this relief.
- Provide account credits of $92 to consumers who had more than five but less than 25 early morning or late evening collection calls and account credits of $142 to consumers who had more than 25 calls. About 5,000 victims will receive these credits.
- Accurately represent the minimum periodic payment.
- Send clear and accurate student loan interest and tax information to borrowers.
- Stop making calls to consumers before 8 a.m. or after 9 p.m.
- Pay $2.5 million civil penalty.