Wells Fargo Fined for Its Illegal Student Loan Practices and for Reporting False Credit Information

By The Kim Law Firm, LLC

The cost to attend college has skyrocketed, and Wells Fargo Bank, N.A. (“Wells Fargo” or the “Bank”) intended to profit from the situation.  In order to generate even more revenue from servicing its student loan portfolio, Wells Fargo instituted practices that allowed it to increase fees and expenses to its student loan borrowers – all the while reporting false credit information. 

For example, Wells Fargo would apply payments that were not sufficient to cover all student loans that a borrower might have, by spreading a payment across all of the student’s loans with the Bank.  This practice would allow the bank to generate even more late fees for the borrower’s loans when it could have applied the amount to fully pay some of the loans for the period, thereby minimizing the number of late loan payments, and related fees that may accrue.  Also, Wells Fargo was charging illegal late fees to certain student even though timely payments were made.  Further, Wells Fargo was representing false payment due dates to borrowers who had multiple loans that were being serviced by the Bank.  Wells Fargo would create the appearance that there was a single due date for each of the loans – when in reality – there were different due dates for each of the loans.  Only a single due date was provided on the billing statements sent to consumers.  This created significant confusion on the part of the borrower, and resulted in improper late fees.

Making matters worse, Wells Fargo would use these illicit practices as a basis to report incorrect credit information.  Moreover, the Bank was also failing to update or rectify false credit information for student loan borrowers related to the student loans, all in violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq.

The Consumer Financial Protection Bureau (CFPB) instituted an investigation into Wells Fargo’s practices, and on August 22, 2016, the Bank and CFPB entered into a Consent Order fining the Bank approximately $3.6 million in penalties.

If you have had confusing/deceptive fees assessed by a student loan servicer, or improper credit reporting by a student loan servicer, it is vital to obtain the advice of an experienced consumer/FCRA attorney who can help protect your rights.  Please contact The Kim Law Firm, LLC by calling 855-996-6342 to set up a consultation.

Student lenders and servicers as furnishers

Student loan reporting involves a chain of companies, and enforcement actions in this area have usually turned on what happened between them. A bank originates a private loan; a servicer administers it; the loan is sold, transferred or refinanced; and at each handoff the payment history and status have to move accurately or the tradeline stops describing reality. Payments misapplied across multiple loans in a single account, and delinquencies reported for periods when nothing was due, are the recurring failures.

• Wells Fargo — a bank that has originated and reported private education loans.
• Sallie Mae — the private lender behind a large share of education debt.
• Navient — services loans separated from an earlier corporate structure.
• Nelnet — furnishes status data for a very large borrower population.
• MOHELA — administers accounts tied to federal program enrollment.
• Aidvantage — the current furnisher for a substantial transferred portfolio.

Ask the servicer for a full payment allocation history rather than a summary, because misapplication across multiple loans inside one account is invisible on a statement that shows only a total. Compare that history against what each bureau reports for each loan separately. Where a payment was made on time but applied to the wrong loan, the resulting delinquency is inaccurate as reported, and the servicer holds the records that prove it.

If a student loan is reported wrong on your credit report

The 2016 Wells Fargo order is a regulator’s finding about a servicer’s systems; the claim an individual borrower has is under the furnisher provisions of the Act. What I need is the servicer’s full payment allocation history, the bureau reports showing each loan as a separate tradeline, and the dispute you sent to the bureau — the furnisher’s duty to investigate is triggered by a dispute that reaches it through the bureau, so that step comes first. Where a payment made on time was applied to the wrong loan and reported as a delinquency, the servicer that verified the entry is liable: actual damages for a negligent violation, and statutory damages of $100 to $1,000 per violation plus punitive damages where the violation was willful. Student loan errors on a credit report covers the dispute step by step, and the dispute letter template has the wording. An FCRA claim must be filed within two years of the day you discovered the violation, and never more than five years after it happened. I review the file at no cost and bring these cases on contingency: you pay nothing unless we win.

Sources: Consumer Financial Protection Bureau, consent order In re Wells Fargo Bank, N.A., No. 2016-CFPB-0013 (Aug. 22, 2016); 15 U.S.C. §§ 1681s-2(b), 1681i, 1681n, 1681o and 1681p.

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