Navient Can’t Escape CFPB’s Student Loan Servicing Enforcement Action

8/7/2017 5:24 PM

A Pennsylvania federal court denied Navient’s motion to dismiss the bureau’s lawsuit, rejecting the student loan servicer’s argument that the CFPB did not have authority to sue.


In a 60-page decision issued late Friday, the U.S. District Court for the Middle District of Pennsylvania ruled that the Consumer Financial Protection Bureau can move forward with its suit against Navient Corp., alleging the company created obstacles for borrowers to repay their debts in violation of the law. 

U.S. District Judge Robert D. Mariani, a 2011 former-President Obama appointee, denied Navient’s motion to dismiss the CFPB’s case against it, saying the CFPB had authority to sue without first engaging in rulemaking to declare specific practices unfair, deceptive or abusive.  The district court found that “the plain language of the CFP [Consumer Financial Protection] Act does not impose a requirement on the Bureau to engage in rulemaking before bringing an enforcement action.”  In so ruling, the district court rejected Navient’s argument that the CFPB cannot impose penalties on industry actors for alleged UDAAP [Unfair, Deceptive, or Abusive Acts or Practices] violations by engaging in rulemaking through enforcement, “or that Navient lacked fair notice of what the CFP Act proscribes.” 

Judge Mariani also refused to accept Navient’s argument that the CFPB’s lawsuit against it should be tossed out because the CFPB’s structure is unconstitutional, rendering the suit unauthorized and void.   Instead, the district court concluded that the CFPB’s structure does not violate the Constitution, saying that it is “convinced that  . . . the Bureau’s structure is not constitutionally deficient.”   

In addition, the district court took issue with Navient’s argument that the law does not impose an affirmative duty on it to “provide individualized financial counseling to borrowers” since it is a loan servicer and not a fiduciary. But based on Navient’s previous public statements on its website to the contrary, the district court held that “Navient’s active conduct created a duty to act in accordance with their own statements.” 

Finally, the district court held that Navient is still obligated to not commit unfair, deceptive, or abusive acts in violation of the CFP Act even though it is governed and complies with comprehensive Higher Education Act rules, Department of Education (DOE) regulations, and contractual obligations with the DOE. 

In January, the CFPB sued Navient, alleging the nation’s largest servicer of student loans did not work in the best interests of its customers. Among other things, the CFPB accused the company of steering borrowers toward repayment plans that require them to pay more than necessary but lowered costs for the company and not allocating borrower’s payments as directed. 

In response, Navient filed a motion to dismiss in March, arguing that the lawsuit filed by the CFPB against it improperly “invents new rules from whole cloth and claims that Navient failed to comply with them in the past.” 

If you want to read more about the most recent significant cases and judicial decisions involving the credit and collection industry, ACA members can always find concise case summaries on ACA International’s Industry Advancement Program website.

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