In Response to Lawsuit Brought by Student Debt Crisis, CFPB Reverses Course After Refusing to Supervise Loan Servicers In The Prior Administration
Washington, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) affirmed its authority to supervise large student loan servicers and stated that it “has been and will continue to conduct supervisory examinations” of large student loan servicers. The CFPB made the announcement in a letter to Student Debt Crisis in response to the group’s lawsuit challenging the Bureau’s unlawful refusal to supervise large student loan companies for the duration of the Trump administration.
The letter further stated that: “The Bureau is committed to using its tools for adequate oversight of student loan servicers in order to ensure compliance with federal consumer financial law and otherwise protect borrowers from unlawful practices.”
The CFPB’s announcement comes at a pivotal time, as federal student loan payments are set to resume on February 1 after more than 20 months of relief during the COVID-19 pandemic. On February 1, roughly a quarter of student borrowers will also face the added uncertainty of having a new servicer after several large student loan servicers exited the federal student loan market earlier this year. CFPB’s oversight of these companies is critical as payments are once again collected and borrowers seek resources and benefits to better manage their student loan obligations.
Under former Director Kathy Kraninger, the CFPB shirked its legal obligation to conduct oversight of large student loan servicers, including those that manage the Public Student Loan Forgiveness (PSLF) program. The Bureau incorrectly argued it lacked the authority to supervise these servicers. In today’s letter, the agency repudiated that argument, affirming that it “has continuously had authority to conduct supervisory examinations.” Nonetheless, the agency’s failure to supervise 80% of the student loan market left more than 40 million student borrowers with more than $1 trillion in student debt at a greater risk of being cheated by their loan servicers. To protect students across the country, Student Debt Crisis filed suit against Trump-appointed Secretary of Education Betsy DeVos and CFPB Director Kathleen Kraninger and their respective agencies in November 2019. Democracy Forward represents Student Debt Crisis with support from the Student Borrower Protection Center.
Following receipt of the CFPB’s letter today, the parties agreed to dismiss the case.
“We are thrilled to announce this important win for student loan borrowers. When we sued the Trump administration, it had abandoned borrowers and ignored student loan industry abuses even as advocates raised alarms about growing harm to individuals and their families. Now, it is time for the CFPB to do its job and protect borrowers again,” said Natalia Abrams, executive director of Student Debt Crisis. “CFPB oversight is needed now more than ever. In just two months, federal loan servicers will be tasked with restarting payments for tens of millions of people — an unprecedented situation. And, these companies are critical to the expanded effort to forgive student loan debt for public service workers. We look forward to working with federal consumer watchdogs to ensure the best outcome for student loan borrowers in the year ahead.”
“Today’s announcement is positive news for student borrowers. Under the Trump administration, the CFPB turned its back on tens of millions of students and their families across the country,” said Democracy Forward President and CEO Skye Perryman. “The Bureau disputed its clear legal authority and abdicated its obligation to conduct much-needed supervision of student loan servicers. We are honored to have represented Student Debt Crisis in filing suit to ensure the federal government follows the law and provides needed oversight of this trillion-dollar industry affecting millions of student borrowers.”
“During the Trump administration, the CFPB enabled Betsy DeVos to obstruct justice and put millions of borrowers at risk. With today’s news, student loan borrowers can rest assured that the nation’s consumer watchdog once again has their backs,” said Mike Pierce, Executive Director at the Student Borrower Protection Center and a former student loan industry regulator at the Consumer Financial Protection Bureau. “Thanks to the hard work of our partners at Student Debt Crisis and Democracy Forward, the CFPB is reaffirming its commitment to doing its job independently, standing up for borrowers, and following the law.”
Learn more about the group’s lawsuit here.
Democracy Forward is a nonprofit legal organization founded in 2017 to litigate challenges to unlawful government action on behalf of organizations, individuals, and municipalities. The organization has taken 650 legal actions and reversed dozens of harmful policies. Democracy Forward is expanding its work, building on its success to confront unlawful threats to democracy and social progress.
Student Debt Crisis is a non-profit organization centering the needs and voices of borrowers and partnering with allies, to impact public policy and end the student debt crisis. SDC works directly with borrowers to help them navigate the loan repayment system and advocates for lasting and meaningful change. It leads a people-powered movement representing over 2 million supporters.
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.
Student Debt Crisis