Sallie Mae agrees to pay $97 million to settle charges by two federal agencies that it overcharged military students for interest and fees on loans
May 15, 2014
Student loan giant Sallie Mae and Navient, a former loan servicing unit of Sallie Mae, agreed Tuesday to settlements with two federal agencies for charging members of the military high interest rates and fees. About 60,000 servicemembers will receive compensation under the settlement.
The U.S. Department of Justice charged the company with violating the Servicemembers Civil Relief Act. The agency said since 2005 the defendants failed to provide servicemembers the 6 percent interest rate cap they were entitled to. The department also alleges that defendants violated the SCRA by obtaining default judgments against servicemembers.
The proposed settlement requires Sallie Mae to pay $60 million to servicemembers for the alleged SCRA violations.
“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” said Attorney General Eric Holder.
The department’s settlement is the result of a joint effort with the Department of Education, Federal Deposit Insurance Corporation, and Consumer Financial Protection Bureau. The department’s investigation of Sallie Mae was the result of a referral of servicemember complaints from the bureau, Holder said.
The settlement provides for an independent administrator to locate victims and distribute payments at no cost them. The department will make an announcement and post information on its website when details about the compensation process are available. Borrowers who are eligible for compensation from the settlement will be contacted by the administrator and don’t need to contact the department at this time, he said.
FDIC settlement
In a related settlement with the Federal Deposit Insurance Corp., Sallie Mae agreed to pay restitution of about $30 million to harmed borrowers and $6.6 million in penalties.
The FDIC determined that Sallie Mae violated federal law because payments were applied in a way that maximized late fees and it wasn’t properly disclose on borrowers’ statements how the fees could be avoided.
The FDIC also is requiring Sallie Mae to ensure that disclosures about payment allocation and late fee avoidance are clear and that servicemembers are properly treated under the SCRA.
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