Sallie Mae Reaches Class Action Settlement Over Collection Fees

Sallie Mae Reaches Class Action Settlement Over Collection Fees

By Matt O’Donnell

Sallie Mae Inc. has agreed to a class action lawsuit settlement resolving claims it unlawfully tacked on a 25 percent collection fee to defaulted student loans. The proposed class action settlement will shave off $76 million in student debt owed by over 40,000 California borrowers, and will provide cash refunds of $40 to certain Class Members.

The Sallie Mae collection fee settlement will resolve a 2011 class action lawsuit accusing the lender of charging “unreasonable” collection fees of 25 percent on student loans that had gone into default. Sallie Mae had argued that the fees were not unreasonable because they were the fees Sallie Mae was required to pay collection agencies when turning over the defaulted loans. Plaintiffs in the class action lawsuit argued, however, that Sallie Mae breached its contract by imposing the fees at the time the loans were handed over – before Sallie Mae ever incurred them.

In total, Sallie Mae assessed nearly $117 million in these allegedly improper collection fees between 2006 and 2010, according to the class action lawsuit.

In a motion filed July 11, both sides asked the court to conditionally certify a proposed class of all persons in California who, from July 14, 2006 through May 31, 2013, were assessed and/or paid a Collection Cost Assessment in connection with a private education loan serviced by Sallie Mae.

Under the terms of the proposed class action settlement, the fees paid by these Class Members will be retroactively reduced to 8.75 percent at the time of charge-off, and will remain in effect for the life of the outstanding loan.

For borrowers who have paid off their loans, Sallie Mae will refund the difference between the amount of collection costs paid beyond the 8.75 percent rate and the amount that it wrote off in principal, interest and other fees, excluding collection costs. If the amount of collection costs paid in excess of 8.75 percent is less than the amount Sallie Mae wrote off, the borrower will get a $40 refund.

A hearing on the proposed settlement is set for August 1, 2013. Notices of the Sallie Mae class action settlement will be issued within 21 days, according to the motion. Top Class Actions will provide claim filing instructions as soon as a settlement website is established.

UPDATE: A federal judge preliminarily approved the Sallie Mae Collection Fee class action settlement. There is no claim filing process — Class Members will automatically receive settlement benefits unless they opt out. Learn more here.

The Sallie Mae Collection Fee Class Action Lawsuit Settlement is Angelo Bottoni, et al. v. Sallie Mae Inc., et al., Case No. 3:10-cv-03602, in the U.S. District Court for the Northern District of California, San Francisco Division.

All class action and lawsuit news updates are listed in the Lawsuit News section of Top Class Actions