WASHINGTON (5/14/14)--The Federal Deposit Insurance Corp. announced a settlement with subsidiaries of SLM Corp. and Navient Corp. for alleged unfair and deceptive practices as well as violations of the Servicemembers Civil Relief Act (SCRA) related to student loans.
The settlement involved Sallie Mae Bank, Salt Lake City, and Navient Solutions Inc. (formerly known as Sallie Mae, Inc.), Olney, Md., subsidiaries of SLM Corp. and Navient Corp., respectively, according to an FDIC release.
The FDIC said that the parties (referred to as Sallie Mae in the FDIC order) violated federal law prohibiting unfair and deceptive practices by:
Inadequately disclosing its payment allocation methodologies to borrowers;
Allocating payments across multiple loans in a way that maximizes late fees; and
Inadequately disclosing how to avoid late fees in billing statements.
The FDIC also said it determined that Sallie Mae violated the SCRA by unfairly conditioning receipt of benefits upon requirements not in the act, improperly advising servicemembers they must be deployed to receive SCRA benefits, and failing to provide SCRA relief after having been put on notice of borrowers' active duty status.
Sallie Mae and Navient have been ordered to pay $6.6 million in penalties, $30 million in restitution to harmed borrowers, and fund a $60 million settlement fund with the U.S. Department of Justice. This is a result of an examination of Sallie Mae conducted by the FDIC.
A separate action has been taken by the Department of Justice with regard to violation of the SCRA.
In addition to the restitution payments and civil monetary penalty, the FDIC has ordered Sallie Mae to take affirmative steps to see that late fee and avoidance payment allocation are clear and conspicuous, that servicemembers receive proper treatment under the SCRA and that all residual violations are remedied in accordance with applicable laws.
Holly Petraeus, Consumer Financial Protection Bureau assistant director, Office of Servicemember Affairs, commended the actions by Justice and the FDIC. "The men and women serving this country should receive quality customer service and the legal protections afforded to them. Instead, Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law," she said, adding, "This behavior is unacceptable. And it's particularly troubling from a company that benefits so generously from federal contracts."
She noted a 2012 CFPB report that found that servicemembers faced serious hurdles in accessing their student loan benefits, including the provisions of the SCRA which caps the interest rate on pre-existing student loans and other consumer credit products at 6% while the servicemember is on active duty. (See resource link.)