CFPB Takes Action to Address Illegal Debt Collection Practices by the National Collegiate Student Loan Trusts

WASHINGTON, D.C. - Today, the Consumer Financial Protection Bureau (CFPB) took action to resolve its case against the National Collegiate Student Loan Trusts for unlawfully filing defective debt collection lawsuits to collect on private student loan debt. The CFPB and the Trusts filed a proposed stipulated judgment that, if entered by the court, would require the Trusts to pay $2.25 million in redress to student borrowers who were harmed. Today's action follows a March 2024 ruling by the United States Court of Appeals for the Third Circuit that the Trusts are covered persons under the Consumer Financial Protection Act. The National Collegiate Student Loan Trusts had previously claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In December, the Supreme Court declined to hear the Trusts' appeal, leaving the Third Circuit decision in place.

During the leadup to the financial crisis, there was a boom in subprime-style student lending. Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts are an example of this. The Trusts are a group of fifteen securitization trusts organized under Delaware law that acquire, pool, and securitize student loans, which they then service.

In 2017, the CFPB filed a lawsuit alleging that the National Collegiate Student Loan Trusts, among other things, brought improper debt collection lawsuits. Specifically, the CFPB alleges that the National Collegiate Student Loan Trusts' subservicers, acting on behalf of the Trusts:

• Sued consumers for debts the Trusts could not prove were owed: The Trusts unlawfully filed thousands of cases although they did not have or could not find the documentation necessary to prove either that they own the loans or that the consumer owed the debt.
• Filed false and misleading affidavits: In numerous instances, affiants claimed personal knowledge of the student loan debt they did not have. In some cases, the Trusts misrepresented that affidavits were properly notarized when they were, in fact, not.
• Attempted to collect after the statute of limitations expired: The Trusts unlawfully misrepresented that they had a right to collect time-barred debts after the statutes of limitations had expired.

The CFPB also alleges that the National Collegiate Student Loan Trusts engaged in unfair practices by filing collections lawsuits without the intent or ability to prove the claims, if contested.

Enforcement Action

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including by engaging in unfair, deceptive, or abusive acts or practices. The CFPB's order, if entered by the court, requires National Collegiate Student Loan Trusts to:

• Pay $2.25 million redress to consumers: The funds will be paid to the CFPB for the purpose of providing relief to borrowers who were harmed.
• Stop collecting on certain debts covered by the lawsuit: The Trusts must take steps to end certain pending debt collection lawsuits involving time-barred debt or where necessary documentation cannot be located, and to otherwise cease debt collection activities related to debt identified in those lawsuits.

Read today's proposed stipulated final judgment.

In May 2024, the CFPB separately took action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency (PHEAA) for allegedly failing to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency.

Consumers can submit complaints about financial products and services by visiting the CFPB's website or by calling (855) 411-CFPB (2372).

Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to [email protected]. To learn more about reporting potential industry misconduct, visit the CFPB's website.