Student loan | Sallie Mae to Pay $96.6 Million Over Military Student Loans - NBC ...

Sallie Mae to Pay $96.6 Million Over Military Student Loans - NBC ...

Posted: 13 May 2014 02:55 PM PDT

By Kelley Holland

Attorney General Eric Holder and Education Secretary Arne Duncan on Tuesday announced a lawsuit and proposed settlement with Sallie Mae over its practice of charging illegally high interest rates on student loans to military service members. Under the terms of the settlement, Sallie Mae will pay $60 million in restitution to about 60,000 service members.

Image: Attorney General Holder and Education Secretary Arne Duncan Announce Action To Protect Military From Unfair Lending Practices

Chip Somodevilla / Getty Images

Attorney General Eric Holder (R) and Education Secretary Arne Duncan announced that the Justice Department has reached a $60 million settlement with Sallie Mae after it was discovered the student loan giant charged roughly 60,000 military service members excessive interest rates.

The enforcement action, which the Attorney General said was the first of its kind under the Servicemembers Civil Relief Act, came as Sallie Mae also reached a settlement with the FDIC over its practices with student loans to military service members. Under that agreement, Sallie Mae will pay $36.6 million in penalties and restitution.

The settlements come eight years after Congress passed the Military Lending Act, or MLA, which capped interest rates on certain loans, like some payday loans or tax refund anticipation loans, to military service members.

Lenders, however, have continued to market loans to service members that are not covered under the MLA, and the Consumer Financial Protection Bureau in late 2013 issued new guidelines to its examiners to help them identify violations of that act.

"We are sending a clear message to all lenders and servicers who would deprive our service members of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable," Holder said in a prepared statement.

In addition to the financial settlement, Sallie Mae is required to ask all three credit bureaus to delete negative credit histories service members had as a result of the unfair lending, and to simplify the process for service members to receive the interest rate reductions they deserve in the future.

First published May 13 2014, 2:41 PM

Kelley Holland

Kelley Holland is a CNBC contributor and longtime business journalist who has covered everything from municipal bonds to management, major banks and MBA programs.

She created and wrote a monthly management column, "Under New Management," for The New York Times. Prior to writing her column, she was a business editor for The Times with responsibility for weekend business news and more. Earlier, she was an editor at Business Week, where one of her cover stories helped the magazine win a National Magazine Award for general excellence.

... Expand Bio