Transworld Systems Inc., the principal debt collector for National Collegiate Student Loan Trusts, agreed to pay $600,000 in penalties and release student loan borrowers from garnishments, liens and other judgments resulting from improperly filed lawsuits as part of a settlement announced Monday with the New York State attorney general.
The company had created an aggressive strategy of filing lawsuits to collect defaulted debts, according to a press release issued by the attorney general’s office. Transworld, according to the release, filed lawsuits against borrowers past a three-year statute of limitations in the state, threatened other borrowers with lawsuits even though too much time had passed to take legal action, and made misleading and deceptive statements in the lawsuits it filed.
“For years, Transworld used fraud and deception to pursue defaulted borrowers and obtain default judgments on a massive scale,” New York attorney general Letitia James said in a statement. “Our investigation not only is putting hundreds of thousands of dollars back into the pockets of student borrowers, but brought about concrete changes by Transworld, which is now finally providing consumers struggling with defaulted student loan debt all the protections required by law.”
TSI was not immediately available for comment. The company and the trusts have faced problems before. In 2017, the federal Consumer Financial Protection Bureau ordered National Collegiate Student Loan Trusts and TSI to pay $21.6 million in payments to borrowers and civil penalties.
The New York Times reported in July that judges in multiple states had tossed out debt collection lawsuits brought by National Collegiate Student Loan Trusts because ownership of the debts could not be verified. The CFPB’s enforcement action found that the trusts had brought more than 2,000 such lawsuits without proper documentation in violation of consumer protection laws. And in many of those lawsuits, false or misleading affidavits were filed, the agency said.