Discover Financial Services has been ordered to pay $16 million to consumers and an additional penalty of $2.5 million by the Consumer Financial Protection Bureau (CFPB), which claims that the company engaged in illegal student loan servicing practices, according to Bloomberg.
The CFPB, responsible for consumer protection in the financial sector found that Discover had exaggerated the minimum amounts due on billing statements and refused to provide consumers information required to gain income tax benefits, the agency said in a statement on Wednesday.
The statement further alleges that the Illinois-based company also violated federal debt collection laws by calling customers early in the morning and late at night.
Discover CFPB Director Richard Cordray said: "Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today's action is an important step in the Bureau's work to clean up the student loan servicing market."
Presently, Discover offers undergraduate student loans at interest rates starting from 6.15%, which is higher than the 4.29% that is charged on federal loans. However, undergraduate students have a borrowing limit of $12,500 on federal student loan programs - and less, in their first two years of school. If that is not enough to cover their college expenses, they often turn to private loans, according to CNN Money.
