The Department of Justice announced on Tuesday that it has taken enforcement actions against Sallie Mae for allegedly violating the rights of U.S. service members in servicing policies for student loans.
Additionally, the FDIC also reached a settlement with Sallie Mae and its servicing unit over allegations of servicing misconduct.
According to the Department of Justice, Sallie Mae allegedly engaged in a practice as early as 2005 in which the company did not provide service members a six percent interest rate cap allowed under the Servicemembers Civil Relief Act.
“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, the director of the CFPB’s Office of Servicemember Affairs, said. “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.”
Sallie Mae will also be required to pay approximately $97 million in restitution and fines. Approximately 60,000 service members will receive compensation under the settlement, which is pending approval by a district court in Delaware.
“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” Attorney General Eric Holder said. “That is the least we owe our brave servicemembers who make such great sacrifices for us. But as alleged, the student lender Sallie Mae sidestepped this requirement by charging excessive rates to borrowers who filed documents proving they were members of the U.S. military. By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated.”
Under the terms of the settlement, Sallie Mae must also direct all three major credit bureaus to delete any negative credit history entries caused as a result of excessive interest charges and default judgments. The lender will also streamline the process used by service members to notify the company of eligibility for SCRA benefits.