Consumer Financial Protection Bureau took action Monday against National Collegiate Student Loan Trusts and their debt collector, Transworld Systems Inc., for illegal student loan debt collection lawsuits. Consumers were sued for private student loan debt that the companies couldn’t prove was owed or was too old to sue over. The lawsuits used false or misleading legal documents.
The proposed judgment requires an independent audit of 800,000 private student loans the National Collegiate Student Loan Trusts owns. It prohibits the company from attempting to collect loans, reporting negative credit information, or filing lawsuits on any loan the audit shows aren’t valid.
In addition, it requires the National Collegiate Student Loan Trusts to pay $19.1 million, which includes at least $3.5 million in refunds to consumers, $7.8 million to the Treasury, and $7.8 million for a penalty. Under a separate consent order, Transworld Systems Inc. will pay a $2.5 million penalty.
The National Collegiate Student Loan Trusts are 15 Delaware trusts. Between 2001 and 2007, the trusts purchased and securitized the loans, and then sold notes secured by the loans to investors. The trusts have no employees but instead use service providers to interact with consumers about their loans.
Transworld Systems Inc. is a nationwide debt collector. Its employees complete, sign, and notarize sworn legal documents for collections lawsuits brought on behalf of the trusts. Transworld Systems hires a national network of law firms to file and prosecute collections lawsuits on behalf of the trusts in courts across the country.
The lawsuit against the National Collegiate Student Loan Trusts and the bureau’s consent order on Transworld Systems include allegations and findings that the companies filed false affidavits and pursed collections lawsuits they couldn’t have won, if contested.
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