US CFPB sues student loan servicer for illegal collections

By Jonathan Stempel

(Reuters) -The U.S. Consumer Financial Protection Bureau sued the Pennsylvania Higher Education Assistance Agency, accusing the student loan servicer of illegally collecting on loans that have been discharged in bankruptcy, and sending false information about borrowers to credit reporting companies.

In a complaint filed on Friday, the CFPB said the defendant, which operates as American Education Services, wrongly demanded that cash-strapped borrowers keep making payments on discharged private student loans, unless they provided explicit court orders or loan owners directed otherwise.

The CFPB said that from 2017 to 2021, PHEAA collected or tried to collect on 7,934 of the loans following bankruptcy proceedings, including at least 177 eligible for discharge.

These actions forced some borrowers to unnecessarily pay thousands or tens of thousands of dollars, or risk having their credit reports tarnished for missing payments, the CFPB said.

“PHEAA has ignored its responsibilities and illegally pursued borrowers for loans they no longer owe,” CFPB Director Rohit Chopra said in a statement.

The Harrisburg, Pennsylvania-based defendant serviced about $17.8 billion of student loans at the end of 2023. It did not immediately respond to requests for comment.

Friday’s lawsuit in the federal court in Harrisburg seeks restitution for borrowers, a civil fine and an injunction against further violations.

The case is the CFPB’s second against PHEAA in May.

On May 6, PHEAA agreed to pay restitution and a $1.75 million fine to resolve claims it ignored thousands of borrowers’ requests for loan relief over several years, including early in the COVID-19 pandemic.

The case is Consumer Financial Protection Bureau v. Pennsylvania Higher Education Assistance Agency, U.S. District Court, Middle District of Pennsylvania, No. 24-00896.