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May 13, 2014 at 12:58 PM
Sallie Mae, the servicer of federal and private student loans, must pay $96.6 million in restitution and penalties to the Department of Justice and the Federal Deposit Insurance Corp. for systematically violating the legal rights of U.S. servicemembers.
The DOJ said Tuesday that the federal government filed its first lawsuit against owners and servicers of student loans for violating the rights of servicemembers eligible for benefits and protections under the Servicemembers Civil Relief Act (SCRA).
The FDIC announced the same day that it determined that Sallie Mae violated federal law prohibiting unfair and deceptive practices in regards to student loan borrowers by: Inadequately disclosing its payment allocation methodologies to borrowers while allocating borrowers’ payments across multiple loans in a manner that maximizes late fees; and misrepresenting and inadequately disclosing in its billing statements how borrowers could avoid late fees.
The FDIC orders require Sallie Mae Bank and Navient Corp. to pay civil penalties totaling $6.6 million and to pay restitution of approximately $30 million to harmed borrowers.
The three entities must also fund a $60 million settlement fund with the DOJ to provide remediation to servicemembers.
SLM Corp. (commonly known as Sallie Mae ) spun off its loan servicing operation on April 30 into a separate, publicly traded entity now called Navient Corp.
Navient is the entity that owns approximately $140 billion in federal and private student loans and services loans on behalf of Sallie Mae and other parties, such as the U.S. Department of Education. In total, Navient services $300 billion. Sallie Mae is a bank that originates private education loans and offers savings accounts, certificates of deposit and money market accounts. Sallie Mae owns approximately $6.5 billion of private education loans.
A Navient spokesperson explained that as part of today’s settlement, Sallie Mae will pay $3.3 million in fines to the FDIC; Navient is responsible for funding all other liabilities related to these consent orders, including the $60 million referenced in the Department of Justice’s news release and the $30 million in restitution under the consent order from the FDIC.
The United States’ complaint alleges that three defendants, collectively known as Sallie Mae, engaged in “a nationwide pattern or practice, dating as far back as 2005, of violating the SCRA by failing to provide members of the military the 6% interest rate cap to which they were entitled.”
