The Consumer Financial Protection Bureau said it has ordered Wells Fargo to pay about $4 million in relief and civil penalties for illegal fees and other practices tied to the bank’s servicing of private student loans.
In a consent order announced Monday, the federal regulator accused the nation’s second-largest private student lender of, among other things, illegally charging some borrowers late fees, processing payments to maximize fees and failing to correct inaccurate information filed with credit reporting companies. The practices of the San Francisco-based bank, whose largest employment hub is in Charlotte, constituted violations of federal laws meant to protect consumers, the regulator said.
Wells Fargo did not admit to or deny the charges, the second instance of the regulator taking action against a company over allegations of illegal servicing of private student loans. Last year, Discover Bank was ordered to pay $18 million in refunds and penalties after the CFPB said it found various illegal practices. Those actions come as the regulator has stepped up scrutiny of student loan servicers.
At Wells Fargo, the regulator said it found breakdowns throughout the bank’s servicing process affecting thousands of student loan borrowers, who encountered problems with their loans or received misinformation about payment options.
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“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” CFPB Director Richard Cordray said in a statement. He added that borrowers should be able to rely on servicers to handle payments correctly and provide accurate and timely information.
In a statement, Wells Fargo said it does not agree with the CFPB’s claims but that it voluntarily agreed to resolve the regulator’s concerns to put the matter behind the bank.
Wells Fargo noted the claims involved procedures that “were changed, improved, corrected, and/or retired by Wells Fargo, on our own accord, as much as five years ago.”
The bank also pointed out it self-reported to the CFPB a coding error the regulator said resulted in some consumers paying late fees they did not owe. Wells Fargo said it corrected the coding issue years ago.
Of the total Wells Fargo has been ordered to pay, $410,000 represents relief to borrowers and $3.6 million is a penalty to the CFPB.
According to securities filings, Wells Fargo had $12.3 billion in outstanding private student loans as of the end of June, a little more than 1 percent of its $957.2 billion in total loans. Delaware-based Navient is the nation’s largest student loan servicer.
Federal student loans far outnumber private student loans. Industry statistics put the number of outstanding student loans at about $1.3 trillion, of which about $100 billion are private.
Many big banks no longer provide private student lending. Charlotte-based Bank of America, for example, stopped issuing such loans about eight years ago. In 2013, New York’s JPMorgan Chase said it was exiting the business.
Meanwhile, Wells Fargo has taken steps to push deeper, including an agreement announced last month with Amazon. Under that deal, Wells Fargo said it will offer interest rate discounts on student loans for Amazon Prime Student customers.
Nationally, concerns have been rising about the ability of students to pay back loans, as that debt piles up. According to the CFPB, student loans represent the nation’s second-largest consumer debt market.
Last year, the CFPB said it found that more than 8 million borrowers are in default on student loans, a problem it said may be driven by breakdowns in loan servicing.