Shame on the student lending giant Sallie Mae! The lending giant has been ordered to pay nearly $100 million in restitution and penalties for “unfair and deceptive” practices related to student loans and for violating the legal rights of members of the military. The U.S. Department of Justice (DOJ) and the Federal Deposit Insurance Corporation (FDIC) announced the order entered in the case on May 13. The lawsuit filed by the department alleges that Sallie Mae failed to provide a 6 percent interest rate cap on student loans, as promised, to active duty service members under the Servicemembers Civil Relief Act (SCRA). Reportedly, there are about 60,000 service members who were victims of the violations by Sallie Mae.
The settlement would also require Sallie Mae – which recently separated into two companies, Sallie Mae Bank and Navient Solutions – to request that all three credit bureaus delete any negative credit history associated with the violations. Attorney General Eric Holder said during a news conference:
By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our service members of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated.
In addition to failing to provide service members with the interest rate cap guaranteed to them under federal law, the attorney general said Sallie Mae in some cases obtained default judgments against service members who qualified under SCRA, and charged excessive rates to those who provided documents proving they were members of the military.
The FDIC also announced its own settlement with Sallie Mae Bank for “unfair and deceptive practices related to student loans,” and for violations of SCRA. In a statement on the settlement, the FDIC said Sallie Mae violated federal law prohibiting such practices through inadequately disclosing the ways in which it allocates borrowers’ payments across multiple loans in a way that maximizes late fees, and misrepresenting and inadequately disclosing how borrowers could avoid late fees.
The FDIC said Sallie Mae was in violation of SCRA for incorrectly telling service members they had to be deployed to receive their student loan benefits and failing to provide complete relief to borrowers after having been notified of their active duty status. The FDIC settlement stipulates Sallie Mae Bank, which originates private student loans, must pay $3.3 million in penalties. Navient, which services $300 billion in federal and private student loans on behalf of Sallie Mae, is responsible for paying another $3.3 million in penalties, $30 million in restitution to refund late fees and the $60 million to compensate service members.
A 2012 report from the Consumer Financial Protection Bureau (CFPB) brought attention to complaints from service members who said they faced serious obstacles in accessing their student loan benefits, including the interest rate cap provided through SCRA. Additionally, several service members reported receiving unclear information about their loan repayment options. According to the report, some were told they could not receive their SCRA benefits unless their loans were placed into deferment or forbearance, which could actually increase the cost over time because interest would still accrue. Holly Petraeus, assistant director of the Office of Servicemember Affairs at the CFPB, in a statement said:
I have been concerned for some time about the way that military personnel are treated by their student loan servicers. The men and women serving this country should receive quality customer service and the legal protections afforded to them. Instead, Sallie Mae gave service members the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable.
Sen. Tom Harkin, D-Iowa, who chairs the Senate’s education committee, said he was “dismayed” to learn about the problems identified in the settlement. He said in a statement:
Our service members, who have been systematically denied the benefits to which they are entitled under the law and which were put in place to ensure they have an affordable education, deserve better. Today’s settlement only strengthens my resolve to put in place strong rules to ensure that all borrowers, especially those that sacrifice so much for this nation, are better protected from these abuses. While some of these bad actors might think that they are too big to fail, I am committed to ensuring that student loan borrowers are no longer too small to ignore.
In order to protect service members in the future, under the terms of the settlement agreement, going forward Sallie Mae will be required to streamline the process by which service members notify the lender that they are eligible for SCRA benefits. This includes employing customer service representatives who are specially trained about the benefits and rights due those in military service.
The week after the settlement was announced, groups representing students, educators and the nation’s largest labor federation asked the White House to terminate the contract between the Department of Education and Sallie Mae and Navient. These groups include the AFL-CIO, United States Student Association, and the American Federation of Teachers. They have created an online petition that calls for Education Secretary Arne Duncan to sever the contract with Navient Corp. The petition, which was organized by the nonprofit Jobs With Justice, reads in part:
The Department of Education shouldn’t be in business with companies like Sallie Mae that break the law, and I don’t want my taxpayer dollars supporting such a company. I urge you to not turn a blind eye to these disreputable practices. Please take these matters seriously by ending your agency’s contract and business dealings with Sallie Mae at once.
The joint petition currently has more than 50,000 signatures. Additionally, the United States Student Association has asked the Government Accountability Office and the inspector general overseeing the Education Department to investigate the department’s decision to renew Navient’s contract. The department last fall told Sallie Mae it intended to renew the contract, even though the federal investigators uncovered evidence a few months prior that the company violated the servicemembers law.
I am totally convinced that the American people expect members of our nation’s armed services to be protected from wrongdoing regardless of who the wrongdoers might be. It’s a national disgrace for the offender in this situation to have cheated service members. This wrongdoer should be made to be totally accountable for its wrongdoing.
Sources: Usnews.com; U.S. Department of Justice; and Huffington Post
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