Citing illegal student loan and debt collection practices, theCFPB today levied a fine of $18.5 million against theRiverwoods, Ill.-based Discover Bank.

The $83 billion bank, a Discover Card affiliate, was chargedwith overstating the minimum amounts due on billing statements,denying customers necessary information for obtaining income taxbenefits and engaging in illegal debt collection practices. TheCFPB's order requires Discover Bank to refund $16 million toborrowers, pay a $2.5 million penalty, and improve its billing,student loan interest reporting and collection practices.

“Discover created studentdebt stress for borrowers by inflating their bills and misleadingthem about important benefits,” CFPB Director Richard Cordray said.“Illegal servicing and debt collection practices add insult toinjury for borrowers struggling to pay back their loans. Today'saction is an important step in the Bureau's work to clean up thestudent 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 loanportfolio by acquiring more than 800,000 accounts from Citibank. Asa loan servicer, Discover was responsible for providing basicservices to borrowers, including accurate periodic accountstatements, supplying year-end tax information and contactingborrowers regarding overdue amounts.

As part of its penalty, the CFPB will require Discover Bank toprovide account credit or payment to an estimated 5,200 borrowerswho were misled about their minimum payments in an amount equal to$100 or 10% of the overpayment, whichever is greater, and notexceeding $500.

The bank also is required to reimburse an estimated 130,000borrowers up to $300 in tax preparation costs for amending their2011 and 2012 returns to claim student loan interest deductions. Inaddition, the bank will be required to provide account credits of$92 to consumers subjected to more than five but fewer than 25collection calls and account credits of $142 to consumers subjectedto more than 25 calls.

Student loans make up the nation's second largest consumer debtmarket. Currently, more than 40 million federal and private studentloan borrowers collectively owe more than $1.2 trillion. The marketcontinues to grow and more student borrowers are struggling to payoff their debts, often driven by breakdowns in student loanservicing, the CFPB said.