This is a developing story.

The federal Consumer Financial Protection Bureau (CFPB) has reached a major enforcement agreement with National Collegiate Student Loan Trust, the holder of hundreds of thousands of student loan accounts, about its debt collection practices. This agreement has the potential to impact thousands of student loan borrowers across the country.

Background

National Collegiate Trust (“NCT”) is a collection of individual trust entities that purchased hundreds of thousands of private student loan accounts from commercial lenders (mostly banks) through securitization. In other words, banks bundled many private student loan accounts together, and then sold the bundles to NCT. When student loan borrowers with NCT-purchased accounts became unable to pay, NCT aggressively pursued these borrowers through private debt collectors and litigation.

The problem? Because of the way that NCT purchased and maintained these accounts (i.e., shoddy record keeping by the trust entities and its contractors), NCT doesn’t always have sufficient documentation to prove that it can collect on all of these accounts, and there are sometimes errors in its accounting. And even when it has the documentation, sometimes there are major problems with that documentation that lead to questions about its validity.

Compounding the problem is NCT’s business model, which involves a high-volume of debt collection lawsuits against student loan borrowers. Since many borrowers wind up not responding to the lawsuits – either because they weren’t served properly, or because they don’t understand their legal rights during the lawsuit – NCT is able to obtain judgments quickly and easily, which can ultimately lead to wage garnishment and property liens. On the other hand, when borrowers fight back, they can sometimes obtain dismissals or favorable settlement agreements.

The CFPB’s Agreement with NCT

Under the CFPB’s proposed agreement with NCT, NCT would be required to do the following:

• Conduct a thorough audit of all of its 800,000 student loan accounts to determine which of those accounts have insufficient documentation.
• Cease collection activities, including lawsuits, on accounts that have insufficient or faulty documentation.
• Pay millions of dollars in civil penalties to the federal government.
• Pay millions of dollars in restitution to approximately 2,000 student loan borrowers who were sued by NCT where the debt was time-barred by the applicable Statute of Limitations, or where there was insufficient documentation.

What We Don’t Know Yet

This is a potentially huge development for student loan borrowers that may have a widespread impact. But there’s still a lot we don’t know. Here’s my take:

• The agreement needs to be formally approved by a federal court for it to take full effect. That hasn’t happened yet. There’s a small chance the agreement could be further modified.
• We don’t know which specific student loan borrowers previously sued by NCT would be entitled to financial relief, or what the amount of that financial relief would look like (or when they would receive it). It’s unclear if the financial relief would effectively cancel or forgive specific student loans, either in whole or in part.
• We don’t know what the specific effects of the agreement and related audit would have on current NCT collections activities, particularly with respect to pending collections lawsuits that have yet to be resolved. Those lawsuits could be temporarily paused, and it’s possible that some could be dismissed, but we just don’t know yet.
• We don’t know what this might mean for future collections actions by NCT. After they conduct the audit (pending court approval), we don’t know if NCT would continue to pursue certain borrowers, or if they would err on the safe side and drastically curtail their collections activities.

I should also point out that the CFPB’s future may be in doubt, as it has been systematically targeted by Republicans in Congress and the Trump administration. It is very possible that if the CFPB undergoes an organizational or leadership change in the next year or two, it will try to vacate (remove) or modify some of these enforcement agreements. It’s far too soon to speculate on that, but I do think it’s important to point out and consider.

Stay tuned, I’ll be providing more information and updates as things continue to develop.

DISCLAIMER: If you have loans held by NCT or you are in the midst of a student loan collection action, this blog post should not be taken as legal advice and cannot replace obtaining individual legal counsel from a qualified attorney. So, talk to your attorney if you have one, and if you don’t have one, find one!