NEW YORK ( MainStreet) -- Discover has been ordered to pay $18.5 million by the Consumer Financial Protection Bureau for illegal student debt collection practices following its acquisition of approximately 800,000 accounts from Citibank. The consent order, announced on the CFPB’s website yesterday, includes $16 million in refunds to consumers as well as a $2.5 million penalty paid directly to the agency.

Approximately 130,000 people will get some portion of their money back under this deal.

Among other illegal practices, regulators found that Discover Bank had been overstating the amount due on billing statements and misrepresented the interested paid on accounts. Discover required borrowers to submit additional paperwork, or else their statements would reflect $0.00 in interest paid, leading many borrowers to believe incorrectly that they didn’t qualify for certain tax benefits such as the student loan tax deduction.

The bank also engaged in illegal debt collection practices, an issue that has plagued the student loan industry to an increasing degree over the last several years, including calling borrowers before 8 a.m. and after 9 p.m. Approximately 150,000 of these out-of-hours calls were placed.

Finally, Discover also charged interest on loans that were still in deferment and therefore ineligible for interest.

“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray in a statement. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market.”

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The consent order against Discover is the Bureau’s first action against a student loan servicer, which along with major banks fall under the CFPB’s umbrella of authority. The illegal practices were uncovered during a supervision exam, according to Moira Vahey, a spokesperson for the CFPB, which the agency conducts regularly on the institutions under its authority.

Most of the illegal practices were focused on the accounts which Discover purchased from Citibank. According to the CFPB, many of these problems began surfacing as soon as the Citibank loans began coming due.

Discover has been ordered to reform its debt collection practices as well as to present a plan for restitution to the CFPB. The bank will be responsible for distributing the refunds directly to affected consumers and will pay its fine to the bureau. Each customer effected by overbilling will receive “the greater of $100 or 10 percent of the overpayment, up to $500.”

For those doing the math, this means that anyone who overpaid more than $100 will get only a tenth of their money back and only up to $500. The more a borrower was bilked, the less he will get back.

Discover will also have to reimburse up to $300 in tax preparation fees for consumers who have to amend previous tax returns to claim the student loan interest deduction, and will pay $92 to $142 per person to anyone who received more than five out-of-hours collection calls.

MainStreet reached out to Discover, which declined to comment for this story.

Student debt is the second largest consumer debt market in America, and one that seems consistently complicated by issues surrounding legality and collections. Collectively, the market is worth more than $1.2 trillion, with more than 20% of its 8 million borrowers currently in default. According to the CFPB, this is a problem “that may be driven by the breakdowns in student loan servicing,” and which requires increased enforcement moving forward.