Lawsuits against Navient likely to bring changes in student loan servicing

By Carrie Salls | Feb 2, 2017

HARRISBURG – Lawsuits filed by the federal Consumer Financial Protection Bureau and two individual states raising allegations tied to student loan servicing will most likely result in a new set of student loan servicing guidelines, regardless of the outcome of the litigation, according to Arant Boult Cummings LLP associate Julie Carter.

The CFPB’s lawsuit was filed on Jan. 18 in the U.S. District Court for the Middle District of Pennsylvania against student loan servicer Navient Corp., formerly part of Sallie Mae, and its Navient Solutions Inc. and Pioneer Credit Recovery Inc. units.

“Navient chose to shortcut and deceive consumers to save on operating costs,” CFPB director Richard Cordray said in a news release. “Too many borrowers paid more for their loans because Navient illegally cheated them.”

The attorneys general of Illinois and Washington also filed lawsuits against Navient.

“Navient has several potential defenses to the allegations in the complaints,” Carter told the Pennsylvania Record. “The current structure of the CFPB is in legal limbo, which could also have some direct or indirect effect on the case.”

Under one possible defense, Carter said Navient could question the lawsuit’s jurisdiction. She said it is not clear whether the CFPB’s attempt to file the case under general jurisdiction will be successful.

In addition, Carter said Navient quickly spoke out against the allegations raised in the complaint.

“As to the merits, Navient responded almost immediately after the lawsuits were filed with a press release and fact sheet that precisely addressed the factual allegations in the complaints,” Carter said. “Navient’s response sets out strong numbers about its servicing outcomes in support of its position that it has not acted illegally.”

According to Carter, Navient could also argue that the validity of the allegations does not matter because “the standards and laws that form the bases of the allegations were not crystallized and set out in a way that indicate Navient violated the law.”

Even with several possible defenses, Carter could not rule out the possibility of a settlement.

“The litigation will likely come down to the size of the dollar award sought by the bureau and the states, and the parties could potentially reach a settlement as to that amount,” she said.

Carter was not particularly surprised that the Illinois and Washington attorneys general joined the CFPB’s lawsuit, saying that it is common for states to jump on board when a federal agency files a lawsuit.

“It might make sense for the attorneys general to file suit for a variety of reasons,” Carter said. “Washington and Illinois may seek specific damages or other injunctive relief that may not be included in the CFPB’s suit. The timing suggests the states were prepared to take action.”

Still, Carter said the two states would be covered under any settlement reached as part of the federal agency’s lawsuit.

“A settlement with the CFPB would have nationwide effect regardless of whether Washington and Illinois filed their own lawsuits,” Carter said. “The allegations in the CFPB’s complaint pertain to loans nationwide, without regard to state lines.”

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Consumer Financial Protection Bureau Navient Corporation U.S. District Court for the Middle District of Pennsylvania Harrisburg Division

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