The Consumer Financial Protection Bureau is investigating whether some collection agencies are involved in lawsuits against student loan borrowers even when the companies can’t prove their legal right to collect on the loans, according to agency documents and people familiar with the investigation. The CFPB is weighing “whether Bureau action is warranted” against the collectors, documents say.
If investigators can prove wrongdoing, thousands of low-income borrowers could be spared years of wage garnishment that would place them at greater risk for financial hardship, including bankruptcy.
The lawsuits mirror illegal practices by mortgage companies seeking to foreclose after the 2008 financial crisis. Banks have paid billions to settle charges related to “robo-signing” — the practice of swearing falsely that a person has direct knowledge about a loan and the chain of companies that owned it. The people claiming to have that knowledge turned out to be signing hundreds of affidavits a day, often without reviewing the underlying loan files.