FTC puts student lenders on notice by citing misleading ads at SoFi
SoFi has agreed to settle federal charges that it misled borrowers about how much they could save by refinancing their student loans. The charges were issued by the Federal Trade Commission, which warned other student lenders to steer clear of similar violations.
The commission voted 5-0 on Monday to issue the administrative complaint and accept the agreement with SoFi. The company, which agreed to stop exaggerating potential savings, was not required to pay a civil penalty.
According to the FTC, SoFi over the past two years has inflated — at times doubling — estimates of the average borrower's savings from student loan refis. The San Francisco company, which in one ad claimed that SoFi customers save an average of $22,359, did so, in part, by excluding from its calculations borrowers who refinance their loans with longer terms and pay more over the lifetime of their loans, the agency said.
Additionally, the FTC charged SoFi with failing to tell borrowers when they would actually pay more by refinancing their loans. For instance, the company directed preapproved borrowers to a web page where they would be told how much they would save from different loan options such as variable or fixed rates; borrowers who would have paid more for a given option were told that they would break even.
In a statement, Commissioner Rohit Chopra called SoFi’s advertising “deceptive." He also urged state and federal regulators to work more closely together on cases involving violations of consumer financial protections.
“Ideally, SoFi would pay civil penalties for violating the law. Due to limitations in the FTC’s authority, the agency cannot seek civil penalties in matters like these,” Chopra said. “However, the Consumer Financial Protection Bureau and state attorneys general would be able to seek penalties from SoFi under existing federal law.”
“In future matters where we are unable to obtain monetary remedies, we should carefully consider whether partnering with other law enforcement agencies can lead to better results for consumers and deter bad actors from violating the law,” Chopra said.
In addition to filing a formal complaint against SoFi, the FTC urged other student lenders in a letter to review their advertisements and remove unsubstantiated claims.
News of the settlement comes as SoFi looks to turn the corner on a rocky period. The company’s current CEO, Anthony Noto, took the helm in February, following the resignation last year of founder Mike Cagney during a sexual misconduct scandal.
“We have always been committed to giving our current and prospective members clear and complete information with which to make smart financial choices, and are pleased to have this matter resolved,” a spokeswoman for SoFi wrote in an email.
Under Cagney’s leadership, SoFi filed an application with the Federal Deposit Insurance Corp. for a banking charter that would allow the company to accept consumer deposits. That application was later scrapped amid the scandal surrounding former CEO’s resignation.
In an interview with American Banker earlier this year, Noto did not say whether SoFi will revive its bid but said it remains an option.