The Consumer Financial Protection Bureau (CFPB) announced Tuesday (Nov. 21) it has taken enforcement action against Citibank for what the government watchdog said were failures in student loan servicing that hurt borrowers.
According to a press release published by Consumer Finance, the CFPB contends Citibank misled borrowers by making them think they were ineligible for a tax deduction on interest paid on student loans. What’s more, the CFPB asserts the bank incorrectly charged late fees and added interest to the loan balances of borrowers, though they were still in school and eligible to defer student loan payments.
On top of that, the CFPB said Citibank misled consumers about monthly bills and didn’t disclose information when it denied borrowers’ requests to release their cosigners. Citibank will have to pay $3.75 million to consumers and a $2.75 million civil money penalty to right the wrongs.
“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 the press release. “We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
For the student loans that Citibank was servicing, the CFPB found the bank misrepresented information about a tax deduction, failed to refund interest and late fees that were charged incorrectly, overstated monthly minimum payment amounts in the monthly bills it sent out and sent faulty notices after turning down requests for loan cosigner releases.
According to the government watchdog, federal laws allow some borrowers to deduct up to $2,500 in student loan interest each year, but statements made by Citibank implied they didn’t pay qualified interest or that they weren’t eligible for the tax deduction. As a result, the borrowers didn’t see the tax break though they could have benefited from it.
The CFPB’s order requires Citibank to provide accurate information regarding student loan interest paid and implement a policy to reverse erroneously assessed interest or late fees. It also requires the bank provide borrowers who were denied a cosigner release with their credit scores, the phone number of the credit reporting agency that generated the credit report and disclosure language confirming the credit reporting agency did not make the decline decision.