Class of Students Sues|Lenders & Servicers

MANHATTAN (CN) - Three student loan lenders and servicers schemed to keep borrowers in debt by improperly crediting payments "to extract more interest," a class action claims in Federal Court.

Named plaintiff Cindy Breitman sued Affiliated Computer Services (ACS), a student loan servicer; NextStudent, a student loan lender; and U.S. Bank.

Breitman claims the defendants "kept borrowers trapped in student loan debt that borrowers were actively seeking to repay as fast as possible to lower the total cost of borrowing."

Breitman claims the defendants applied student loan payments received "in excess of the stated monthly amount due ('prepayments'), not to reduce principal, but to keep borrowers in debt, ignoring borrowers' express instructions as to how prepayments should [be] applied to borrowers' loans."

Breitman says she enrolled in ACS' program "Checkmate II," which ACS said would be used to deduct loan payments from her bank "as of the assigned due date each month."

ACS "represented to borrowers that Checkmate II was the most convenient way to make their student loan account payments. ACS said 'You will save time and money, as well as eliminate the hassle of writing checks,'" the complaint states.

But Breitman claims the Checkmate II terms and conditions falsely claim: "Please note that prepayments, defined as additional payments received on your loan(s) greater than the regular installment or the amount due, will not satisfy installments or prevent the next month's debit."

The terms are misleading because they hide from borrowers "the manner in which prepayments would be applied to their loans," according to the complaint. It claims prepayment would not be applied immediately to reduce the principal of borrowers' loans in addition to their monthly Checkmate II payment - instead, ACS "misapplied prepayment specifically to keep borrowers in debt to maximize the amount of interest paid over the life of the loans."

ACS applies prepayments "to satisfy future installments, to prevent the next month's debt, but often do not reduce principal," the class claims.

Breitman says the defendants also falsely claimed that if borrowers made 36 consecutive loan payments they would qualify for an "On-Time Payment Benefit," which included a 1 percent rate reduction.

She seeks class certification and treble damages for breach of contract. She is represented by Lawrence Eagel, with Bragar, Eagel, and Squire.

Follow @jamierossCNS

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