[Updated (3/2/2015, 12:35 p.m.) with response from a trade association representing the five agencies.]
The U.S. Education Department is cutting ties with five private collection agencies that it says provided inaccurate information to student-loan borrowers. In an announcement late Friday, the department also said it would step up its monitoring and guidance of such collection agencies, which work under government contracts, to ensure that they give borrowers accurate data on their loans.
The measures announced on Friday stem from the department’s review of the 22 private collection agencies it contracts with. The review focused on whether the agencies were complying with requirements that they “not engage in unfair or deceptive practices” and observe relevant federal and state laws.
The review followed sharp criticism by consumer advocates and some members of Congress. The critics said the department should not contract with companies accused of violating consumer-protection laws and should instead handle itself any debt collection on student loans it issues. Making such a change would radically alter a business model that has resulted in hundreds of millions of dollars in payments to loan-collection companies over the last few years.
In its review, the department found that the five agencies had misled borrowers about the loan-rehabilitation program, which enables borrowers to get out of default by making a series of on-time payments. The agencies provided deceptive information about the effect on borrowers’ credit reports and the waiver of some collection fees, the department said.
Late Sunday the National Council of Higher Education Resources, a trade association representing four of the five agencies, among other loan collectors and servicers, issued a news release criticizing the department for failing to “provide details of the alleged findings to the impacted agencies” before taking action against them.
“The five impacted agencies should have the opportunity to respond to the allegations before losing their contracts,” said the council’s president, James Bergeron.
Borrowers whose loan accounts have been held by the five agencies, but who are not in repayment, will be reassigned to other loan-collection agencies, the department said. The agencies whose contracts will not be renewed are Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management.
Of the five, only Pioneer Credit appeared on a recent tally of debt-collection companies that had racked up the most complaints from borrowers with the Federal Trade Commission and the Consumer Financial Protection Bureau.