Consumer advocates applauded the Department of Education’s announcement last week to end contracts with five private collection agencies that provided inaccurate information to borrowers.

On Friday, the Dept. of Education revealed that it would wind down contracts with Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management after conducting a review of agency practices.

The Department’s Federal Student Aid (FSA) office reviewed all private agencies under contract to ensure they were complying with terms of the agreements, including provisions that the agencies would not engage in unfair or deceptive practices and would comply with all applicable federal and state laws.

According to the review, the five private collection agencies in question were found to have given inaccurate information at unacceptably high rates about the benefits of federal loan rehabilitation programs.

In particular, these agencies gave borrowers misleading information about the benefits to the borrowers’ credit report and about the waiver of certain collection fees.

The rehabilitation programs are an option that can create benefits to defaulted borrowers after they have made nine on-time payments in a period of 10 months.

“Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” Under Secretary Ted Mitchell said in a statement. “Every company that works for the Department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance. It is our responsibility – and our commitment – to uphold the highest standards of service for America’s student borrowers and consumers.”

In addition to cutting ties with the agencies, the Dept. of Education says it will provide enhanced Fair Debt Collection Practices Act and Unfair, Deceptive, or Abusive Acts or Practices monitoring and guidance for all private collection agencies that work with the Department to ensure agencies are consistently providing borrowers with accurate information regarding their loans.

The Center For Responsible Lending called the Department’s announcement a bold step.

“Student loan debt is now a trillion-dollar business – and as the financing of higher education increasingly shifts to federal student loans, the Department of Education must insist on the highest consumer protection standards,” Maura Dundon, senior policy analyst for CRL said in a statement. “This move illustrates a commitment to responsible lending practices and is a strong step to protect consumers and taxpayers. No matter what type of debt owed, consumers have the right to be treated fairly and in accordance with the law.”

Consumer accounts held by the five agencies being dropped by the Department will be reassigned.

U.S. Department of Education to End Contracts with Several Private Collection Agencies [U.S. Department of Education]

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