By Jonathan Stempel and Douglas Gillison
Sept 12 (Reuters) - A U.S. regulator on Thursday banned
Navient (NAVI) from servicing federal student loans, excluding
the company once known as Sallie Mae from a market it once led,
and ordered it to pay $120 million for years of student lending
failures.
The U.S. Consumer Financial Protection Bureau said the ban
would prevent Navient (NAVI) from servicing federal direct loans, and
from directly servicing or acquiring most loans under the
Federal Family Education Loan Program.
CFPB Director Rohit Chopra told reporters his agency was
"closing the book" on Navient (NAVI), saying the company "harmed
millions of borrowers across the country."
The CFPB accused Navient (NAVI) of steering borrowers into delaying
loan repayments even if they qualified for affordable repayment
plans based on their incomes, causing them to pay more in
interest, because it was cheaper and simpler.
It also faulted Navient (NAVI) for making mistakes in processing
payments, and misleading borrowers about their rights.
The payment includes $100 million in restitution, and a $20
million civil fine.
Navient (NAVI), based in Herndon, Virginia, said in a statement
it disagreed with the CFPB allegations, but that the settlement
"puts these decade-old issues behind us" and was a "positive
milestone in our transformation of the company."
In January 2022, Navient (NAVI) reached a
$1.85 billion settlement
with 38 U.S. states and Washington, D.C. to resolve charges
it made predatory loans that borrowers struggled to repay.
Navient (NAVI) said it no longer serviced or purchased federal
student loans, having in 2021 transferred its contract to
service government loans to a third party, and in July begun
outsourcing the servicing of federally subsidized private loans.
In afternoon trading, Navient (NAVI) shares were up 6.2% at
$15.57.
Chopra told Reuters in an interview that while Navient (NAVI)
had been taking steps to move away from its past, Thursday's
enforcement action ensured it would stay out of the business.
"They will need to transform their business because they
will not be able to creep their way back into the student loan
industry again," he said.
The settlement resolves a CFPB lawsuit filed in Scranton,
Pennsylvania in January 2017, and requires a judge's approval.
Navient (NAVI) was the largest U.S. student loan servicer when the
lawsuit began, handling more than $300 billion of federal and
private loans for over 12 million borrowers, the CFPB said.
(Reporting by Jonathan Stempel in New York and Douglas Gillison
in Washington; Editing by Chizu Nomiyama, Franklin Paul and
Diane Craft)