CFPB Fines Discover Bank
Citing illegal student loan and debt collection practices, the CFPB today levied a fine of $18.5 million against the Riverwoods, Ill.-based Discover Bank.
The $83 billion bank, a Discover Card affiliate, was charged with overstating the minimum amounts due on billing statements, denying customers necessary information for obtaining income tax benefits and engaging in illegal debt collection practices. The CFPB’s order requires Discover Bank to refund $16 million to borrowers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting and collection practices.
“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” CFPB Director Richard Cordray said. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market.”
Discover Bank’s student loan affiliates The Student Loan Corp. and Discover Products Inc. were also charged in today’s action.
Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank. As a loan servicer, Discover was responsible for providing basic services to borrowers, including accurate periodic account statements, supplying year-end tax information and contacting borrowers regarding overdue amounts.
As part of its penalty, the CFPB will require Discover Bank to provide account credit or payment to an estimated 5,200 borrowers who were misled about their minimum payments in an amount equal to $100 or 10% of the overpayment, whichever is greater, and not exceeding $500.
The bank also is required to reimburse an estimated 130,000 borrowers up to $300 in tax preparation costs for amending their 2011 and 2012 returns to claim student loan interest deductions. In addition, the bank will be required to provide account credits of $92 to consumers subjected to more than five but fewer than 25 collection calls and account credits of $142 to consumers subjected to more than 25 calls.
Student loans make up the nation’s second largest consumer debt market. Currently, more than 40 million federal and private student loan borrowers collectively owe more than $1.2 trillion. The market continues to grow and more student borrowers are struggling to pay off their debts, often driven by breakdowns in student loan servicing, the CFPB said.