CFPB Proposes $2.25 Million Compensation Fund for Student Loan Borrowers: Who will get it?

CFPB $2.25 Million Fund for Student Loan: The Consumer Financial Protection Bureau (CFPB) has put forward a proposal for a $2.25 million compensation fund to help student loan borrowers who have been negatively impacted by unlawful debt collection practices.

This proposal specifically targets the National Collegiate Student Loan Trusts (NCSLT), a group of 15 trusts involved in buying and servicing private student loans.

Issues with Debt Collection Practices

The proposed judgment addresses specific illegal practices, particularly by NCSLT and its subservices. These trusts allegedly filed thousands of lawsuits to collect student loan debts without the proper documentation proving they owned the debt or that borrowers owed it.

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According to the News Week, in some cases affidavits presented in court were false or misleading, claiming personal knowledge that the signers did not have or showing improper notarization. The proposed fund would also cover borrowers whose debts were pursued after the statute of limitations had expired, a practice that is illegal.

CFPB Director Rohit Chopra has criticized NCSLT, calling it a “web of investment trusts” that failed borrowers, especially during the pandemic. These trusts were known for using aggressive and allegedly deceptive tactics, which the CFPB seeks to address through this judgment.

What the Compensation Fund Covers

Under the proposed judgment, NCSLT would be required to pay $2.25 million to compensate affected borrowers. The judgment also mandates that NCSLT stop ongoing lawsuits related to invalid or time-barred debts.

They would also need to halt wage garnishments and other collection actions linked to these debts. The compensation would be distributed through a redress fund managed by the CFPB.

The relief is not available for all borrowers with NCSLT loans. Only those whose debts lack proper documentation or whose collection actions violated the statute of limitations will be eligible. It’s important to note that this compensation is not the same as loan forgiveness, which usually applies to federal loans under certain discharge programs.

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How Borrowers Can Get Help

Though the CFPB hasn’t provided specific timelines, it encourages affected borrowers to visit its website or call (855) 411-CFPB for more information. If the court approves the judgment, it could bring much-needed relief to borrowers who have been dealing with NCSLT’s improper debt collection practices.

This proposed compensation plan aims to offer restitution and hold NCSLT accountable for the alleged violations, providing some financial relief to affected consumers.