Facing Lawsuit, CFPB Remains Ambiguous About Its Authority to Examine Federal Student Loan Servicers

Student Debt Crisis, Democracy Forward Demand Director Kraninger Protect the 45 Million Student Borrowers at Risk

Los Angeles, C.A. — Student Debt Crisis, represented by Democracy Forward and with support from the Student Borrower Protection Center, forged ahead with its suit against the Consumer Financial Protection Bureau (CFPB) for refusing to supervise federal student loan servicers. The CFPB’s failure frustrates its mandate under the Dodd-Frank Act to serve as an independent consumer watchdog that protects the United States’ 45 million student borrowers. In the face of this lawsuit, CFPB Director Kathleen Kraninger delivered vague assertions to Congress about the CFPB’s supervisory authority and its plans to conduct a joint examination with the Department of Education of the loan servicers at some uncertain time in the future. But these general statements do not resolve the legal violations at the heart of this lawsuit, as the CFPB argues. As Student Debt Crisis’ new court filing states, “These statements are no substitute for a full administrative record.” The new filing also rebuts the Trump administration’s argument that CFPB’s decision to cede supervisory authority over the industry it is tasked to regulate cannot be challenged in court — and shows why this lawsuit should proceed from procedural arguments to a review on the merits.

“Director Kraninger and the CFPB have been all talk and no action. Because of our suit, the CFPB has reversed course in words, acknowledging it does indeed have supervisory authority over large student loan servicers. But it is not enough for the CFPB to merely acknowledge its authority,” said Democracy Forward Senior Counsel Michael Martinez. “The Bureau must do its job and protect tens of millions of student borrowers from abusive student loan servicers as the law requires. It cannot cede this responsibility to someone else.”

“The CFPB has a clear mission: to protect consumers from predatory business practices. For Americans with student loan debt, that means combating the harm caused by federal student loan servicers. The CFPB has abandoned these efforts and, in doing so, abandoned its mission to protect student loan borrowers,” said Student Debt Crisis Executive Director Natalia Abrams. “We echo the voices of our 1.3 million supporters in urging the federal consumer watchdogs to hold bad-acting student loan servicers accountable.”

“For more than two years, the CFPB has offered excuse after excuse for its failure to protect borrowers, instead kowtowing to Betsy DeVos’s scheme to obstruct justice,” said Mike Pierce, Policy Director at the Student Borrower Protection Center and a former student loan industry regulator at the Consumer Financial Protection Bureau. “This latest filing shows that our partners at Student Debt Crisis and Democracy Forward will hold CFPB accountable for carrying out its mission and following the law. Student loan borrowers deserve nothing less.”

The CFPB’s pattern under the Trump administration proves that the agency changed its policy on supervising large non-bank loan servicers:

  • The Department of Education under Secretary Betsy DeVos has objected and continues to object to CFPB supervision over federal student loan servicers
  • Under then-Acting Director Mick Mulvaney, and followed by Director Kraninger, CFPB announced its new policy not to supervise federal loan servicers, wrongly asserting that it has authority only over student loans owned by private creditors, which account for less than 20% of student loan debt
  • The CFPB has not examined federal student servicers since Mulvaney’s announcement of this policy change

Because of the Bureau’s unlawful policy change, the vast majority of student loan servicers have been free to operate without the CFPB’s statutorily mandated oversight and the resulting incentive to comply with consumer financial law. That has left tens of millions of student borrowers with over $1 trillion in student loan debt at a higher risk of being cheated by their loan servicer and has harmed groups like Student Debt Crisis whose mission it is to assist student borrowers.

In February — after facing sustained legal, congressional, and public pressure — the Education Department and the CFPB reinstated a legally-required Memorandum of Understanding (MOU) that coordinates information sharing between the two agencies to facilitate cooperation in resolving student borrower complaints. But the reinstatement of that MOU — one of two required — fulfills only part of CFPB’s legal obligations. It has not yet executed a supervisory MOU with the Department of Education. Although CFPB has now backed away from its assertion that it lacks supervisory authority over large loan servicers, it has yet to fulfill its duty to supervise those servicers.

Among other responsibilities, student loan servicers collect loan payments and advise borrowers on resources and benefits to better manage their student loan obligations. In recent years, many lawsuits have been filed against student loan servicers alleging widespread misconduct, miscounted payments, unnecessarily prolonged repayment, and growing debt burdens. This includes lawsuits targeting the administration of the Public Service Loan Forgiveness (PSLF) program, which allows dedicated public servants to discharge their loans after years of service. Many teachers, nurses, social workers, firefighters, and members of the armed forces depend on PSLF.

The Trump administration has made its lack of interest in protecting the more than 45 million Americans saddled with a collective $1.6 trillion in student loan debt clear. Most recently, the administration failed to prevent the unlawful seizure of the federal tax refunds of thousands of student borrowers in violation of the CARES Act.

The filing was submitted on June 10 in the U.S District Court for the Central District of California. Read the full filing here.

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Democracy Forward is a nonprofit legal organization that scrutinizes Executive Branch activity across policy areas, represents clients in litigation to challenge unlawful actions, and educates the public when the White House or federal agencies break the law.

Student Debt Crisis is a 501(c)(4) nonprofit advocacy organization working to fundamentally reform the way higher education is paid for in America. It is the goal of Student Debt Crisis to educate borrowers about their repayment rights while advocating for structural reform.

The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.

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Charisma Troiano
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