Sallie Mae Faces Multistate Probe - Analyst Blog
21 Febbraio 2014 - 10:55PM
Zacks
SLM Corporation (SLM) – also known as Sallie
Mae – is being investigated by a coalition of state prosecutors
related to its student loan practices. The probe is led by
Illinois’ Attorney General, who is reportedly examining all of
Sallie Mae’s practices, including servicing and collections related
to whether the beleaguered student lender used anti-borrower
practices.
Notably, Sallie Mae is the major U.S. lender of student loans,
apart from the Department of Education. The student lender is also
the leading servicer of student debt. Therefore, Federal and state
governments are increasing the scrutiny of Sallie Mae as they are
concerned about the practices used by it when collecting monthly
student loan payments or pursuing bad debts.
The regulators investigating the company’s adherence to federal
consumer protection laws include The Department of Justice (DOJ),
Federal Deposit Insurance Corp. (FDIC) and Consumer Financial
Protection Bureau (CFPB). Sallie Mae has set aside $70 million to
cover the expected settlements with FDIC and DOJ.
Under provisions of the Dodd-Frank Act, federal regulators are
tightening control to restrain malpractices of lenders and aid
borrowers so that they may decrease their debt. Therefore,
regulators are scrutinizing Sallie Mae’s process of servicing
borrower loans and its dealing with borrowers, as they attempt to
repay loans.
According to the CFPB, common complaints against lenders include
erroneous payment processing and failure to modify loans.
Grievances against practices of lenders like Discover
Financial Services (DFS), Wells
Fargo & Company (WFC) and JPMorgan
Chase & Co. (JPM) are also rampant.
According to Huffington Post, nearly 40 million Americans are
collectively having about $1.2 trillion in student loans. Thus,
there is rising concern among U.S. policymakers that excessively
indebted borrowers will be able to spend, save or invest much less
due to their student loan burden. This will result in weakened
economic growth for years to come.
Notably, in Nov 2013, the FDIC declared its plans to slap charges
on Sallie Mae for violating federal laws. The student lenders
process of disclosing and charging fines as well as allocating
borrowers’ payments is questionable, according to the regulatory
body. Further, in Dec 2013, the CFPB initiated a similar probe.
We believe that increased scrutiny, in particular by state
authorities, could raise costs for the company. Further, action by
federal financial regulators could disrupt Sallie Mae’s strategic
plans to split the company. In the wake of these investigations,
regulators may reject or otherwise hamper the restructuring of the
company.
Sallie Mae currently carries a Zacks Rank #3 (Hold).
DISCOVER FIN SV (DFS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
SLM CORP (SLM): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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