Overview of the CFPB’s Lawsuit Against PHEAA
The Consumer Financial Protection Bureau (CFPB) has taken legal action against the Pennsylvania Higher Education Assistance Agency (PHEAA), known commercially as American Education Services (AES), for unlawfully collecting on student loans that had been discharged through bankruptcy. The CFPB accuses PHEAA of demanding payments for loans that borrowers no longer owe and of providing false information to credit reporting agencies.
PHEAA’s Alleged Misconduct
Illegal Debt Collection
The CFPB alleges that PHEAA has been illegally pursuing borrowers for loans discharged in bankruptcy. Under the U.S. Bankruptcy Code, certain debts, including some private student loans, can be discharged, offering a fresh financial start to consumers. However, the CFPB claims that PHEAA has treated these discharged loans as still active unless explicitly directed otherwise by a court or loan owner.
False Credit Reporting
In addition to collecting on discharged loans, PHEAA has also been accused of sending inaccurate information to credit reporting companies. This misinformation can have severe consequences for borrowers, potentially damaging their credit scores and making it harder to secure future credit.
The Scope of the Issue
The CFPB’s investigation revealed that between 2017 and 2021, PHEAA collected or attempted to collect on approximately 7,934 private student loans after they had been discharged into bankruptcy. At least 177 of these loans were eligible for discharge, indicating a significant breach of legal and ethical standards.
Legal Violations and Enforcement
The CFPB asserts that PHEAA’s actions violate the Consumer Financial Protection Act and the Fair Credit Reporting Act. By not maintaining proper policies to identify discharged loans and falsely informing borrowers that they still owe payments, PHEAA has caused significant financial harm to many consumers.
The CFPB’s Demands
The CFPB is seeking several remedies from the court:
- Cease Illegal Practices: A halt to PHEAA’s unlawful debt collection and reporting activities.
- Redress for Borrowers: Compensation for borrowers who have been wrongfully pursued for discharged loans.
- Civil Penalty: A financial penalty to be paid into the CFPB’s victims relief fund.
Previous Actions and Whistleblower Information
This lawsuit marks the CFPB’s second public enforcement action against PHEAA this year. In May, the CFPB filed a complaint that could lead to PHEAA paying over $5 million for various student loan servicing failures.
Reporting Misconduct
Consumers who have experienced financial product or service issues can file complaints with the CFPB. Employees aware of potential violations of consumer financial protection laws are encouraged to report this information to the CFPB via email at whistleblower@cfpb.gov.
For more details on submitting complaints or reporting misconduct, visit the CFPB’s website or call (855) 411-CFPB (2372).
Conclusion
The CFPB’s lawsuit against PHEAA highlights the ongoing issues within the student loan servicing industry, particularly concerning treating loans discharged in bankruptcy. Borrowers affected by these practices are encouraged to seek redress, and those with information about such practices are urged to come forward.
The CFPB aims to protect consumers and ensure fair treatment within the financial services industry by addressing these unlawful actions.
Source: CFPB Sues Student Loan Servicer PHEAA for Pursuing Borrowers for Loans Discharged in Bankruptcy