HARRISBURG, Penn. – The country's largest student loan provider and two of its subsidiaries are embroiled in litigation with federal regulators and the attorneys general of Illinois Washington state over alleged failures in how it services its student loan borrowers.
At the center of the suit is Navient Corporation, the largest student loan provider in the U.S., and its two subsidiaries, Pioneer Credit Recovery Inc. and Navient Solutions Inc. The complaint by the federal Consumer Financial Protection Bureau alleges Navient violated the Consumer Financial Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act.
The CFPB filed its complaint against Navient on Jan. 18 in U.S. District Court for the Middle District of Pennsylvania. The case was assigned to Judge Robert D. Mariani. On the same day as the CFPB filing, two additional lawsuits were brought against Navient by the attorneys general of the states of Washington and Illinois, alleging violations of their state laws.
“These lawsuits are focused on Navient’s student loan servicing practices,” said Julie Carter, an associate at the Birmingham, Ala., office of the firm of Bradley Arant Boult Cummings LLP. “The CFPB and the states of Illinois and Washington have alleged various causes of action related to application of payments, communications related to income-driven repayment plans, handling of co-signer releases and credit reporting for certain borrowers.”
In a statement released by Navient, it called the allegations by the CFPB politically motivated and unfounded. It also claimed that the CFPB is singling them out and looking to apply servicing standards that are not in line with the Department of Education regulations.
“The CFPB gave Navient an ultimatum to settle by Inauguration Day or face suit,” said Carter. “Navient says the lawsuits are politically motivated based on their timing - the day before the shift in (presidential) administrations.”
The lawsuit may prove to be a turning point for student loan providers that are being placed under scrutiny by the CFPB since the Great Recession.
“Regardless of the outcome of the lawsuit itself, student loan servicers can expect more defined standards for the practices at issue in the lawsuits,” said Carter. “The causes of action in the lawsuits are based in part on practices the standards for which have not been clearly set through either rulemaking or through other administrative actions. Navient has stated that it welcomes reasonable, clear standards for student loan servicers to follow. It remains to be seen to what extent the lawsuit will directly result in more clearly established guidelines, but some clarification of what the CFPB may expect of servicers should result from either rulemaking or from the lawsuit itself.”
In its statement, Navient indicated it will defend against the CFPB's claims. It has produced a fact sheet that discusses the allegations that have been brought against it in the suits and defends its student loan practices vigorously through the information.
“While Navient intends to contest these claims in court and strongly defend its record on student loan servicing, a settlement may still be the ultimate outcome of these lawsuits,” said Carter.