The Consumer Financial Protection Bureau (CFPB) has fined Citibank $6.5 million due to illegal loan practices. For some Citibank student loan borrowers, the fine could result in payments from Citibank, amounting to $3.75 million. The remaining $2.75 million is a federal fine.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” said CFPB Director Richard Cordray in a statement. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Problems with Citibank student loan servicing
According to the CFPB, Citibank misled some of its borrowers about their bills, as well as charged late fees and extra interest.
The CFPB said Citibank failed to properly let borrowers know about their qualified student loan interest payments, leading them to miss out on important tax deductions.
The consent order also cited issues in which Citibank canceled some deferments for borrowers — even though they were eligible to postpone payments on their federal loans for up to six months.
“Many of these issues seem to affect those with federal loan payments from a program that ended in 2010,” said Jay Fleischman, a student loan lawyer.
“These are deferments students can take,” Fleischman continued, “and the government will pay interest on subsidized loans. If Citibank was getting rid of deferment on subsidized federal loans, borrowers might have been charged interest when it shouldn’t have been the case.”
The CFPB’s order gives Citibank 90 days to submit a plan for notifying borrowers harmed by their practices, as well as how the bank plans to issue credits.
Loan servicers and CFPB fines
Fleischman pointed out that these types of instances have become increasingly common in recent years. Complaints against student loan servicers are up, and the CFPB has been aggressive in going after lenders and servicers that don’t meet federal guidelines.
However, Fleischman worries that things could change in the future, especially after the current director, Cordray, leaves and is replaced by a President Trump appointee. “This administration has signaled it will be less aggressive against servicer and lender wrongdoing,” he said.
Others, though, see the CFPB as overreaching. Earlier this year, the Department of Education (DOE) ended an information-sharing agreement with the CFPB, saying the agency was too powerful.
Some members of Congress would also like to see more oversight for the CFPB, limiting its ability to levy fines against financial services companies.
Protect yourself against student loan servicers
The Citibank student loan program isn’t alone in making mistakes. “It’s important to understand your rights, and know what to expect,” said Fleischman. “That way, if you find an irregularity, you can call it out.”
With federal loans, you are much more likely to have help, said Fleischman. Rules around deferment and forbearance provide some protection to borrowers, who can point to specific policies and practices servicers might be disregarding.
“With private student loans, though, the only protections you get are in the promissory note,” said Fleischman. “You need to read that carefully to make sure the lender is living up to its end of the bargain.”
If something is wrong, whether it’s a federal or private loan, your first step is to talk to your student loan servicer. Get clarification on the fees charged, and ask for information about the qualified interest you paid. If that fails to resolve the problem, said Fleischman, take other action.
“Realize, though, that these actions won’t likely get you individual justice,” Fleischman said. “Instead, you might be part of a bigger settlement, like the current Citibank agreement.”
In order to get individual justice, no matter the type of student loans you have, Fleischman said you need to file an action in state or federal court. “Unfortunately that can get expensive,” he said. “You might need to find an attorney to work with you on a contingency basis, so you only pay out of your settlement.”
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