By Jeff Bater
Aug. 22 — Wells Fargo Bank must pay a $3.6 million penalty and $410,000 in consumer refunds for allegedly illegal private student loan servicing practices, the Consumer Financial Protection Bureau said.
The CFPB said it identified breakdowns throughout the bank's servicing process, including failing to provide important payment information to consumers, charging consumers illegal fees, and failing to update inaccurate credit report information. The CFPB order also requires Wells Fargo to improve its consumer billing and student loan payment processing practices.
The CFPB said it found the company violated the Dodd-Frank law's prohibitions against unfair and deceptive acts and practices, as well as the Fair Credit Reporting Act.
“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. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information and we will continue our work to improve the student loan servicing market.”
Wells Fargo Bank is based in Sioux Falls, S.D. Its division, Education Financial Services, bears responsibility for the bank's student lending operations. EFS serves about 1.3 million consumers in all 50 states and both originates and services private student loans, according to the CFPB.
By entering into the consent order, the bank neither admits nor denies any of the findings of fact or conclusions of law.
“Today’s consent order with the CFPB resolves three areas of concern cited by the bureau related to legacy payment procedures that were retired or improved many years ago, and addresses the impact to a small number of customers,” Wells Fargo spokesman Jason Vasquez said in an e-mailed statement.
The CFPB said there are more than 40 million federal and private student loan borrowers who owe roughly $1.3 trillion. Private student loans are a small portion of the overall market, but the bureau found that they are generally used by borrowers with high levels of debt who also have federal loans.
Last year, the agency signaled it might put together a rule to protect student loan borrowers as it released a report outlining loan servicing failures (189 Banking Daily, 9/30/15).
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