Last Updated Aug 22, 2016 4:36 PM EDT
Wells Fargo (WFC) was fined $3.6 million and will have also have to provide $410,000 to thousands of student loan borrowers the bank deceived or treated unfairly, the Consumer Financial Protection Bureau said Monday.
The bank engaged in illegal practices in servicing private student loans that hiked costs and unfairly penalized certain borrowers by failing to provide payment information, failing to update inaccurate credit report information and charging illegal fees.
According to the CFPB, Wells Fargo processed payments in a way that maximized fees for many consumers. Specifically, if a borrower made a payment that wasn’t enough to cover the total amount due for all loans in an account, the bank divided that payment across the loans in a way that maximized late fees rather than satisfying payments for some of the loans.
In addition, Wells Fargo illegally charged late fees even when payments were made on time, and it also illegally charged late fees when monthly amounts were paid through multiple partial payments instead of all at once, the agency said.
“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 provide accurate and timely information and we will continue our work to improve the student loan servicing market.”
Education Financial Services, a division of Wells Fargo, operates the national bank’s student lending practice, originating and servicing private student loans involving about 1.3 million consumers in all 50 states, the CFPB said.
The CFPB’s order requires Wells Fargo to improve its consumer billing and student loan payment processing practices. Wells Fargo consented to the issuance of the CFPB’s consent order without admitting or denying any of the findings, according to the order.
Monday’s consent order with the CFPB resolves three areas “related to legacy payment procedures that were retired or improved many years ago, and addresses the impact to a small number of consumers,” the bank said in a statement. “Furthermore, Wells Fargo does not agree with the CFPB’s assertions and have voluntarily agreed to resolve the bureau’s concerns so that we can put the matter behind us.”
More than 40 million federal and private student loan borrowers collectively owe about $1.3 trillion, making student loans the nation’s second-largest consumer debt market, according to the CFPB. Last year, the bureau found that more than 8 million borrowers are in default on more than $110 billion in student loans, a problem that may be worsened by defects in student loan servicing.