Sallie Mae and Navient agreed to pay a combined $97 million to settle charges that they violated the Servicemembers Civil Relief Act [PDF] which caps loan interest rates at 6% for active duty military members, the Wall Street Journal reports.
The companies will pay $60 million in refunds to approximately 60,000 servicemembers and a $55,000 civil penalty to settle the Justice and Education department’s portion of charges. The FDIC is requiring a payment of $30 million in refunds and $6.6 million in civil penalties.
Earlier this year Sallie Mae, the country’s largest originator and servicer of student loans, spun off its loan servicing, loan management, and collections to a new company, Navient.
In a news release about the settlement, Attorney General Eric Holder says that conduct like Sallie Mae’s “is more than just inappropriate; it is inexcusable. And it will not be tolerated.”
While the Consumer Financial Protection Bureau was not involved in Tuesday’s settlements, it has been conducting its own investigation into the deceptive actions of Sallie Mae and Navient.
“Today’s action should serve as warning not just to the student loan servicing industry, but to all institutions that provide or service loans to the military,” Holly Petraeus, assistant director for the CFPB, says in a statement. “Federal agencies will be vigilant about holding all financial institutions accountable for providing the protections that our servicemembers have earned through their selfless service to our nation.”
Scrutiny against loan servicers’ allegedly deceptive practices picked up following a 2012 report by the CFPB that found service members faced hurdles in assessing their student loan benefits.
According to the report [PDF], servicers, such as Sallie Mae, were not providing military members with clear and accurate information about their repayment options. The CFPB reported that military borrowers were denied interest-rate protections because they failed to resubmit unnecessary paperwork while completing active duty.
“Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law,” Petraus said in a statement Tuesday. “This behavior is unacceptable. And it’s particularly troubling from a company that benefits so generously from federal contracts.”
For its part, Sallie Mae said in a written statement that it is making the appropriate adjustments to be in compliance with military lending laws.
“We regret any inconvenience or hardship that our customers may have experienced,” the statement says.
While a written statement from officials at Navient offers apologies to the servicemembers who were affected by the issues, the company disputes the Justice Department’s interpretation of the military lending law calling it inconsistent with prior requirements.
In addition to the monetary settlement, Sallie Mae must abide by several provisions to ensure servicemembers are protected in the future.
- The company must request that all three major credit bureaus delete negative credit history entries caused by the interest rate overcharges and improper default judgments;
- The company is required to streamline the process by which servicemembers may notify Sallie Mae of their eligibility for SCRA benefits;
- The company must provide a revised process that includes an SCRA online intake form for servicemembers;
- The company must make available customer service representatives specially trained on the rights of those in military service.
Sallie Mae, Navient Reach Student-Loan Settlement With U.S. Government [Wall Street Journal]
Statement by Consumer Financial Protection Bureau’s Holly Petraeus on DOJ, FDIC Enforcement Actions Against Sallie Mae [Consumer Financial Protection Bureau]