Sallie Mae Takes Some Blows in S.F. Federal

(CN) - Federal judges left Sallie Mae reeling this week by refusing to dismiss claims that it overcharged on student loans and approving a settlement of similar claims.

In one San Francisco case, Tina Ubaldi and Chanee Thurston hope to represent a class against Sallie Mae, SLM Corp. and SLM PC Student Loan Trust 2004-A.

The third amended complaint accuses Sallie Mae of charging excessive late fees and interest rates on private education loans. Ubaldi and Thurston say they thought the loans were made with Stillwater National Bank in Oklahoma, but the U.S. Department of the Treasury has since confirmed that Sallie Mae is the actual lender.

Sallie Mae and its co-defendants had claimed that the claims under California law fail because the loans fall under Oklahoma law under the choice-of-law provisions.

U.S. Chief Magistrate Judge Elizabeth Laporte disagreed, citing the plaintiffs' allegations that Sallie Mae is the de facto lender and services the loans.

"Plaintiffs' primary theory in this case is that despite the terms of the loan documents, Sallie Mae is the de facto lender of the student loans at issue, and banks such as Stillwater simply rent their charters to Sallie Mae so it can avoid California law," the Monday decision states.

"If plaintiffs' de facto lender allegations are true, then Oklahoma does not have a substantial relationship to Sallie Mae or plaintiffs or the loans," Laporte added. "There is a factual dispute regarding the identity of the actual lender. In light of this dispute, the court cannot find on a motion to dismiss that there is a substantial relationship between Oklahoma and the parties and loans."

This ruling came on the heels of another San Francisco magistrate granting preliminary approval of a settlement for a class that Sallie Mae allegedly charged collection fees of 25 percent on student loans.

Angelo Bottoni, Paul Roberts, Tracie Serrano and Shawnee Silva took out private loans to attend the California Culinary Academy in San Francisco between 2002 and 2004. Each ended up defaulting on their loans, which were sent to third-party collection agencies. They allege that Sallie Mae added a 25 percent collection charge based on their loan balances, then turned around and attempted to collect the principles, the interest and the 25 percent charge, according to their complaint.

The parties reached a settlement agreement in private mediation sessions under the guidance of retired federal judge Layne Phillips.

Under the proposed settlement, Sallie Mae is limited to charging class members 8.75 percent collection costs. All amounts that have already been allocated to collections costs in excess of 8.7 percent will be reallocated to the principle, interest or other fees under the terms of the promissory notes, according to the order signed Friday by U.S. Magistrate Judge Laurel Beeler. Those who have already paid their debt entirely will receive refund checks.

"In sum, the court finds that viewed as a whole, the proposed settlement is sufficiently fair, adequate and reasonable such that preliminary approval of the settlement is warranted," the 12-page decision states.

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