Discover must pay $ 18.5M in fines, refunds

Bank misled, agitated student loan debtors, federal agency says

Discover Bank and two affiliates will pay $ 18.5 million in consumer refunds and fines for using illegal practices while servicing private student loans, a federal regulator said Wednesday.

The Illinois- based depository institution overstated the minimum amounts due on billing statements, failed to provide information borrowers needed to obtain federal income tax bene- fits and used illegal debt- collection practices by calling borrowers early in the morning and late at night, the Consumer Financial Protection Bureau said.

“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans.”

The bank declined to comment on the consent order and neither admitted nor denied the findings.

Shares of parent firm Discover Financial Services barely budged Wednesday, rising 0.1% to $ 59.50.

Discover expanded its private student loan portfolio in 2010 by acquiring more than 800,000 accounts from Citibank.

While acting as a loan servicer, the bank is responsible for providing periodic account statements, supplying year- end tax information and contacting borrowers about overdue payments.

The bank must also pay a $ 2.5 million CFPB penalty, as well as ensure that it accurately presents minimum required loan payments, sends clear and accurate tax information to borrowers and stops phoning borrowers during early and late hours.

Student loans are the nation’s second- largest consumer debt market. More than 40 million federal and private student loan borrowers collectively owe more than $ 1.2 trillion, the CFPB said.