February 27, 2013

A new federal class action lawsuit claims three student loan lenders and servicers aimed to keep borrowers trapped in debt.

Cindy Breitman filed a lawsuit in a Manhattan Federal Court this week against Affiliated Computer Services (ACS), a student loan servicer; NextStudent, a student loan lender; and U.S. Bank, Courthouse News reports. She's seeking class certification and treble damages for breach of contract.

U.S. Bank, NextStudent and ACS schemed to keep "borrowers trapped in student loan debt that borrowers were actively seeking to repay as fast as possible to lower the total cost of borrowing," the lawsuit claims.

Breitman had arranged for automatic debit payments to be made towards her student loan balance through ACS's Checkmate II system. But she claims any extra payments she made to pay down her principal balance were redirected to simply cover her regular monthly payments, which included interest charges.

The lawsuit claims this happened despite the terms and conditions for for Checkmate II saying "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."

Breitman's lawsuit claims ACS "misapplied prepayment specifically to keep borrowers in debt to maximize the amount of interest paid over the life of the loans."

ACS was also sued previously by Joshua G. Fensterstock, who similarly sought a class action suit against over their handling of his student loans. Fensterstock claimed in a court filing ACS "engaged in fraudulent and deceptive practices" by putting payments he intended to go toward paying down his principal balance, but only put towards his interest.

U.S. District Judge Thomas P. Griesa granted ACS's request to force arbitration with Fensterstock on Thursday.

In another lawsuit this week, United States Court of Appeals for the Second Circuit, based in Manhattan, ruled the debt collection agency Collecto misled borrowers by telling them their student loans are not dischargeable in bankruptcy. While technically the student debt is eligible for discharge in bankruptcy, it's practically next to impossible.

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