Thousands of student-loan borrowers will receive refunds from Wells Fargo after the government hit the bank with $4 million in penalties for charging illegal fees, misrepresenting payments and failing to update inaccurate credit report information.
On Monday, the Consumer Financial Protection Bureau (CFPB) said Wells Fargo illegally charged late fees to consumers who made payments on the last day of their grace periods, as well as those who elected to pay through partial payments. The government agency said the bank also failed to update and correct inaccurate, negative information provided to credit-reporting companies about borrowers who made partial or extra payments.
Investigators also found instances of the bank spreading out payments across loans to trigger late fees and telling people with multiple loans that paying less than the full amount due would not count, when in actuality, partial payments can satisfy at least one loan in an account.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” CFPB Director Richard Cordray said in a statement. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information.”
Under the agreement, Wells Fargo will return at least $410,000 to borrowers for illegal late fees and pay a $3.6 million fine to the CFPB. Bureau officials expect thousands of consumers to benefit from the settlement, though they could not provide a precise number. Wells Fargo must submit a plan to identify and refund consumers within 90 days.
“We did not agree with the CFPB’s assertions,” said Wells Fargo spokesman Jason Vasquez. “We have voluntarily agreed to resolve the bureau’s concerns so that we can put the matter behind us.”
Vasquez said many of the problems raised by the bureau stem from a system coding error that was identified and corrected years ago. Other concerns noted in the consent order are tied to loan payment procedures that were retired or improved as much as five years ago, he said.
Along with Sallie Mae and Discover Financial Services, Wells Fargo is one of the few big financial firms that offer student loans. Citibank, JPMorgan Chase and other companies left the business after the government captured a majority of the market by choosing to expand its direct lending to students in 2010.
These days, private lenders hold only 7.5 percent, or about $102 billion, of the $1.3 trillion in outstanding student loan debt, according to Measure One, a company that tracks private student loans.
Private student loans have drawn criticism for having inflexible repayment terms and weaker consumer protections than federal loans. But in recent years, more banks, credit unions and other financial firms that provide education loans have been offering competitive terms.
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