Discover Bank and two of its affiliate financial institutions have been ordered by the federal court to pay $18.5 million in consumer refunds for violating student loan practices, according to a federal regulator on Wednesday, July 22.
Reports from USA Today and the Wall Street Journal say that the Illinois-based bank exaggerated the minimum amount due on billing statements for student loans, failed to provide borrowers with enough information to get federal tax benefits from the loan payments, and also used illegal debt-collection practices, including calling debtors early in the morning and late at night.
Simply put, in the words of Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, “Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits.”
Discover is the third-largest student loan lender by origination volume, the WSJ reported, and its actions affected hundreds of thousands of consumers.
There are currently more than one million student loan borrowers in the U.S., and experts predicted that between 2014 and 2015, the total outstanding student loan debt in the country will climb up from $1.21 trillion to $1.3 trillion by the end of the year.
By making payments more difficult for recent college graduates, Discover wasn’t just breaking the law — it was also causing numerous young adults to miss payments, be denied tax benefits, and possibly even be denied housing or loan opportunities if their credit scores dropped too low.
As any economist will attest, setting consumers up for failure in this way is bound to create an even worse financial situation for the entire country — and according to the New York Post, Discover had been using illegal lending practices for years after it acquired more than 800,000 student loan accounts from Citigroup in 2010.
Discover is now being order to pay $18.5 million total — $16 million will be given to more than 100,000 borrowers who were affected by Discover’s practices, and $2.5 million will be paid to the CFPB’s civil penalty fund.
Individual payments could be as high as $500 for each of the 5,200 consumers who were misled by Discover’s “minimum” payment amounts; up to $300 will be given to each of the 130,000 consumers who can amend their 2011 or 2012 tax deductions and prove that they should have been refunded; $92 will be given to each consumer who received between five and 25 calls at inappropriate times, and $142 will be given to anyone who received more 25 calls.
The WSJ has reported that Discover “neither admitted or denied the allegations [and] a Discover spokesman declined to comment.”