FDIC, SALLIE MAE SETTLE DECEPTIVE PRACTICES ALLEGATIONS RELATED TO STUDENT LOANS

FROM:  U.S. FEDERAL DEPOSIT INSURANCE CORPORATION 

The Federal Deposit Insurance Corporation (FDIC) today announced a settlement with Sallie Mae Bank, Salt Lake City, Utah, and Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.), subsidiaries of SLM Corporation and Navient Corporation, respectively, and herein collectively referred to as Sallie Mae, for unfair and deceptive practices related to student loans in violation of Section 5 of the Federal Trade Commission Act (Section 5) and for violations of the Servicemembers Civil Relief Act (SCRA).

This action results from an examination of Sallie Mae by the FDIC regarding Sallie Mae's compliance with federal consumer protection statutes, including Section 5 and SCRA, and a companion investigation by the Department of Justice (DOJ) related to the treatment of servicemembers. As part of the settlement, Sallie Mae stipulated to the issuance of Consent Orders, Orders for Restitution, and Orders to Pay Civil Money Penalty (collectively, FDIC orders). The FDIC orders require these entities to pay civil money penalties totaling $6.6 million, to pay restitution of approximately $30 million to harmed borrowers and to 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 SCRA.

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

Inadequately disclosing its payment allocation methodologies to borrowers while allocating borrowers' payments across multiple loans in a manner that maximizes late fees; and Misrepresenting and inadequately disclosing in its billing statements how borrowers could avoid late fees. The FDIC determined that Sallie Mae violated federal laws regarding the treatment of servicemembers (SCRA and Section 5) through the following actions:

Unfairly conditioning receipt of benefits under the SCRA upon requirements not found in the Act;
Improperly advising servicemembers that they must be deployed to receive benefits under the SCRA;
Failing to provide complete SCRA relief to servicemembers after having been put on notice of these borrowers' active duty status.

In addition to the payment of restitution to harmed borrowers and a civil money penalty, the FDIC orders require Sallie Mae to take affirmative steps to ensure that disclosures regarding payment allocation and late fee avoidance are clear and conspicuous, that servicemembers are properly treated under the SCRA, and that all residual violations be remedied to ensure compliance with applicable laws.

FDIC SETTLES WITH AMERICAN EXPRESS CENTURION BANK IN DECEPTIVE PRACTICES CASE

FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION 
FDIC Announces Settlement With American Express Centurion Bank for Unfair and Deceptive Practices 

Today, the Federal Deposit Insurance Corporation (FDIC) announced a settlement with American Express Centurion Bank, Salt Lake City, Utah, (Bank) for unfair and deceptive marketing practices related to credit card "add-on products," in violation of Section 5 of the Federal Trade Commission (FTC) Act.

This action results from a review of the Bank's credit card products by the FDIC and the Consumer Financial Protection Bureau (CFPB). As part of the settlement, the Bank stipulated to the issuance of a Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty (collectively, FDIC Order). The FDIC Order requires the Bank to pay a civil money penalty (CMP) of $3.6 million. The CFPB is also taking a parallel enforcement action against the Bank for the same practices and will assess a separate CMP of $3.6 million. Together, the FDIC and CFPB will require restitution of no less than $40.9 million to harmed consumers.

The Office of the Comptroller of the Currency (OCC) and the CFPB also announced actions against other American Express affiliated institutions for the same unfair and deceptive practices identified in those institutions. Collectively, these actions will result in restitution of approximately $59.5 million to more than 335,000 consumers.

The FDIC determined that the Bank violated federal law prohibiting unfair and deceptive practices by, among other things:

Misrepresenting to consumers the benefits and costs of its "Account Protector" add-on product. Consumers were led to believe that the benefits would continue for up to 24 months in the event of a qualifying life event, when in fact the majority of events had benefit periods of one, two, or three months. Consumers were also led to believe that if they purchased the product their monthly minimum payment would be cancelled in the event of a qualifying event. However, the benefit payment was limited to 2.5% of the consumer's outstanding balance, up to $500, which could be less than the minimum monthly payment.
Misrepresenting the terms and conditions of the "Lost Wallet" add-on product through telemarketing calls conducted in Spanish to consumers in Puerto Rico. American Express did not provide uniform Spanish language scripts to its customer service representatives for enrollment calls, and all written materials provided to consumers were in English.
Consumers were not informed during telemarketing calls or during the enrollment process for identity theft products that two steps were necessary to fully utilize credit monitoring and public records monitoring benefits. The second step was not completed by 85 % of consumers. These consumers were thus unfairly billed for benefits they did not receive.
In addition, the Order requires the Bank to take affirmative steps to correct its marketing and billing practices, and to ensure that all of the add-on products offered by the Bank are marketed and administered in compliance with applicable laws.