Sallie Mae has told shareholders that federal regulators were expected to penalize the company for violations of a federal law that offers special borrower benefits to members of the military.
The Federal Deposit Insurance Corporation notified Sallie Mae in July that it planned to take action against the company related to violations of the Servicemembers Civil Relief Act, among other laws, according to Sallie Mae's second-quarter financial statement. The law allows members of the armed services to receive an interest-rate reduction on loans taken out before active-duty service and offers them deferrals, principal reductions, and forgiveness, in some cases.
Sallie Mae did not know what penalties the FDIC might impose. Last October the Consumer Financial Protection Bureau (CFPB) released a report that said that loan servicers were making it difficult for members of the military to get access to benefits under the Civil Relief Act. The report, based on complaints filed with the consumer bureau, as well as input from town hall meetings and forums, said borrowers in the armed forces often received incomplete or inaccurate information from their loan servicers, and faced roadblocks when trying to obtain benefits.
In a written statement, a spokeswoman for the company said, "We've invested a lot in our compliance efforts, but we understand some concerns persist, and we realize that the bar is getting higher. We will do what it takes to get this right under the enhanced standards of the new environment."
In another case related to members of the military, last month it was announced that U.S. Bancorp will repay $3.2 million to service members to resolve CFPB claims that it misled those who took part in an auto lending program. The bank's partner, Dealers' Financial Services of Lexington, Ky. will repay $3.3 million.
The two companies failed to properly disclose costs associated with repaying auto loans made to service members under U.S. Bancorps Military Installment Loans and Educational Services program, CFPB Director Richard Cordray said in a statement announcing the settlement.