Sallie Mae 2013 Annual Report Download - page 56

We are continuing to experience significant year-over-year increases in not only the numbers of requests
and investigative demands from various regulators, states attorney generals and administrative agencies, but also
in the depth and breadth of information being requested. The main drivers of the increase in regulatory inquiries
in 2013 are CFPB and states attorney generals investigative demands related to our business and those of others
with whom we conduct business. These increases in the number of inquiries and the volume of related
information demands are increasing the costs and resources we must dedicate to timely respond to these requests
and may, depending on their outcome, result in payments of additional amounts of restitution, fines and penalties
in addition to those described below.
Regulatory Matters
At the time of this filing, Sallie Mae Bank remains subject to a cease and desist order originally issued in
August 2008 by the FDIC and the UDFI. In July 2013, the FDIC notified us that it plans to replace the existing
cease and desist order on Sallie Mae Bank with a new formal enforcement action against Sallie Mae Bank that
would more specifically address certain cited violations of Section 5 of the FTC Act, including practices relating
to payment allocation practices and the disclosures and assessments of certain late fees, as well as alleged
violations under the SCRA. In November 2013, the FDIC notified us that the new formal enforcement action
would be against Sallie Mae Bank and an additional enforcement action would be against SMI, in its capacity as
a servicer of education loans for other financial institutions, and would include civil money penalties and
restitution. Sallie Mae Bank has been notified by the UDFI that it does not intend to join the FDIC in issuing any
new enforcement action. In September 2013 and December 2013, SMI also received Civil Investigative Demands
from the CFPB as part of its separate investigation regarding allegations relating to SMI’s payment allocation
practices and the disclosures and assessment of late fees.
With respect to alleged civil violations of the SCRA, Sallie Mae Bank and SMI are also separately
negotiating a comprehensive settlement, remediation and restitution plan with the DOJ, in its capacity as the
agency having primary authority for enforcement of such matters.
We have made and continue to make changes to Sallie Mae Bank’s oversight of significant activities
performed outside Sallie Mae Bank by affiliates and to our business practices in order to comply with all
applicable laws and regulations and the terms of any cease and desist orders, including in connection with our
pursuit of a strategic plan to separate our existing organization into two publicly-traded companies. We are
cooperating fully with the FDIC, DOJ and CFPB in response to their investigations and requests for information
and are in active discussions with each with respect to any potential actions to be taken against us. We could be
required to, or otherwise determine to, make further changes to the business practices and products of Sallie Mae
Bank and our other affiliates to respond to regulatory concerns.
As of December 31, 2013, we reserved $70 million for estimated amounts and costs that are probable of
being incurred for expected compliance remediation efforts with respect to the FDIC and DOJ matters described
above.
OIG Investigation
The Office of the Inspector General (the “OIG”) of the ED commenced an audit regarding Special
Allowance Payments on September 10, 2007. On September 25, 2013, we received the final audit determination
of Federal Student Aid (the “Final Audit Determination”) on the final audit report issued by the OIG on
August 3, 2009 related to our billing practices for Special Allowance Payments. The Final Audit Determination
concurred with the final audit report issued by the OIG and instructed us to make adjustment to our government
billing to reflect the policy determination. We have the right to appeal the Final Audit Determination to the
Administrative Actions and Appeals Service Group of the ED, and we have until March 24, 2014 to do so. We
continue to believe that our practices were proper, considering then existing ED guidance and lack of applicable
regulations on the method of billing Special Allowance Payments. It is not possible at this time to estimate a
range of potential exposure, if any, for amounts that may be payable by us in connection therewith.
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