Minnesota soldier sues Citigroup for penalizing student loan

Written by Biloxi

Here is another military soldier abused by a major bank, and another bank that has violated the Servicemembers Civil Relief Act. First, it is JP Morgan Chase and then Bank of America. Now, it is Citigroup. Capt. Lyndsey Olson, member of the Minnesota National Guard, is suing the bank of penalizing military personnel by placing their loans into "mandatory forbearance." A "mandatory forbearance" under Citigroup would accrue unpaid interest to the soldier's loan, and then that interest is added to the loan balance when the soldier's active-duty period ends. Therefore, Citibank can collect interest on a larger sum of money from the soldier's loan.

Here is Ms. Olsen's story:

Olson said she contacted Citibank to have her interest rate, 9.25 percent at the time, capped at 6 percent. Citibank agreed to the rate cap, while placing her loan into forbearance and canceling the automatic payment feature on her loan. When she called to complain, Citigroup said that forbearance was required if she wanted to receive the lower interest rate.


As a result, Olson was forced to arrange loan payments from a combat zone and returned from Iraq with a larger debt burden than if she had not applied for relief under the SCRA. "Citibank is taking a population that is worthy of protection and turning it into a moneymaking scheme," she said.


Citibank calls a "mandatory forbearance" of loan a benefit:

Citibank argues that forbearance is a benefit because it relieves soldiers from making payments while they are on active duty. This gives service members "additional time and flexibility to repay their debts," the bank said in court documents.


Big problem for Citigroup as the bank doesn't understand the SCRA law for military soldiers with a student loan:

Reduced Interest: A member may reduce the higher interest rates the members pays for any financial obligation (credit card, loan, mortgage) individually or jointly entered into before active service to six percent (6%) if active service materially affects the member’s ability to repay the financial obligation. In addition, the SCRA prohibits the lender from accelerating the principal amount owed, and forgives (vs. defers) the excess interest payments that would have been due under the higher interest rate so that the member is not liable for the excess after he or she is released from active service. This reduced interest rate is effective only during the period of active military duty. Finally, this reduced rate does not apply to financial obligations (including refinancing or credit card balance increases) entered into or accrued while on active service, or to federal guaranteed student loans.

The question is will Citigroup jump on the band wagon like Chase and Bank of America and create new program for the troops?