By Benjamin Goad - 05/13/14 02:48 PM EDT
Sallie Mae has agreed to pay $60 million to reimburse thousands of U.S. military members who the lending giant allegedly overcharged for their student loans.
The settlement accompanies a Justice Department lawsuit brought Tuesday under the Servicemembers Civil Relief Act (SCRA), which caps interest rates on student loans for military members at six percent.
The settlement money is to be divided between loan recipients whose rights were violated, with the amounts varying depending on the details of each case, officials said. The lawsuit was the first ever brought by the government under the 2003 SCRA.
“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,” Attorney Gen. Eric Holder told reporters. “And it will not be tolerated.”
The reimbursement money is expected to reach as many as 60,000 victims, with some of the violations dating back a decade, Holder said.
The case was referred to the Justice Department by the three-year-old Consumer Financial Protection Bureau (CFPB), which was formed in response to predatory lending practices and other financial industry actions seen as helping cause the 2008 economic recession.
Sallie Mae did not formally admit fault in the case, though officials said the company cooperated with the Justice Department’s investigation.
The company, now known as Navient Solutions, will also pay a $55,000 civil pemalty to the Justice Department, according to a statement issued by the firm's chief executive later Tuesday.
“We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,” Navient CEO John F. Remondi said. “Over the past several years we have implemented changes in our procedures and training programs to prevent these mistakes from happening again."
Education Secretary Arne Duncan said his agency is conducting a separate probe into whether Sallie Mae violated the terms of its contract with the federal government. If that is found to be the case, Duncan said the Education Department would weigh a broad array of penalties.
He would not rule out the possibility that the company’s contract would be terminated altogether.
“Everything is on the table,” Duncan said.
This story was updated with additional information at 5:58 p.m.