You might be charged for student loans you never borrowed, thanks to a hidden deal made by former President Obama appointee, Richard Cordray, who serves as the Director of the Consumer Financial Protection Bureau.
It has recently come to light that Cordray cut a backroom deal with hedge fund manager David Uderitz, who runs Vantage Capital. Uderitz will now be allowed to manage collections for the very same loans that his company owns. His firm is now permitted to charge fees to people who miss loan payments.
Normally, those late fees would be charged by the National Collegiate Student Loan Trusts (NCSLT). NCSLT was recently in hot water this summer after several lawsuits they had filed against debtors were thrown out. In each case, the court found that NCSLT did not have the necessary paperwork to prove that it had truly lent out all of the money it was trying to collect.
On the surface, it might seem like taking power away from the NCSLT would improve the situation. However, Vantage Capital is the beneficial owner of the NCSLT. Cordray’s deal with Uderitz does not fix the issue, it merely transfers it up the corporate ladder.
According to the New York Times, “Other large student lenders, like Sallie Mae, also pursue delinquent borrowers in court, but National Collegiate stands apart for its size and aggressiveness…There is no national tally of just how often National Collegiate’s trusts have gone to court.”
NCSLT has been dragging people to court to try to squeeze more money from them, even when the company cannot prove that it owns the money it is trying to collect. Thanks to Cordray’s backroom deal, Vanguard Capital will get to levy fees on those loans without ever having to go through the legal system.
The Consumer Financial Protection Bureau was getting tough on NCSLT as of last month. According to MarketWatch, the pair reached an agreement “that requires the company to pay at least $3.5 million to 2,000 borrowers who made payments on their loans after being sued by the company, even though it couldn’t legally file a suit against them. In addition to the $3.5 million in restitution, the CFPB has also ordered the company to pay $7.8 million to the U.S. Treasury and $7.8 million to the bureau’s civil penalty fund.” The deal also requires NCSLT to bring in an independent auditor.
Still, the deal effectively allows Vanguard Capital to pay itself out of money intended for student loan borrowers: “This hedge fund now has CFPB’s blessing to charge fees and administer a $21.6 million government settlement trust owed to students. And, as the fund owns some of those delinquent, they will be pocketing the remaining funds.”
Ken Blackwell, the former Ohio Secretary of State, calls this “crony capitalism at its worst.”
Why would Cordray make such a brazen move? He’s planning to run for governor of Ohio in 2018. Blackwell thinks this secret deal is corruption disguised as taking action on student loans that he could tout on the campaign trail… all while Udertiz continues mistreating borrowers.