Washington Business Journal - 1:51 PM EDT Friday, April 27, 2007
by Neil Adler
Staff Reporter
Sen. Edward Kennedy, D-Mass., has requested information and documents from Sallie Mae and another student lender because of concerns about their collections process and the possible use of tactics prohibited by federal law and regulations.
Kennedy, chairman of the Senate Health, Education, Labor and Pensions committee, sent letters April 26 to Tim Fitzpatrick, CEO of Reston-based SLM (NYSE: SLM), commonly known as Sallie Mae, and Michael Dunlap, chairman and CEO of Lincoln, Neb.-based Nelnet (NYSE: NNI).
In the letter to Fitzpatrick, Kennedy wrote: "Specifically, I am concerned that several private lenders may be engaging in harsh and inappropriate tactics with regard to borrowers whose payments are overdue and or whose loans are in the collections process, tactics that are prohibited by federal law and regulations."
Kennedy says that his office has obtained information that Sallie Mae, which has agreed to be acquired by a private investor group for $25 billion, may have engaged in practices such as:
Attempting to collect debts not owed.
Firing employees who attempt to help borrowers obtain correct information about their loan status.
Instructing employees to give borrowers "the run around" rather than provide them with correct information on their loan status.
Intentionally sending loan payment notices to an incorrect address to force a borrower's account into default.
Sallie Mae will cooperate with Kennedy's request for information but doesn't like the way the inquiry has been handled so far, says company spokesman Tom Joyce.
Kennedy's office never contacted Sallie Mae about the senator's concerns, "even though we have been in regular contact with his staff," Joyce says. "In fact, the media received this letter before we did. It raises the question as to whether the facts are important in this inquiry, and whether the matter has been prejudged."
Sallie Mae's work, along with that of others in the student loan industry, has helped push default levels to "record lows" and assisted borrowers with keeping healthy credit records, Joyce says.
In Kennedy's letter to Dunlap, he wrote that his office received information indicating the company may have violated federal law and regulations by refusing to provide loan and payment history information to defaulted borrowers and inappropriately consolidating loans without the borrower's consent.
Nelnet officials couldn't be reached for immediate comment.
Source: http://washington.bizjournals.com/washington/stories/2007/04/23/daily53.html