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Sallie Mae Fined for Unfair and Deceptive Practices Involving Servicemembers


May 13 - The Department of Justice announced an enforcement action against Sallie Mae (also known as Sallie Mae Bank and Navient Solutions), the largest servicer of federal and private student loans, which was found to be systematically violating the legal rights of U.S. servicemembers. The FDIC also reached a settlement with the companies that addresses allegations of student loan servicing misconduct. 

Sallie Mae will owe $6.6 million in civil penalties, restitution of about $30 million to harmed borrowers, and will fund a $60 million settlement fund with the DOJ to provide remediation to servicemembers. The DOJ has also taken separate action against the entities with regard to violations of the Servicemembers Civil Relief Act.

The FDIC determined that Sallie Mae violated federal law prohibiting unfair and deceptive practices in regards to student loan borrowers through the following actio

The FDIC determined that Sallie Mae violated federal laws regarding the treatment of servicemembers (SCRA and Section 5) through the following actions:

Holly Petraeus, Consumer Financial Protection Bureau Assistant Director, Office of Servicemember Affairs, commended Attorney General Eric Holder, FDIC Chairman Martin Gruenberg, and the staff at the Department of Justice and FDIC for taking action to protect student loan borrowers.

“I have been concerned for some time about the way that military personnel are treated by their student loan servicers," said Petraeus. "The men and women serving this country should receive quality customer service and the legal protections afforded to them.  Instead, Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law.  This behavior is unacceptable.  And it's particularly troubling from a company that benefits so generously from federal contracts.

“The dedicated staff of the Department of Justice's Civil Rights Division has initiated a number of enforcement actions in recent years to pursue those who don’t fulfill their legal obligations under the Servicemembers Civil Relief Act (SCRA).  I applaud their actions, which have put millions of dollars back in the pockets of servicemembers.

“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. 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.”


A 2012 report from the CFPB found that servicemembers faced serious hurdles in accessing their student loan benefits, including the provisions of the SCRA which caps the interest rate on pre-existing student loans and other consumer credit products at 6 percent while the servicemember is on active duty.  Servicers were not providing them with clear and accurate information about their loan repayment options.  The CFPB has heard from military borrowers, including those in combat zones, who were denied interest-rate protections because they failed to resubmit unnecessary paperwork.  These kinds of obstacles prevent servicemembers from taking advantage of the full range of protections they have earned through their service to this country.

The CFPB has partnered with the Department of Defense to create better awareness of the rights and options for servicemember student loan borrowers. The CFPB also developed a guide for servicemembers who have student loans. The guide contains clear information on the various ways student loans can be repaid. The Bureau began accepting student loan complaints in March 2012. Servicemembers who have an issue with their servicers should submit a complaint to the CFPB.