New York Attorney General Letitia James today announced that she has secured protections for thousands of student borrowers who defaulted on student loans and who were subject to misleading and unlawful actions by Transworld Systems, Inc. (Transworld), one of the nation’s largest debt collectors.
The agreement resolves an investigation of Transworld — the principal debt collector for the National Collegiate Student Loan Trusts — after the Office of the Attorney General (OAG) found that Transworld violated multiple federal and state consumer protection laws by making false, misleading, and deceptive statements in National Collegiate Student Loan Trusts lawsuits and in communications with borrowers, and for filing these lawsuits beyond the applicable statute of limitations.
Under the settlement agreement, Transworld has agreed to make significant changes to its debt collection practices and to pay $600,000, which will be disbursed as restitution to New York borrowers and/or penalties to the state.
“Today, my office is holding Transworld accountable for the unlawful and manipulative student loan debt collection practices that affected thousands of New Yorkers,” said Attorney General James. “For years, Transworld used fraud and deception to pursue defaulted borrowers and obtain default judgments on a massive scale. 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.”
For numerous reasons — including inadequate underwriting standards and the higher default risk associated with direct-to-consumer loans — the loans held by the National Collegiate Student Loan Trusts have defaulted at unprecedented rates.
Transworld developed and implemented an aggressive strategy to rely heavily on litigation to collect defaulted debts. This strategy required lawsuits against borrowers to move quickly from complaint to judgment, while impeding borrowers’ ability to mount a defense.
To carry out this strategy, the OAG’s investigation concluded that Transworld repeatedly, directly or through law firms it retained on behalf of the National Collegiate Student Loan Trusts:
- Filed complaints that falsely identified the National Collegiate Student Loan Trusts as the borrower’s “original creditor” when, in fact, the National Collegiate Student Loan Trusts are assignees of the original creditors (large financial institutions that originated the loans);
- Filed sworn affidavits in support of default judgment motions attaching documents Transworld identified as “redacted” versions of original documents when, in fact, they were documents Transworld created for the purpose of litigation;
- Filed sworn affidavits in support of default judgment motions in which Transworld staff asserted that they had personal knowledge of certain business records when, in fact, they lacked such knowledge;
- Filed sworn affidavits in support of default judgment motions that stated that a particular student loan was transferred to particular National Collegiate Student Loan Trusts when, in fact, the documents submitted to support this assertion failed to conclusively demonstrate a link between the loan at issue and the National Collegiate Student Loan Trusts;
- Filed complaints representing that a borrower applied for a loan from a “servicing agent” when, in fact, the borrower never dealt with such an entity;
Filed National Collegiate Student Loan Trusts lawsuits outside of the three-year statute of limitations applicable to such lawsuits in New York; and
- Threatened legal action against borrowers even though the National Collegiate Student Loan Trusts could not or would not sue because the statute of limitations for suing on the debt had expired.
Many of these practices hindered borrowers’ ability to defend themelves by disguising who they were being sued by and on which loans.
As part of the settlement, Transworld has agreed to:
- Cease identifying the National Collegiate Student Loan Trusts as “original creditors,” stop identifying documents prepared for litigation as “redacted,” end the obfuscating of entities involved in originating National Collegiate Student Loan Trusts loans, and discontinue the use of misleading language in communications with borrowers by implying that they cannot sue due to the expiration of the statute of limitations;
- Enhance training for Transworld staff to ensure accuracy of statements concerning personal knowledge and chain-of-title;
- No longer file National Collegiate Student Loan Trusts lawsuits beyond the three-year statute of limitations applicable to such lawsuits in New York;
- Voluntarily dismiss all lawsuits — which should have never been filed because of the expired statute of limitations — that were filed between January 1, 2018 and the date of the settlement;
- Voluntarily release all pending garnishments, levies, liens, restraining notices, attachments, or any other judgment enforcement mechanism obtained as a result of judgments obtained in wrongfully-filed lawsuits where the statute of limitations have expired;
- Take steps to vacate any judgment obtained in an wrongfully-filed lawsuit where the statutue of limitations have expired (provided the relevant parties, including the National Collegiate Student Loan Trusts, consent to the suit being vacated); and
- Pay $600,000 in penalties to the state and/or restitution to certain New York borrowers.
These practices will dismiss wrongfully-filed lawsuits against student borrowers in situations where the statutue of limitations expired and will protect borrowers who default on their loans in the future. Transworld also recently replaced its senior management and changed many of the practices identified by the OAG’s investigation prior to entering into this formal settlement.
The OAG’s investigation concluded that Transworld’s acts and practices specifically violated New York Executive Law § 63(12); New York General Business Law § 349; the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq.; and the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531 et seq.