A recent ruling by the CFPB, above, ordered Transworld Systems to pay a $2.5 million civil penalty as part of a larger student debt case.

The Pennsylvania-based Transworld Systems has been ordered by the Consumer Financial Protection Bureau (CFPB) to pay a $2.5 million civil penalty as part of a larger student loan-related case involving National Collegiate Student Loan Trusts.

The news was announced yesterday by the CFPB in a press release issued on their website.

In the same case, the CFPB has ordered National Collegiate Student Loan Trusts to pay a minimum of $19.1 million for filing illegal student loan debt collection lawsuits. The money will be used to pay student borrowers harmed by the unlawful lawsuits, the U.S. Treasury for relinquished funds, and a civil money penalty.

Transworld Systems, the debt collector for National Collegiate Student Loan Trusts, is being ordered to pay $2.5 million as part of a separate consent order. Transworld Systems is based out of Fort Washington, Pennsylvania and is a national debt collector. Employees at Transworld Systems completed, signed, and notarized sworn legal documents for collection lawsuits that were filed on behalf of National Collegiate Student Loan Trusts. The debt collector also hired a multitude of law firms to file and prosecute the collection lawsuits.

While the CFPB’s ruling against National Collegiate Student Loan Trusts is dependent on the presiding U.S. District Court judge’s approval, the consent order against Transworld Systems is effective immediately.

The decision by the CFPB can be traced back to July when the New York Times reported that at least $5 billion in private student loan debt may be forgiven due to missing paperwork. National Collegiate Student Loan Trusts, an umbrella term for 15 Delaware statutory trusts, held 800,000 private student loans worth more than $12 billion, but over $5 billion of that debt was in default.

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The trusts and Transworld Systems undertook a serious effort to find the student loan borrowers who had become late on their student loan payments. Each day, at least four new collection cases were filed, and over 10,000 lawsuits had been filed by the trusts in the past five years. However, many of the loans in question had been given to student debtors over a decade ago by a multitude of banks. The loans were later packaged together, sold to investors, and by the time National Collegiate Student Loan Trusts got their hands on the loans, the paperwork that proved ownership of the loans was lost.

Without the paperwork to prove who owned the loans, the collection lawsuits filed by National Collegiate Student Loan Trusts have been ruled unlawful by the CFPB.

The CFPB has taken quite the active stance against companies that are involved with student loans and trying to game the system. For example, The Student Loan Report wrote in July that the CFPB announced a new rule that will prohibit companies from using mandatory arbitration clauses that usually prevent groups a people from having their day in court. Arbitration clauses prevent consumers from banding together to sue a larger financial institution, which usually leads to large companies avoiding lawsuits all together because individual lawsuits are too time-consuming for the minimal payouts. In announcing this new rule, the CFPB hopes that companies will have incentive to not use any questionable business practices.

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