Home Banking CFPB orders Discover to pay $35 million for student lending mishaps

CFPB orders Discover to pay $35 million for student lending mishaps

83
0

WASHINGTON — The Consumer Financial Protection Bureau announced a consent order Tuesday against Discover Bank and two of its affiliates related to student loan servicing practices.

The order — issued against the bank, The Student Loan Corp. and Discover Products Inc. — said Discover’s migration to a new student loan servicing platform resulted in problems that harmed consumers and led to several violations of a prior 2015 enforcement action.

The bank must pay $10 million in consumer redress and a $25 million civil penalty as a result of the most recent order. The CFPB said Discover Bank withdrew payments from more than 17,000 consumer accounts without proper validation and cancelled payments for more than 14,000 consumers without notifying them.

The agency also found that Discover misrepresented to more than 100,000 consumers the minimum payments that they owed, and misrepresented to more than 8,000 consumers the amounts of interest paid, according to the order.

The CFPB alleged that Discover was aware of the migration issues during a 2017 exam but was not fully upfront with agency officials about potential violations of the previous order.

The CFPB alleged that Discover was aware of the migration issues during a 2017 exam but was not fully upfront with agency officials about potential violations of the previous order.

Bloomberg News

The alleged practices violated a prior 2015 consent order that had cited Discover for misstating the minimum amounts due on billing statements, among other things. At the time, Discover was ordered to refund $16 million to consumers, pay a penalty, and fix servicing and debt collection practices found to have violated the law.

In the order released Tuesday, the bureau said the migration to a new servicing platform “resulted in hundreds of Migration Issues that harmed tens of thousands of consumers and resulted in numerous Consent Order Violations.”

The CFPB alleged that Discover was aware of the migration issues during a 2017 exam but was not fully upfront with agency officials about potential violations of the previous order.

“Although Respondent was aware of potential Consent Order Violations arising from the Migration while Bureau examiners were on-site examining Respondent’s compliance with the 2015 Consent Order, Respondent did not report these violations to the Bureau at that time,” Tuesday’s order said.

A spokesperson for Discover acknowledged in an email that the servicing migration had led to problems, but said that many of the issues have been resolved.

“Discover migrated its student loan portfolios from two legacy servicing systems to a new platform in 2017-2018,” the spokesperson said. “While the migration resulted in the development of new and helpful features for consumers and enhancements to the customer experience, it also unfortunately caused issues we did not anticipate. We regret that unanticipated migration issues negatively impacted some customers. Many of the issues have been resolved and we are committed to complying fully with the consent order.”

Aside from the penalties, the CFPB’s consent order prohibits Discover from making any misrepresentations about minimum payments, and about the amount of interest consumers paid, among other things. The bank is also prohibited from withdrawing loan payments from consumers’ bank accounts in amounts or at times not authorized by consumers.