Citibank will pay $6.5 million for sloppy moves it allegedly made while servicing private student loans.
Former Consumer Financial Protection Bureau Director Richard Cordray announced the settlement before his scheduled departure from the bureau last week. “Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” he said in a statement.
According to the CFPB’s statement, Citibank committed four sins against student loan borrowers from 2006 to 2015:
- It misled borrowers into thinking they couldn’t take a tax deduction on the interest they had paid on some of their student loans.
- It charged incorrect late fees and interest to loans that were eligible for deferment because they were still in school.
- It overstated minimum payments for mixed-status borrowers, those who are paying back some loans but have others in deferment.
- It didn’t give the borrower the information required under the Fair Credit Reporting Act when it rejected requests to release a co-signer.
Under the settlement, Citibank will pay $3.75 million in refunds to customers who were charged late fees, overcharged for minimum payments or charged unnecessary interest, or who were victims of other faulty servicing practices. Citibank will also pay a $2.75 million fine to the CFPB’s civil penalty fund.
The settlement also requires Citibank to make changes to the way it manages student loans. The servicer will provide further information to borrowers who were denied a co-signer release and to those who were eligible for a tax deduction for the interest they paid. A new policy will reverse any fees made in error, the statement noted.
Lisa Rowan is a senior writer and producer at The Penny Hoarder.
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