Student loan company Sallie Mae and its partner Navient will soon be forced to pay out millions in restitution and penalties to more than 60,000 military families who took out student loans. The lawsuit came after it was found that Sallie Mae was charging active duty military members illegally high interest rates.
Sallie Mae and Navient have come to an agreement with the US Department of Justice for a $60 million settlement in the midst of accusations that they charged military members high interest rates on their student loans.
According the government lawsuit, Sallie Mae has taken advantage of military members by charging them an interest rate greater than 6%. According to the allegations, In an independent lawsuit against Sallie Mae and Navient, the Federal Deposit Insurance Corp. presented another settlement of $30 million in repayment to military students due to the company maximizing consumer late fee charges. There will be another $6.6 million fine in civil penalties, reports Fox News.
The lawsuits and settlements materialized almost eight years after Congress passed the Military Lending Act (MLA). This act put a cap on what lenders could charge for interest rates on specific loans, writes Kelley Holland for CNBC News. Some of these specific loans include certain payday loans or tax refund anticipation loans to military members.
Lenders, such as Sallie Mae, in direct violation of the MLA law,continued selling loans to members of the military who are not under the MLA. In late 2013, the Consumer Financial Protection Bureau sent out brand new guidelines to its officials to assist them in finding violations of the MLA Act. Holland quotes the US Attorney General Eric Holder as saying:
“We are sending a clear message to all lenders and servicers who would deprive our service members 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.”
The lawsuit was the Justice Department’s first against owners and servicers of student loans for violating rights of service members. The settlement has been filed in federal court in Delaware and is awaiting a judge’s approval.
The two companies have set aside more than $73 million in case there are more lawsuits, writes Shahien Nasiripour for the Huffington Post. The lawsuit amounts, which could grow by the time the expected settlements are finalized, come all the more swiftly for the Department of Education as it continues to endure pressure from Senate Democrats and student advocates to suspend or eliminate its loan servicing contract with Navient, which is Sallie Mae’s former loan servicing sector for its suspected criminal acts. Some are predicting that federal bank regulators may require Sallie Mae’s bank to delay its business doings with Navient.