The Consumer Financial Protection Bureau on Tuesday ordered Citibank to pay $6.5 million in consumer relief and penalties for student loan servicing failures.
The CFPB said in a consent order that Citi erroneously canceled deferments for some borrowers based on inaccurate information and then incorrectly charged late fees and interest on the loans while the students were still enrolled in college. After discovering that deferments had been terminated in error, Citi failed to refund late fees and added interest payments to loan balances, the agency said.
“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.”
The CFPB ordered Citi to pay $3.75 million in redress to consumers and a $2.75 million civil money penalty.
In 2010, Citi sold its student loan business to Discover, and the CFPB ordered Discover in 2015 to pay $18.5 million for student loan failures. However, Citi retained and continued to service a portion of its private student loan portfolio.
"We are pleased to resolve this matter," said Mark Costiglio, a Citi spokesman.
Earlier this year, the CFPB warned student loan borrowers to watch out for surprise late fees and other charges based on inaccurate information about whether students were still enrolled in college.
The CFPB said Citi also misled borrowers about the ability to deduct up to $2,500 in student loan interest on their taxes. Citi suggested on its web site and in periodic account statements that borrowers were not eligible for the qualified interest deduction, the CFPB said.
The bureau also said Citi overstated the minimum monthly payment due for some "mixed-status borrowers," who had multiple student loans with Citi, some of which were in repayment while others were deferred.
When some consumers asked that a cosigner be released and the loan be placed in the borrower's name only, Citi made a determination based on the borrower's credit report and credit score. When Citibank denied releasing a cosigner from a loan, the bank failed to provide the borrower with all of the information required under the Fair Credit Reporting Act, the CFPB said.