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By Reuters

The banking arm of Discover Financial Services agreed to pay $18.5 million in consumer refunds and penalties on Wednesday to settle allegations of illegal practices tied to its student loan servicing business, a U.S. regulator said.

The Consumer Financial Protection Bureau said that Discover Bank overstated the minimum amounts due on billing statements and took unfair actions in debt collection, such as calling borrowers early in the morning or late at night.

Discover neither admitted nor denied the accusations in the settlement, and a bank spokesman declined to comment on the settled case.

Of the $18.5 million that Discover must pay, $16 million of that will be returned to more than 100,000 borrowers. Those funds will cover costs associated with account credits and reimbursement for tax preparation costs, among other things.

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The remaining $2.5 million will be paid into the CFPB's civil penalty fund.