The Consumer Financial Protection Bureau, founded by Elizabeth Warren prior to her career as a senator, has entered into an unprecedented settlement with National Collegiate Student Loan Trusts, the largest holder of student debt in the country.
Under the settlement's terms, the Trusts (who specialized in buying, packaging and securitizing debt) will have to audit more than $8B worth of loans and show proof that the debts are valid -- that they hold sufficient paperwork on them and that the statute of limitations has not run out on them.
The Trusts are accused of widescale financial fraud, collecting on debts that they didn't own, or that had expired, using "deceptive or unfair means" and flooding the country's courts with bogus lawsuits.
The Trusts originally held more than $12B in debt, but $5B has already been lost to default. Trust bondholders will not receive any payments while the audit is underway. People whose debts are found to be invalid will not owe anything, and will not face tax penalties for "debt forgiveness." All wage garnishment and bank balance seizures will be suspended during the audit as well.
The settlement still awaits judicial approval.
Donald Uderitz, whose firm Vantage Capital Group ultimately owns the trusts, said the settlement would help him recover losses he blamed on "systemic malfeasance, gross negligence and willful misconduct" by the trusts' debt collectors and other contractors. Uderitz has been trying to audit the trusts' loans for years.
Transworld Systems Inc., the primary debt collector for the trusts in recent years, agreed to pay a $2.5 million penalty to the CFPB. It neither admitted nor denied the allegations in settlement documents, but it said in a statement that it “disagrees with the CFPB's characterizations, and with many of the alleged facts." David Zwick, Transworld’s chief financial officer, declined further comment. The debt collector is owned by Platinum Equity LLC, a Los Angeles-based private equity firm. A spokesman, Dan Whelan, didn’t respond to a message seeking comment.
CFPB Settles With Owners of Wall Street's Worst Student Debt [Shahien Nasiripour/Bloomberg]