loans@ (Corrects amount to $21.6 million from $26.1 million in first, 10th paragraphs)
WASHINGTON, Sept 18 (Reuters) - The U.S. consumer financial watchdog on Monday ordered National College Student Loan Trusts and its debt collector, Transworld Systems Inc, to pay at least $21.6 million for attempting to collect on possibly non-existent or out-of-date loans.
The Consumer Financial Protection Bureau alleged that the companies sued borrowers without being able to prove the debt was owed or pursued collection on loans that were too old to sue over, and relied on false and misleading legal documents. The CFPB said the trusts had filed at least 486 lawsuits on debt where the statute of limitations for collections had expired.
As a result, consumers made payments of at least $3.5 million on debt they did not owe, the CFPB said.
The settlements come after three years of investigation.
A federal judge must still sign off on the penalties against National Collegiate Student Loan Trusts. According to the CFPB, the collection of 15 trusts purchased and securitized more than 800,000 private student loans, and then sold notes to investors.
Donald Uderitz, founder of Vantage Capital Group, the beneficial owner to the trusts, said they collaborated with the CFPB on the agreement and they would work with the agency "to finish the job."
"We frankly welcomed the intervention of the CFPB to help us to put an end to these appalling practices, he said.
Transworld agreed to settle by paying a $2.5 million fine and taking other remediative measures only "in order to avoid costly and potentially protracted litigation with our primary regulator," it said in a statement.
It did not admit or deny the investigation's findings, and said its business practices "adhere to all federal and state consumer protection laws, and embody best practices in the industry."
The fine being paid by Transworld is part of the total of amount of at least $21.6 million.
Offered by banks and other companies, private student loans do not provide the same borrower protections and repayment options as the federal government's college financing program.
During the quarter ending June 30, 11.2 percent of all outstanding student-loan debt was 90 days past due or defaulted, a greater proportion than for credit cards and mortgages, according to the New York Federal Reserve Bank.
Last summer the CFPB, charged with guarding individuals against predatory lending, proposed toughening regulation of debt collection industry after fielding thousands of complaints from people contacted about debts they did not owe or illegally harassed by collection agencies. But it has yet to offer a new rule carrying out the proposal.
(Reporting by Lisa Lambert; Editing by G Crosse and Leslie Adler)