Discover Bank, which handles millions in student loans, has been fined $2.5 million and ordered to repay $16 million to consumers for illegal student loan-servicing practices.

The consumer bureau also found that Discover engaged in illegal debt collection services, calling loan holders’ mobile phones early in the morning and late at night, before 8 a.m. and after 9 p.m.The Illinois-based bank overstated the minimum amounts due and denied consumers information about student loan interest they had paid and needed for federal income tax deductions, according to the Consumer Financial Protection Bureau, which levied the fines.

Part of the Consumer Financial Protection Bureau’s order requires Discover to improve collection practices, as well as its billing and student loan interest reporting.

Discover’s student loan affiliates are also charged in the order – The Student Loan Corporation and Discover Products, Inc. Discover expanded its student loan portfolio in 2010 by acquiring 800,000 Citibank student accounts.

The $16 million must be returned to more than 140,000 borrowers:

  • To approximately 5,200 victims who were misled about their minimum payments in an amount equal to the greater of $100 or 10 percent of the overpayment, up to $500 each.
  • To about 130,000 people who had to amend their 2011 and 2012 IRS forms to claim student interest, up to $300 in tax preparation costs.
  • To about 5,000 consumers who were subjected to out-of-time collection calls, $92, with $142 going to those who received more than 25 phone calls.

Today there are more than 40 million federal and private student loan holders who owe more than $1.2 trillion. Student loans are the second largest consumer debt market.

The Consumer Financial Protection Bureau is an independent U.S. agency responsible for consumer protection in the financial sector. It was created four years ago as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.