Sallie Mae to Pay Nearly $100m for Overcharging US Armed Service Members
The nation’s largest student loan servicer will pay about $97 million to settle claims that it had made repayment a hassle for student borrowers in the US armed services.
Through three related companies, since 2005 Sallie Mae allegedly violated the Servicemembers Civil Relief Act, which caps interest rates for debts incurred prior to active duty—including those on student loans—for service members at 6 percent. Working together, the Department of Justice, the FDIC, and the Consumer Financial Protection Bureau found that service members were faced with hurdles in trying to claim the benefit. A CFPB report from 2012 found that service members were told to resubmit unnecessary paperwork in applying for the benefit and were not provided with clear information on how to apply for the benefit, which the justice department says resulted in improper default judgments. The FDIC also alleged that Sallie Mae distributed loan repayments from loan servicers in a manner that maximized late fees.
A little bit of corporate-speak: The complaint and settlements, both filed yesterday, targeted three defendants under the Sallie Mae umbrella—Sallie Mae Inc., SLM DE Corporation, and Sallie Mae Bank. At the end of April, Sallie Mae spun off Sallie Mae Inc. and SLM DE Corporation into two companies under the umbrella of a bigger company, called Navient, which will service Sallie Mae’s originated loans and supply federal student loans. Sallie Mae will continue to offer private loans. (That the Navient name is a bit more Bond villain-like was probably an unintended side effect of the switch.) For shorthand purposes, the Department of Justice is referring to all defendants collectively as Sallie Mae.
Sallie Mae will pay $60 million in its settlement with the Department of Justice, which will be distributed to about 60,000 service member borrowers, as well as a $55,000 fine. It will also pay about $37 million to the FDIC, covering both penalties and further remediation for harmed borrowers.
Under the terms of its settlement with the Department of Justice, Sallie Mae is also required to contact credit bureaus to delete negative entries against affected borrowers, and to streamline the process going forward.
There’s nothing like an alleged wrongdoing against active service members to spur government action. But the claims could reverberate into the wider student loan market, Politico reports.
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Navient and Sallie Mae deny wrongdoing and say the government has shifted from previous regulatory requirements, resulting in the penalty. As the Huffington Post reports, that argument might be a fair one.
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