Corus Bankshares in Chicago is vowing to fight a federal lawsuit that it says will discourage banks from lending to students.
The U.S. Justice Department sued Corus last week, alleging that the $2.3 billion-asset company had made fraudulent insurance claims for thousands of defaulted student loans. The lawsuit, which seeks more than $35 million of damages, came after a five-year investigation of Corus' student loan servicing procedures.
Robert J. Glickman, Corus' chief executive officer, admitted that some employees made errors in servicing some loans, but he said the lawsuit goes too far.
"To be besmirched in this way is extremely offensive," he said. "We work very hard to do the right thing."
The Justice Department investigation and lawsuit stemmed from a Corus report to the Department of Education in 1994. The company acknowledged that some employees had lied about making calls to students who were delinquent on their loans, Mr. Glickman said.
Federal law requires banks to call delinquent borrowers before claiming insurance compensation for a guaranteed loan. In Corus' case, however, some employees had written down that they called the students, but the bank found no evidence the calls were ever made.
Corus offered to pay a $500,000 penalty, Mr. Glickman said, but the Department of Education rejected the offer and instead spent five years reviewing the case.
The investigation revealed that Corus employees falsified collection records for thousands of loans, worth $11.8 million overall, the lawsuit alleges. In many cases, notes in the company's files, such as dates that collection calls were made, did not match what Corus submitted on its insurance claims.
Corus knew some insurance claims "were false or fraudulent at the time they were submitted," the Department of Justice alleges.
The lawsuit also accused Corus of understaffing its student loan servicing division as its portfolio grew from $88.5 million in September 1988 to $297 million by Sept. 30, 1994. The company put "unreasonably high quotas" on employees trying to make collections on defaulted loans, the lawsuit said.
Mr. Glickman said many discrepancies in the files are immaterial, and he denied allegations that the company's student loan department was understaffed and overworked.
"This was not a little department for the bank," he said. "We are very proud of our record in the student loan business."
Furthermore, Mr. Glickman asserted, the government sued Corus to show other banks that it is strictly enforcing student lending rules. To avoid Corus' fate, some banks may stop participating in the loan guarantee program, he said.
"I suppose (the Justice Department) would say they're making an example of us," he said.
Representatives of both the Justice and Education departments declined to comment on the case.
However, a source familiar with both departments and the lawsuit against Corus said "there is no evidence whatsoever" that Mr. Glickman's company is being singled out. Both departments have a long history of vigorously investigating fraud cases, said the source, who asked not to be named.
Government investigators "get on a crusade when corners have been cut," he said.