Citibank To Issue $3.75M Student Loan Refund For Improper Lending Services

If you received a student loan from Citibank in the past, there's a chance you could be receiving a refund soon due to certain missteps made by the banking giant in relation to their lending practices with respect to student loans. The company will pay a total of $6.5 million, and $3.75 million of that is going to be issued to their affected customers as a refund.

Recently, the Director of the Consumer Financial Protection Bureau, Richard Cordray, retired from the bureau. Before he made his departure, he announced the Citibank settlement deal and made a statement regarding the failure of the bank's services and how those failures led to confusion and additional costs for their borrowers.

The official statement released by the Consumer Financial Protection Bureau claims that between 2006 and 2015, Citibank was responsible for at least four major loan-servicing issues. The first issue involved taking a tax deception on student loan interest paid throughout the tax year. Citibank apparently informed their borrowers that such a deduction wasn't allowed, when those borrowers indeed could have taken such a deduction. While this didn't technically benefit Citibank, it was certainly detrimental to the borrowers who failed to report that tax deduction and therefore received no credit for it that they rightfully earned.

The second issue involved loans issued to students who were still in school. Those loans were eligible for deferment because of the status of the student, so they shouldn't have been subject to late fees or additional interest. However, Citibank charged those accounts with late fees that were incorrect, and they imposed interest penalties for what they perceived as missed payments from accounts that were in legal deferment. This both benefits Citibank and hurts the borrower.

The third issue involved students who were classified with mixed-status accounts. For instance, some students might be paying back some loans while other loans remain safely in deferment. In those cases, Citibank claimed the necessary minimum payments for those accounts was higher than it should have been due to the deferment status of those other loans. This is essentially an extension of the second major issue above, so it seems Citibank had an issue with any loans that should have been in deferment. Again, this is a clear benefit to the company through a detriment to the borrower.

The fourth issue involved Citibank's reporting of information related to releasing a co-signer from a loan. Whenever a student requests that a co-signer be dropped from the loan, Citibank could either accept or reject the proposal. According to the Fair Credit Reporting Act, banks are required to release sufficient evidence to the borrower against releasing a co-signer if they refuse the proposal. Citibank failed to release this information to their borrowers. This would only benefit Citibank in a situation in which they had no legal evidence to support the need to maintain the co-signer, and it hurts their borrowers by not remaining transparent about their practices.

If you are a Citibank customer with a student loan, and you were charged incorrect late fees, fell victim to one of their faulty services, or were given overly large minimum payment requirements, you might be eligible for a refund from the $3.75 million that will be distributed to borrowers. Another $2.75 million will be paid by the bank directly to the Consumer Financial Protection Bureau as a fine that will be added to the agency's civil penalty fund.

As part of the settlement between the Consumer Financial Protection Bureau and Citibank, the company will have to alter some of its core protocols for dealing with private student loans. From now on, the bank will not only supply basic information regarding a refusal to release a co-signer, but they will provide more information than the basic required amount for increased transparency. Those who are eligible for a tax deduction on the paid interest from their student loan will receive additionally robust informational packets as well. Not only will all this information be released, but any late fees that were incorrectly charged will be reversed as well on top of the $3.75 million in refunds that will be issued. The bank will initiate these new policies and issue refunds as quickly as possible.

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