Citigroup Facing Federal Investigation Into Student Loan-Servicing Practices
Just last month federal regulators announced that an ongoing probe into potentially unscrupulous student loan-servicing practices resulted in nearly $18.5 million in refunds and fines from Discover Bank. Now, regulators appear to have Citigroup in their crosshairs, as the financial company announced it was party to an investigation.
Citigroup announced through a filing [PDF] with the Securities and Exchange Commission that federal regulators have opened a probe into its student loan servicing practices.
According to Citi’s filing, the company is cooperating with the unnamed regulators, noting that similar serving practices have been the subject of an enforcement action against at least one other institution.
“In light of that action and the current regulatory focus on student loans, regulators may order that Citibank, N.A. remediate customers and/or impose penalties or other relief,” the filing states.
While the company didn’t specify which regulator was investigating its practices, the Consumer Financial Protection Bureau’s ongoing probe and recent enforcement action against Discover suggests it’s the watchdog in question.
A source close to Citi tells Bloomberg that the newly opened investigation is indeed part of the CFPB’s crackdown on unscrupulous loan servicing practices.
The investigation into Citi’s practices comes nearly five years after the company largely unloaded its student loan business. The company sold nearly $28 billion in securitized federal loans to Sallie Mae, and nearly $4.2 billion of private loans and $3.4 billion of securitized loans to Discover Bank.
It was those loans that the CFPB took action against Discover for.
According to the July enforcement action, Discover engaged in illegal student loan servicing and debt collection practices since at least 2010, when it acquired the more than 800,000 private student loans accounts from Citibank. Among other things, the bank was found to have overstated amounts due on student loans and failed to notify borrowers of their rights.
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