FOR IMMEDIATE RELEASE
WEDNESDAY, NOVEMBER 25, 1998
TDD (202) 514-1888
NEW ORLEANS BANK PAYS $6.1 MILLION TO SETTLE STUDENT LOAN CASE
WASHINGTON, D.C. - The Department of Justice today announced that Whitney National Bank of New Orleans has paid $6.1 million to settle claims that it failed to complete its collection efforts and document them before filing default claims on federally guaranteed student loans.
Assistant Attorney General Frank Hunger of the Civil Division said the United States settled the claims with the bank under the False Claims Act and other laws, and Whitney today paid the government $6.1 million. From the late 1970's to 1992, Whitney made and serviced more than $20 million in federally guaranteed student loans under the Department of Education's Federal Family Education Loan (FFEL) program. Through the FFEL program, students can finance their education through low interest loans, which the Department of Education guarantees in the case of default.
Although regulations require FFEL lenders like Whitney to complete and document required collection efforts before filing default claims on the loans, Whitney failed to conduct such "due diligence." Once a lender falsified its collection efforts on a particular loan, that loan loses its federal guarantee and the Department will no longer pay interest or an interest subsidy to the lender.
Whitney conducted an internal investigation, finding that between 1987 and 1992 its employees (1) were not making the required "due diligence" phone calls; (2) were falsifying telephone logs to include fictitious calls, and (3) were back-dating collection letters to borrowers. Whitney reported these violations to the FBI which, with the Department of Education's Office of Inspector General, conducted an investigation largely corroborating Whitney's findings.
"Lenders who make federally guaranteed loans must comply with the regulations governing those loans," said Hunger. "In this case, student loan-related costs were passed on to taxpayers when they were in fact Whitney's obligation. When student loan lenders take advantage of the program by evading their servicing and collection responsibilities, it undermines these programs designed to help Americans get ahead."
"We are pleased that Whitney brought these allegations to our attention and that we have been able to resolve them without litigation," Hunger said.
The matter was handled by the Department of Justice and the Office of General Counsel for the Department of Education, with the assistance of the United States Attorney's Office in New Orleans.