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From Banking and Finance Law Daily, May 13, 2014

Sallie Mae agrees to $95 million-plus settlement of servicemember protection violations

By Richard A. Roth, J.D.

The corporate entities generally known as Sallie Mae have agreed to settle charges that they violated the Servicemembers Civil Relief Act, Federal Trade Commission Act, and Equal Credit Opportunity Act in extending and servicing student loans. While the companies have not admitted any violations, they have agreed to make restitution, establish a settlement fund, and pay a civil penalty totaling more than $95 million. The charges and settlement resulted from a Justice Department suit and a Federal Deposit Insurance Corporation enforcement action that were brought after a referral from the Consumer Financial Protection Bureau.

The FDIC and Justice Department said their related investigations into practices at SLM Corporation and Navient Corporation, and their respective subsidiaries Sallie Mae Bank and Navient Solutions, Inc., found a number of prohibited actions. These included:

  • allocating payments across multiple loans in a way that maximized fees, while not properly disclosing the allocation methods;

  • misrepresenting or not disclosing how late fees could be avoided;

  • conditioning SCRA benefits on requirements not included in the act;

  • inaccurately telling servicemembers that they were eligible for SCRA protections only if they were deployed;

  • not providing relief required by the SCRA to eligible servicemembers, including failing to reduce loan interest rates to the 6-percent maximum specified by the act;

  • securing default judgments against servicemembers in violation of the SCRA; and

  • pricing loans in a way that violated the ECOA and Reg. B—Equal Credit Opportunity (12 CFR Part 1002).

According to Attorney General Eric Holder, this is the federal government’s first SCRA suit over student loans. Sallie Mae had “a nationwide pattern and practice” of not giving servicemembers the interest rate reduction to which they were entitled under the act, he said. Holder added that the settlement is not restricted to private student loans; instead, it applies to all student loans serviced by or for Sallie Mae.

Agreed relief. Sallie Mae agreed to establish a $60 million Justice Department settlement fund related to the charged SCRA violations and to establish a separate $30 million restitution fund. The FDIC consent orders against Sallie Mae Bank and Navient Solutions also note that they are liable for any excess if restitution ultimately exceeds $90 million. In addition, the companies will pay civil penalties totaling $6.6 million to the FDIC.

In addition to ordering Sallie Mae Bank and Navient Solutions generally to cease violations of federal laws and regulations, the FDIC consent orders impose specific requirements that are intended to prevent the creation of barriers that could interfere with servicemembers’ efforts to assert their SCRA rights. These should make it easier for servicemembers to show they are on active duty and thus entitled to benefits, including interest rate reductions.

The consent orders also require Sallie Mae Bank and Navient Solutions to correct any inaccurate credit reports that resulted from the SCRA violations.

Companies: Navient Corporation; Navient Solutions, Inc.; Sallie Mae; Sallie Mae Bank; SLM Corporation

MainStory: TopStory ConsumerCredit CFPB EnforcementActions EqualCreditOpportunity GovernmentSponsoredEnterprises Loans UDAAP

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