%1

Discover Financial Services is being investigated by a federal regulator over student loan-servicing practices and its compliance with a 2015 consent order involving the business, Bloomberg News reported. Discover is cooperating with the Consumer Financial Protection Bureau, according to its annual regulatory filing posted yesterday. The lender said that it is enhancing the compliance plan it submitted to the CFPB in response to the consent order. Discover in 2015 agreed to refund $16 million to consumers and pay a $2.5 million fine to resolve allegations of illegal loan-servicing practices. The CFPB said at the time that the bank overstated minimum amounts due on billing statements and denied consumers information needed to obtain income tax benefits. The latest investigation could lead to a supervisory action or fines and cause Discover to change business practices, the firm said.

A proposal from the Consumer Financial Protection Bureau could spark a fight about what should happen to consumers’ old debt, the Washington Post reported. Debt collectors lose the right in many states to sue consumers after their debt reaches its statute of limitations, typically three or more years. But there’s a loophole: If the consumer makes a payment or acknowledges the debt in writing, that can be used to try to revive the life of the debt, creating what some consumer advocates call “zombie debt.” The CFPB estimates millions of consumers are contacted about such time-barred debt every year. In a new proposal, the bureau says debt collectors could continue to try to collect on those old debts but would have to tell consumers upfront they are outside their statutes of limitations and the consumer can no longer be sued to recoup the money. The collection of time-barred debt “can pose consumer protection concerns,” the CFPB says in its most recent proposal. Reached by a debt collector, a consumer may prioritize that old debt, leaving them with “less money to pay another debt.” The proposal is part of a broad revision of debt collection rules the CFPB implemented last year that include allowing debt collectors to call consumers seven times a week and to send unlimited texts and emails. It would also prohibit companies from suing to collect on debt they knew or should have known is past their statutes of limitations. Those proposed rules, which haven’t been finalized, have received more than 14,000 public comments, many of which raised the issue of zombie debt.

The Consumer Financial Protection Bureau on Friday proposed establishing a national standard for how debt collectors must inform borrowers when they cannot be sued for expired debt, Reuters reported. The proposed mandatory language would also inform borrowers about actions they could take to legally revive so-called “time-barred” debt, the agency said. The CFPB measure, which is subject to public consultation, comes amid a broader overhaul of its debt-collection rules. The changes have sparked industry complaints that they clash with state laws and could drastically complicate the process of recouping owed money. Last May, the CFPB proposed a rule clarifying the methods by which debt collectors can contact borrowers. It also proposed banning collectors from suing or threatening to sue borrowers for debt that the collector knows, or should know, has expired. The agency said on Friday that it had already received comments on the potential ban, but wanted more public input “as a part of the process of taking final action.” Under the Fair Debt Collection Practices Act (FDCPA), states can set limits on how long collectors have to sue, which can range from three to 15 years. Borrowers can still owe on debts older than that, but collectors cannot take them to court to collect on it.