New York Attorney General Eric Schneiderman is opening an investigation into the collection practices of the National Collegiate Student Loan Trusts, which is among the largest owners of private student debt in the country.
On Wednesday, Schneiderman’s office sent subpoenas requesting information on every collection lawsuit ever filed by National Collegiate’s trusts against New York residents.
The attorney general’s action comes on the heels of a scathing New York Times report published on Monday.
The Times article detailed how Nation Collegiate has aggressively pursued student loan borrowers in court, often falling short on judicial paperwork requirements. Oftentimes, the Trusts hasn’t been able to procure the proper documents to even demonstrate that it owns the debt being sought in collections lawsuits.
While Schneiderman hasn’t yet begun litigation against the Trusts, National Collegiate would be advised to prepare for the worst – the attorney general has been active in following through on probes of for-profit colleges and the private student loan industry.
“I won’t allow a generation of New Yorkers to get victimized by the very system that was created to help them get ahead,” said Schneiderman in a recent statement. “We will conduct a full investigation and will hold the perpetrators of any fraud against our students accountable.”
National Collegiate’s difficulty proving the ownership of debt has cost it in the past, with judges tossing out lawsuits and dismissing debt accounts outright.
The trusts own around $12 billion in private student debt.
However, the process of how organizations like the National Collegiate Student Loan Trusts come to possess debts can be difficult to track.
When banks repackage debts as debt securities, they often put accounts up for sale to investors. Groups like the National Collegiate trusts purchase the debts and then try to collect on borrowers who default.
One of the individuals profiled by The New York Times in its report is 33-year old Samantha Watson, a mother of three and recent graduate of Lehman College in The Bronx.
The first in her family to ever attend university, Watson opted to secure private loans to pay her tuition. Optimistic about the prospects offered by higher education, she nevertheless had a difficult time understanding some of the fine print lining her loan contract.
“I didn’t really understand things like interest rates,” said Watson to the Times. “Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did.”
Watson tried to keep up with her payment schedule, but fell behind after her daughter got sick. The illness meant the busy mother couldn’t devote as much time to work – she wound up having to leave her position as an executive paycheck.
National Collegiate’s suit against Watson is exemplary of the sort of judicial abuse Schneiderman’s investigation is seeking to uncover.
The documents provided by the Trusts were a mess, according to lawyer Kevin Thomas of New York Legal Assistance Group.
While some of the debt claimed by National Collegiate was owned by Watson, others weren’t – some loan funds were listed under Watson’s name but disbursed to schools she’d never attended.
Many of the lawsuits filed by the Trusts are never contested, because defendants never make it in for the court dates. When borrowers do decide to fight back, National Collegiate frequently drops the case.
“I question whether they actually possess the documents necessary to show that they own loans,” says Robyn Smith, a lawyer with the National Consumer Law Center.
The beneficial owner of National Collegiate’s 15 trusts, Donald Uderitz, said he wasn’t surprised by Schneiderman’s decision to open an investigation.
“Right now, all I can say is given the issues we know we are dealing with, I’m not surprised and I don’t expect this to be the last state attorney general to look into this,” he said.
Urditz also said he wants lawsuits against borrowers to stop until he can investigate himself.
Unfortunately for Urditz and National Collegiate’s many borrowers, a dispute between his company, the Vantage Capital Group, and several of the other trusts prevent Urditz from making any changes to operations.