Justice Department officials announced an enforcement action yesterday against the nation’s largest servicer of federal and private student loans, which was found to be systematically violating the legal rights of U.S. service members.
Sallie Mae, also known as Sallie Mae Bank and Navient Solutions, is ordered to pay $96.6 million in restitution and penalties, officials said, adding that the Federal Deposit Insurance Corporation also reached a settlement with the companies that addresses allegations of student loan servicing misconduct.
“I commend Attorney General Eric Holder, FDIC Chairman Martin Gruenberg, and the staff at the Department of Justice and FDIC for taking action to protect student loan borrowers,” said Holly Petraeus, the Consumer Financial Protection Bureau assistant director, who leads the CFPB’s Office of Servicemember Affairs.
“I have been concerned for some time about the way that military personnel are treated by their student loan servicers,” Petraeus said in a statement. “The men and women serving this country should receive quality customer service and the legal protections afforded to them. Instead, Sallie Mae gave service members the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable. And it's particularly troubling from a company that benefits so generously from federal contracts.”
The Justice Department's civil rights division has initiated a number of enforcement actions in recent years to pursue those who don’t fulfill their legal obligations under the Servicemembers Civil Relief Act, Petraeus said.
“I applaud their actions, which have put millions of dollars back in the pockets of service members,” she added.
The enforcement action should serve as warning not only to the student loan servicing industry, but also to all institutions that provide or service loans to the military, Petraeus said.
“Federal agencies will be vigilant about holding all financial institutions accountable for providing the protections that our service members have earned through their selfless service to our nation,” she added.
A 2012 CFPB report found that service members faced serious hurdles in accessing their student loan benefits, including the provisions of the Servicemembers Civil Relief Act that cap the interest rate on pre-existing student loans and other consumer credit products at 6 percent while the service member is on active duty, CFPB officials said. Servicers were not providing them with clear and accurate information about their loan repayment options.
The CFPB heard from military borrowers, including those in combat zones, who were denied interest-rate protections because they failed to resubmit unnecessary paperwork. These kinds of obstacles prevent service members from taking advantage of the full range of protections they have earned through their service to this country, officials said.
The CFPB has partnered with the Defense Department to create better awareness of the rights and options for service member student loan borrowers. A CFPB guide for service members who have student loans contains clear information on the various ways student loans can be repaid.
Officials noted that the CFPB began accepting student loan complaints in March 2012, and added that service members who have an issue with their servicers should submit a complaint to the CFPB.