Sallie Mae $97 Million To Soldiers For Student Loan Fraud

Sallie Mae $97 Million To Soldiers For Student Loan Fraud

Sallie Mae Cheated Soldiers, now they have to pay! Over 60,000 active-duty soldiers could get some money back from lender Sallie Mae for overpaying on their student loans, the Department of Justice said Tuesday.

Taking advantage of Active DutyService Members is never a good idea, and it is definitely frowned upon by federal regulators. Even though these allegations on the presumed fraud were out in the open, Sallie Mae still managed to get it’s profitable contract renewed, leaving a lot of people shocked about this decision made by the Department of Education.

Related: Sallie Mae Cheated Members, Still got Contract Renewal

The Departments of Education and Justice, and the Federal Deposit Insurance Corp., announced this past Tuesday a sizable settlement against student loan servicers Sallie Mae and Navient for overcharging and imposing excessive fees to military members.

Earlier this year Sallie Mae, the country’s largest originator and servicer of student loans, spun off its loan servicing, loan management, and collections to a new company, Navient.

Related: Sallie Mae Splits

Federal authorities have announced that Sallie Mae and Navient had agreed to pay a possible combined sum of $97 million to settle charges filed in a lawsuit alleging that thousands of active duty military service members were charged an excessive amount of interest on their student loans.

The legal action, is the first of its kind filed against student loan owners and processors for alleged violations of the Servicemembers Civil Relief Act, and it involves around 60,000 active duty service members who were charged interest rates in excess of the maximum 6%.

Related: Sallie Mae Overcharged Active Duty Soldiers on Student Loans

The companies would have to pay $60 million in refunds to the approximately 60,000 servicemembers and a $55,000 civil penalty to settle the Justice and Education department’s portion of charges. The FDIC is requiring a payment of $30 million in refunds and $6.6 million in civil penalties.

Attorney General Eric Holder and Education Secretary Arne Duncan said the settlement involving Sallie Mae, is now waiting approval by a federal judge in Delaware.

Holder said the lenders engaged in “a nationwide practice” for nearly a decade that failed to provide military members the 6% rate.

“This alleged overcharging appears to have been the rule, rather than the exception,” Holder said. “According to an audit, excessive rates were charged to 93% of active-duty servicemembers who had loans owned or serviced by Sallie Mae.”

If approved, proceeds of the settlement would be distributed among the 60,000 members.

The government alleged that the lenders improperly obtained default judgments against servicemembers who were protected under the Civil Relief Act

As a result, the terms of the proposed deal require lenders to request that credit agencies delete any negative entries based on the interest overcharges and default judgments.

“This type of conduct is more than just inappropriate,” Holder said. “It is inexcusable. And it will not be tolerated.”

Holder said lenders cooperated with the inquiry and endorsed the settlement proposal.

“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, assistant director for the CFPB, says in a statement. “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 gave servicemembers the runaround and denied them the interest-rate reduction required by law,” Petraus said in a statement Tuesday. “This behavior is unacceptable. And it’s particularly troubling from a company that benefits so generously from federal contracts.”

“We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,” Navient President John Remondi said. “Over the past several years, we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.”

“We regret any inconvenience or hardship that our customers may have experienced,” Sallie Mae Bank said in a statement. “Initiatives are underway to prevent such errors from recurring and apply the clear regulatory guidance these orders now provide.”

In addition to the monetary settlement, Sallie Mae must abide by several provisions to ensure service members are protected in the future.

The company must request that all three major credit bureaus delete negative credit history entries caused by the interest rate overcharges and improper default judgments;
The company is required to streamline the process by which service members may notify Sallie Mae of their eligibility for SCRA benefits;
The company must provide a revised process that includes an SCRA online intake form for service members;
The company must make available customer service representatives specially trained on the rights of those in military service.