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Education news and notes from Tampa Bay and Florida

Sallie Mae hit with civil rights lawsuit

4

January

It's been a bad start to the new year for college lending giant Sallie Mae.

Battered by investigations and financial woes in 2007, the company now faces a new challenge: angry minority students.

Tampa student Cathelyn Gregoire is one of two named plaintiffs in a possible class action lawsuit, accusing the company of "systemic discriminatory practices" in marketing student loans to minority applicants.

The suit, filed Dec. 17 in federal district court in Connecticut, alleges the company violated federal civil rights and lending laws by intentionally targeting higher-priced loans to students attending schools with high minority populations.

Martha Holler, a spokeswoman for Sallie Mae, said the company would vigorously defend itself against the "unfounded allegations in this baseless complaint."

But Christa Collins, the attorney going after Sallie Mae, is no rookie.

A managing partner in the Tampa firm of James, Hoyer, Newcomer and Smiljanich, she has made her reputation bringing down large companies accused of discriminatory practices. Last year she reached a national settlement with Allstate Insurance Co. over allegations of unfair pricing, and in 2002 she reached a $160-million settlement with MetLife Inc.

And Collins said she's got plenty of ammunition for her latest case.

"We've been contacted by hundreds of students or former students," she said.

In the lawsuit, Gregoire contends that her former school -- the International Academy of Design and Technology in Tampa -- applied on her behalf for a Sallie Mae private loan with a 7 percent interest rate in 2003 after she expressed interest in financial aid.

The lender denied her application following a credit review, but later urged her to reapply. In September 2003 it awarded her a $14,276 loan, "which she later found out contained a 6 percent supplemental fee" on top of the regular interest rate of 5.5 percent above prime rate, or 13.25 percent, according to the lawsuit. Her debt has since climbed to around $20,000.

But those terms were not disclosed to Gregoire until after the loan deal was consummated, the lawsuit said, claiming violations of the federal Equal Credit Opportunity Act and the Truth in Lending Act. It said Gregoire, an African-American, was charged higher rates and fees based on her race.

Another plaintiff, Sasha Rodriguez of Branford, Conn., said Sallie Mae is now charging 18.1 percent interest on two loans she took out to attend a New Hampshire college. At those rates, which she said were concealed by the lender, her initial debt of $19,500 climbed to more than $33,000.

Sallie Mae and other lenders had already been put on notice last summer that their marketing practices to some schools might constitute "redlining" -- charging higher rates based on race.

In testimony before Congress, New York Attorney General Andrew Cuomo said some lenders assign schools an interest rate range based on their overall loan default rate, and then assign specific rates to students based on their credit score.

Last year Cuomo led a spate of state and federal investigations into unethical or illegal lending practices at U.S. colleges.

Dozens of schools and lenders, including Sallie Mae, have signed on to a New York code of conduct and paid $13.7-million into a fund to educate students about financial aid. And last month Florida Attorney General Bill McCollum unveiled his own code, saying he would use it to push for higher lending standards here.

Sallie Mae, the nation's largest student lender, manages around $160-billion in student loans.

While much of its business revolves around federally-backed loans, the company recently said lower federal subsidies have prompted it to market its so-called private loans more aggressively. Those loans, around 17 percent of its portfolio according to the Wall Street Journal, are typically more expensive.

The company is also in court over the collapse of a $25-billion takeover effort by a group of investors including J.C. Flowers & Co., JPMorgan Chase and Bank of America.

That buyout fell apart last fall, a casualty of the increased Congressional scrutiny into federal student lending and the slumping credit market. But in October, Sallie Mae sued its would-be owners to collect a $900-million deal termination fee.

Tom Marshall, Times staff writer

[Last modified: Tuesday, May 25, 2010 9:31am]

    

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