The bank will also pay a $2.75 million penalty to the Consumer Financial Protection Bureau
Some student loan borrowers will share $3.75 million in payments from Citibank for financial practices that forced them to make overpayments, a federal watchdog said Tuesday.
Citibank improperly misled borrowers into believing they were ineligible for a tax deduction on interest the paid on certain student loans, the Consumer Financial Protection Bureau said in a consent order.
The bank also incorrectly charged late fees and extra interest to borrowers who were still in school and eligible to defer repayments on their student loans, the consumer agency said.
Additionally, Citibank misled borrowers about their monthly bills and failed to disclose required information after the bank denied borrower requests to release loan co-signers.
« Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans, » Richard Cordray, the consumer bureau’s director, said in a statement issued with the announcement.
The bank, also hit with a $2.75 million federal fine as another part of a consent order reached with the consumer watchdog, said it was « pleased to resolve this matter. »
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Citibank is among the world’s largest banks, with more than $1.4 trillion in assets. The bank sold much of its student loan portfolio in recent years. However it still owned and serviced roughly 253,000 private student loans and federal family education loans valued at approximately $2 million, the consumer agency’s consent order said.
Current federal law authorizes some student loan borrowers to deduct as much as $2,500 in annual interest they pay on qualified education loans. However, Citibank made statements that suggested the borrowers had not paid qualified interest or were ineligible for the deductions.
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From 2010 to 2012, the bank did not receive federal forms required for the deductions from roughly 640,692 borrowers, roughly 85% of all borrowers who were making student loan repayments during that time period.
Although many of these borrowers were eligible for the interest-related tax deduction on their loan repayments, they did not receive it, the consent order said.
Student loan borrowers are eligible to postpone repayments until six months after they leave school. But Citibank erroneously canceled deferments for some borrowers based on inaccurate information about their enrollment status. The practice saddled borrowers with late fees and added interest.
The bank also overstated the minimum repayment amount owed by borrowers who had some loans that were in deferment status and others that were in repayment.
The consent order requires the bank within 90 days to submit a redress plan that details how it will notify and issue credits to student loan borrowers who were harmed by the practices.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc
