Wells Fargo (WFC) Ordered To Pay $4 Million For Illegal Student Loan Practices

On Monday, financial services stalwart Wells Fargo & Co. (NYSE:WFC) has been ordered to pay $4 million to settle accusations that it engaged in illegal student loan practices like charging illegal fees, misrepresenting payments, and not updating inaccurate credit report data.

The Consumer Financial Protection Bureau (CFPB) said that Wells Fargo would illegally charge consumers late fees if they made payments on the last day of their grace periods. The bank would also charge those who chose to pay through multiple partial payments. CFPB pointed out that Wells Fargo failed to correct negative, inaccurate information to credit reporting companies on these same kind of borrowers.

“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” said CFPB Director Richard Cordray, in a statement. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information.”

As a result, Wells Fargo will pay a total of $4 million, including a $3.6 million penalty fee to the bureau and $410,000 to its borrowers.

CFPB said that it found over 8 million U.S. borrowers are in default on more than $110 billion in student loans, and the bureau argued that breakdowns in student loan servicing may be part of the problem.

According to Reuters, CFPB said that “the bank processed payments in a way that made consumers pay more fees. If a borrower's payment was not enough to cover the total amount due for all loans in an account, the bank divided that payment among the loans in a way that maximized late fees rather than satisfying payments for some of the loans.”

Wells Fargo, along with Sallie Mae and Discover Financial Services (NYSE:DFS) , is one of the few big financial companies that offer student loans. Citibank (NYSE:C) , JPMorgan Chase (NYSE:JPM) , and others left the student loan business after the federal government swept up most of the market in order to expand its direct lending offers to students.

Wells Fargo services roughly 1.3 million U.S. consumers through its Sioux Falls, South Dakota-based education finance unit.