The latest report from the Federal Deposit Insurance Corporation is putting pressure on both Sallie Mae and the US Department of Education to shed more light on their dealings in the federal student loan business for military service members. Specifically, Sallie Mae is being asked to explain the issues that led to the FDIC to threaten the company's banking subsidiary with unprecedented enforcement actions over its unfair and deceptive practices and discriminatory lending policies — and the FDIC wants to know why the Department of Education failed so spectacularly in its oversight duties.
According to Shahien Nasiripour of the Huffington Post, SLM Corp, more commonly known as Sallie Mae, only disclosed the enforcement actions this week, although the FDIC told the company of its findings last month. At the same time, the FDIC also informed the company that it intends to make public the accusations that Sallie Mae violated the Servicemembers Civil Relief Act, which prevents organizations from taking financial advantage of active-duty military personnel.
The Department of Justice, which enforces the servicemembers law, also is probing the company.
The expected enforcement action threatens to jeopardize Sallie Mae's lucrative contracts with the Education Department, according to federal officials and industry analysts. Sallie Mae has been awarded more than $300 million in federal contractssince 2009, federal data show, and its outstanding contracts include an agreement to service federal student loans. Its loan-servicing contract — up for a five-year renewal next June — requires the company to be in compliance with federal laws, such as the servicemembers law.
In light of the disclosures, education advocates are calling for the DOE to be more rigorous in its oversight. Freshman Massachusetts Senator Elizabeth Warren, long an advocate of tougher financial regulations on the student loan industry, said that the situation that allows companies like Sallie Mae to take advantage of America's servicemen and women can not continue.
Problems in student loan servicing may eclipse the issues that have plagued the home loan market, the Consumer Financial Protection Bureau has said. The Government Accountability Office estimates there were at least 15,000 instances of financial institutions failing to properly reduce servicemembers' mortgage interest rates under the military members law and more than 300 illegal foreclosures, according to Holly Petraeus, CFPB servicemember affairs assistant director.
Companies, including Bank of America and JPMorgan Chase, have paid tens of millions of dollars to settle federal claims that they cheated servicemembers on home loans.