Student Loans
Caution! Politics Ahead: Amazon Breaks Student Loan Ties With Wells Fargo
September 7, 2016Was it easy come and easy go for the Amazon-Wells Fargo partnership?
Not long after the two companies signed a multiyear contract to market private student loans to Amazon Prime Student subscribers, the ecommerce giant retreated after finding itself in a political soup.
Caught in the crossfire between the two bastions of private and federal student loans, the partnership ended rather abruptly after The Institute for College Access & Success, or Ticas, a nonprofit focused on higher education and student-loan issues called the partnership an attempt to dupe students.
“This is the kind of misleading private loan marketing that was rampant before the financial crisis. It is a cynical attempt to dupe current students who are eligible for federal students loans with a record low 3.76% fixed interest rate into taking out costly private loans with interest rates currently as high as 13.74%,” said TICAS in a statement issued last week, “Amazon and Wells Fargo are trumpeting a 0.5% discount while burying the sky-high rates on these private loans and without noting that they lack the consumer protections and flexible repayment options that come with federal student loans.”
This was exacerbated by the CFPB’s allegations that the bank engaged in illegal student loan practices — by misleading borrowers on partial payments, charging certain consumers late fees for payments made on the last day of the grace period and failing to correct inaccurate information on credit reports of borrowers. Wells Fargo, the second-largest private student lender neither denied nor admitted to the charges but however, settled the matter for $4.1 million.
The partnership was an one up for private student lending especially against growing private entrants like SoFi and CommonBond. With it being undone, what’s next?
Alleged Illegal Student Loan Practices Cost Wells Fargo $4 Million
August 23, 2016Without admitting or denying any of the CFPB’s findings, Wells Fargo has consented to a $3.6 million fine over alleged unfair penalties imposed on certain student borrowers. They must pay another $410,000 to cover consumer injuries.
The South Dakota-based Education Financial Services is a division of Wells Fargo that lends to approximately 1.3 million consumers in all 50 states.
“If a borrower made a payment that was not enough to cover the total amount due for all loans in an account, the bank divided that payment across the loans in a way that maximized late fees rather than satisfying payments for some of the loans,” CFPB said in a statement.
The bank also misled borrowers on partial payments, charged certain consumers late fees for payments made on the last day of the grace period and also failed to correct inaccurate information on credit reports of borrowers.
Reuters quoted a Wells Fargo spokesperson saying that the settlement revolves around procedures that were retired or improved many years ago and impacts a small number of customers.
The bureau also required the bank to provide consumers with disclosures explaining how the bank applies and allocates payments and correct inaccurate information on borrower credit reports.
