Consumer regulator penalizes Citibank $6.5 million for misleading student borrowers
Those who were charged incorrect interest or late fees, paid an overstated minimum monthly payment, or received inadequate notices will get a share of refunds.
The Consumer Financial Protection Bureau (CFPB) has taken action against Citibank for failing to properly service student loans to borrowers, charging incorrect fees and undermining eligibility for tax deductions.
The CFPB claims Citibank misled borrowers into believing that they were not eligible for a valuable tax deduction on interest paid on certain student loans. The consumer bureau alleges the bank also incorrectly charged late fees and added interest to the balances of student loan borrowers who were still in school and eligible to defer their loan payments. There were also issues concerning how much these borrowers had to pay in monthly bills and a failure to disclose required information after denying requests to release loan cosigners.
Citibank has been ordered to pay $3.75 million in refunds, plus $2.75 million to the CFPB’s Civil Penalty Fund.
Those customers who were charged incorrect interest or late fees, paid an overstated minimum monthly payment, or received inadequate notices as a result of faulty servicing will receive a share of the $3.75 million.
Going forward, Citibank must hand over information regarding student loan interest paid, implement a policy to reverse erroneously assessed interest or late fees, and 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 a disclosure confirming that the credit reporting agency did not make the decline decision.
“Citibank’s servicing failures made it more costly and confusing for borrowers trying to pay back their student loans,” outgoing CFPB director Richard Cordray said.
“We are ordering Citibank to fix its servicing problems and provide redress to borrowers who were harmed.”
Citibank is one of the world’s biggest banks, managing over $1.4 trillion in total assets and providing a wealth of different services to customers, including credit cards, mortgages, personal loans and overseas transfers.
Late last year, a report released by the CFPB raised concerns about costly fees and risky features that can be attached to some college-sponsored accounts, resulting in hundreds of dollars worth of charges per year.
Many American colleges offer sponsored bank accounts for students, but being able to compare campus-approved accounts against regular banks and other educational institutions had been difficult, until recently.
Compare a range of different banking options and then select the best financial products for your situation.