The Consumer Financial Protection Bureau (CFPB) has sued student loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA), alleging that it collects on loans that borrowers do not owe.
Specifically, the agency alleges in its complaint that PHEAA, which does business as American Education Services (AES), illegally collects on student loans that have been discharged and gives false information to both consumers and credit reporting agencies, the CFPB said in a Friday (May 31) press release.
“PHEAA has ignored its responsibilities and illegally pursued borrowers for loans they no longer owe,” CFPB Director Rohit Chopra said in the release. “The CFPB is suing PHEAA for demanding money from borrowers that they do not owe and for reporting false information to credit reporting companies.”
PHEAA did not immediately reply to PYMNTS’ request for comment.
In its suit, the CFPB alleges that the company fails to identify loans that are discharged by bankruptcy, treats nearly all private student loans as though the consumer still owes those debts, furnishes inaccurate information about borrowers’ outstanding debt to credit reporting companies, and falsely tells borrowers who no longer have any obligation to pay the discharged debts that they still owe payments, according to the release.
The CFPB alleges that these practices violate the Consumer Financial Protection Act and the Fair Credit Reporting Act’s implementing regulation, the release said.
The agency’s suit asks the court to order PHEAA to stop its illegal conduct, provide redress to borrowers it harmed and pay a civil penalty, per the release.
In March 2023, the CFPB said in a press release that it was monitoring student loan servicers after finding that some were illegally returning loans to collections after bankruptcy courts had discharged them.
The lawsuit announced Friday is the second public enforcement action the CFPB has taken against PHEAA this month.
On May 6, the CFPB filed a complaint against PHEAA and the National Collegiate Student Loan Trusts, alleging that they ignored student loan borrowers seeking payment relief.
Reached by PYMNTS at the time, the PHEAA said in an emailed statement: “While we maintain that PHEAA had no authority to decision unique borrower requests without instruction from 2016-2021, we are pleased to bring this multi-year review by the CFPB to a resolution.”
