Pictured above is a Citibank location.
The U.S. Consumer Financial Protection Bureau (CFPB) ordered Citibank to pay out $6.5 million in settlement. The fine comes on the heels of accusations that Citibank misled student loan borrowers when it came to their tax deduction benefits according to the CFPB.
The bank would pay a $2.75 million civil penalty as a federal fine. The remaining $3.75 million should go to affected student loan borrowers whose loans were serviced by Citi.
The investigation by the CFPB alleged that Citi incorrectly charged late fees and interest over the course of nine years from 2006 to 2015.
The CFPB also claims that Citi wrongfully informed borrowers about tax deduction eligibility on student loan interest payments. The federal government allows student loan borrowers to deduct up to $2,500 in interest payments on student loans.
In fact, the consent order concluded that many eligible borrowers working with Citi didn’t receive the correct forms for the deduction. According to the report, about 85 percent of student loan borrowers working with Citi did not file the tax forms, amounting to almost 650,000 borrowers.
Furthermore, the CFPB alleges that Citi overstated the required minimum monthly repayments and that it failed to share vital information to those who were trying to release their cosigners.
In the official press release, the CFPB's Richard Cordray commented that the bank's servicing procedures during this period made the student loans more complex and expensive for the average borrower attempting to make payments.
The consumer protection agency also stated the bank continued charging late fees to students who were still at university. The current federal law allows student loan takers to postpone repayment until half a year after the finish/leave school. However, based on incorrect information about the borrower's academic enrolment status, the bank wrongfully canceled deferments for some of them, resulting in late fees and additional interest.
Mark Costiglio, a spokesman for Citi, admitted the financial institution would be ''pleased'' to resolve the issue. Citibank is among the most recognizable international banks, managing over $1.4 trillion in assets. In 2010, the bank sold most of its student loan portfolio to Discover.
Citi has now three months to submit a redress plan. It should also inform the watchdog how it would notify the harmed student loan borrowers about the next steps.
image copyright © Mike Mozart