Washington, DC: Citibank and The Student Loan Corporation have agreed to pay $2.3 million to settle a student loan class action lawsuit brought by a National Guard officer from Minnesota and thousands of other troops.
Under the Servicemembers' Civil Relief Act, service members are entitled to an interest rate reduction of up to 6%. Maj. Lyndsey M.D. Olson challenged the way Citibank administered the student loans of service members who were entitled that reduction.
Lyndsey will receive about $7,500 of the settlement, with the remainder going to qualified class members, which may number in the thousands. The amount each service member receives will vary between a minimum of $50 to in excess of $580, according to notices sent to service member informing them of the lawsuit.
The lawsuit was filed against Citibank (New York State), Citibank N.A. and the Student Loan Corporation. Citibank (New York State) was merged into Citibank N.A. in 2003. Citibank largely exited the student loan business in 2010 by divestiture, according to Citibank spokesman Mark Rodgers. The bank sold its interest in the Student Loan Corporation.
According to The Army Times, "Olson began her active duty in 2005. She later informed Citibank (New York State) of her active-duty status, asking to have her interest rate on her student loan reduced to 6 percent. The Servicemembers' Civil Relief Act requires lenders to reduce interest rates to 6 percent on loans that were entered into before a service member goes on active duty, as long as the service member provides notification and is materially affected by being called to active duty.
Citibank informed Olson that in order to have her interest rate reduced, her loan had to be placed into forbearance. When lenders put student loans into forbearance, the borrower stops making payments or makes reduced payments for a period of time, but interest continues to accrue. Under the SCRA, additional interest does not accrue. Olson contended that the bank charged her more than 6 percent interest and compounded that extra interest over the remaining terms of the loan."
Service members who qualify to be included in the lawsuit were those who, between July 13, 2004, and Nov. 30, 2011, were in military service and had one or more loans that qualified for the SCRA interest rate reduction and had their student loan placed into forbearance, and had provided written notice to Citibank of their military service.
