The Consumer Financial Protection Bureau (CFPB) recently took action against Citibank, N.A. for student loan servicing failures that harmed borrowers. Citibank misled borrowers into believing that they were not eligible for a valuable tax deduction on interest paid on certain student loans. The company also incorrectly charged late fees and added interest to the student loan balances of borrowers who were still in school and eligible to defer their loan payments. Citibank also misled consumers about how much they had to pay in their monthly bills and failed to disclose required information after denying borrowers’ requests to release loan cosigners. The Bureau is ordering Citibank to end these illegal servicing practices, and to pay $3.75 million in redress to consumers and a $2.75 million civil money penalty.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Citibank, based in Sioux Falls, South Dakota, is one of the world’s largest banks with over $1.4 trillion in assets. Citibank provides a variety of products to consumers, including credit cards, mortgages, personal loans, and lines of credit. For years, Citibank made private student loans to consumers and also serviced these loans. As a loan servicer, Citibank manages and collects payments, and provides customer service for borrowers. They are also responsible for providing borrowers with accurate periodic account statements and supplying year-end tax information. The servicer also keeps track of the borrower’s in-school enrollment status and is responsible for granting and maintaining deferments when appropriate.
For the student loan accounts that Citibank was servicing, the Bureau found that Citibank misrepresented important information on borrowers’ eligibility for a valuable tax deduction, failed to refund interest and late fees it erroneously charged, overstated monthly minimum payment amounts in monthly bills, and sent faulty notices after denying borrowers’ requests to release a loan cosigner. Specifically, the Bureau found that Citibank:
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bureau has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s order requires Citibank to:
The CFPB previously addressed many of these issues in a related 2015 enforcement action against Discover for servicing practices related to the loans it acquired from Citibank beginning in late 2010. Today’s enforcement action applies to the private student loans that Citibank retained, and continued to service, after that period.
Earlier this year the Bureau issued a consumer advisory warning student loan borrowers to watch out for similar servicing errors driven by faulty information about whether a borrower was enrolled in school. This advisory highlighted complaints from consumers about surprise late fees and other charges driven by inaccurate college enrollment information.
The Bureau’s consumer advisory is available at: https://www.consumerfinance.gov/about-us/blog/consumer-advisory-bad-information-about-your-college-enrollment-status-can-cost-you/
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
This article by was distributed by the Personal Finance Syndication Network.