Wells Fargo, the largest Lehigh Valley bank in terms of market share, has agreed to pay more than $4 million in fines and rebates over allegations that it charged illegal fees to student loan borrowers.
Wells Fargo will pay a $3.6 million civil penalty to the U.S. Consumer Financial Protection Bureau and $410,000 in restitution to settle the regulator’s claims over student-loan servicing policies it says boosted costs for borrowers.
Thousands of student loan borrowers encountered problems with their loans or received misinformation about their payment options because of breakdowns in Wells Fargo’s servicing process, the bureau said in a statement Monday.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” CFPB Director Richard Cordray said Monday in a news release. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information and we will continue our work to improve the student loan servicing market.”
In a statement, bank spokesman James Baum said the CFPB’s allegations relate to practices that Wells Fargo changed several years ago and affected a “small number of customers.” The bank currently originates and services private student loans to about 1.3 million consumers nationwide, according to the CFPB.
Federal regulators said problems in the bank’s student loan servicing arm resulted in an unspecified number of borrowers paying a few types of unnecessary fees from 2010 to 2013.
For instance, the bureau said that when borrowers who had more than one loan made a partial payment, the bank would apply part of that payment to each outstanding loan, even if the payment would have covered what was owed for one of the loans. The result is that borrowers might have paid late fees for all loans.
“Wells Fargo is deeply committed to serving customers, investing in communities, and operating responsibly and ethically, and will continue to do so in a manner that is reflective of our vision and values,” Baum said.
Wells Fargo, which established its local footprint after acquiring Wachovia Bank in 2008, has $3.2 billion in deposits in the Lehigh Valley, according to the latest report by the Federal Deposit Insurance Corp., or a nearly 20 percent market share. Wells Fargo also has 41 branches in the Lehigh Valley. It is also among the top four banks statewide in terms of deposit market share.
Under the agreement, Wells Fargo agreed to improve its student loan servicing practices and consumer billing disclosures and correct errors on consumers’ credit reports.
The CFPB says student loans make up the nation’s second largest consumer debt market, with more than 40 million federal and private student loan borrowers. Collectively, the consumers owe about $1.3 trillion, the agency says.
Last year, the CFPB found that more than 8 million borrowers are in default on more than $110 billion in student loans, a problem that may be driven by breakdowns in student loan servicing.
Bloomberg and the Los Angeles Times contributed to this story.
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