This week’s Department of Justice fraud “catch of the week” goes to student loan giant Sallie Mae and its former loan-servicing arm, Navient Solutions. On Tuesday, the companies agreed to pay nearly $100 million to settle allegations that they violated the Servicemembers Civil Relief Act (SCRA) by charging members of the military excessive interest rates and late fees on student loans. See DOJ press release.
Specifically, the government charged that from as far back as 2005, Sallie Mae violated the rights of servicemembers by imposing interest rates above the maximum 6 percent rate allowed by the SCRA. According to the government’s complaint, Sallie Mae also extracted excessive late fees and took improper legal action against soldiers who fell behind on their loan payments. The government estimates that roughly 60,000 servicemembers were impacted by Sallie Mae’s alleged misconduct.
Under the settlement, Sallie Mae will pay $60 million in restitution to the affected servicemembers. The company will pay an additional $30 million in refunds and a $6.6 million fine to settle related charges brought by the Federal Deposit Insurance Corporation. In addition to the financial payout, Sallie Mae must also request that the three major credit bureaus delete negative credit history entries caused by the interest rate overcharges and improper legal judgments. It must also simplify the process for servicemembers going forward to prove their eligibility for the protections afforded under the SCRA.
This represents the government’s first action against owners and servicers of student loans for violating the rights and protections of military servicemembers under the SCRA. In extracting such heaving fines from Sallie Mae, the government was clearly trying to send a strong message that it will not tolerate this kind of fraud against the members of our military. Attorney General Eric Holder in fact said exactly that in his public statements promoting the settlement: “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.”
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