(CN) – Sallie Mae agreed to pay more than $60 million to settle claims that it charged military members excessive interest rates on their student loans, the federal government said Tuesday.
The deal aims to settle the first lawsuit involving student loans under the Servicemembers Civil Relief Act, or SCRA.
The 2003 amendment to the Soldiers and Sailors’ Civil Relief Act of 1940 helps protect service members by capping interest rates on student loans and even credit card debt at 6 percent while on active duty. It also allows military members to suspend or postpone some debt payments while they’re deployed.
The Justice Department’s lawsuit accuses Sallie Mae Inc. (now called Navient Solutions Inc.), SLM DE Corp. (now Navient SE Corp.) and Sallie Mae Bank of sidestepping the law by charging service members more than 6 percent interest.
In some cases, Sallie Mae also improperly obtained default judgments against members of the U.S. military, also in violation of the SCRA, according to Attorney General Eric Holder.
If approved, the settlement will require Sallie Mae to pay $60 million to compensate about 60,000 service members, some of whom were impacted by the violations nearly a decade ago, Holder said.
“By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable,” he said in a statement. “And it will not be tolerated.”
Sallie Mae will also be required to ask the three major credit bureaus to delete any negative credit information caused by the interest rate overcharges and default judgments.
Holder said the issue was brought to his attention by the Consumer Financial Protection Bureau, which had fielded several complaints from members of the armed forces.
“It is my hope that this groundbreaking settlement – and the actions the defendants will take to remedy the conduct at issue in this case – will spur the rest of the industry to move toward long-term solutions which guarantee that America’s soldiers, sailors, airmen, Marines, and Coast Guardsmen can always receive the protections and benefits to which they are entitled,” Holder said.
Sallie Mae settled a similar lawsuit Tuesday with the Federal Deposit Insurance Corporation.
Both settlements must be approved by a federal judge.
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