CFPB Wins in Suit Against Student Loan Servicer

By: Jason Ziegler, RBFL Student Editor

In the United States, student loan debt currently stands at an all-time high of approximately $1.5 trillion spread across 44 million borrowers. Student loans can be categorized as either federal or private. Unlike federal loans, which are subject to maximum fixed rates and have interest rates set by regulation, private loans are generally variable rates and do not have rates set by regulation. Prior to being named Navient Corporation, Sallie Mae was created by Congress to support secondary markets for student loans. Sallie Mae ended up becoming the largest lender and servicer of student loans in the United States.

On January 18, 2017, the Consumer Financial Protection Bureau (“CFPB”) sued Navient Corporation (“Navient”), Navient Solutions, Inc. and Pioneer Credit Recovery, Inc. for alleged predatory lending practices, claiming that it steered borrowers into forbearance rather than discussing income-driven repayment (“IDR”) plans. Navient filed a motion to dismiss CFPB’s claims on the grounds that CFPB lacks the authority to file lawxsuits against companies over alleged unfair practices, and that the agency’s very structure interferes with the president’s powers under Article II of the U.S. Constitution. The U.S. District Judge dismissed Navient’s claims noting that several courts had already examined the constitutionality issue and that CFPB isn’t outside the bounds of the Constitution. Navient also argued that because the president is limited in his ability to cut funding to the CFPB, the executive powers are violated by the CFPB’s control over its own budget. The Court here found that Congress is the one that creates the budget, not the president. Also, because the CFPB is controlled by the Consumer Financial Protection Act, legislators can change the funding rule when they need to.

In the same year that CFPB filed their suit against Navient, the Attorney General for Pennsylvania filed a separate suit against Navient as well. This lawsuit accused Navient of violating Pennsylvania and federal consumer-protection laws. Like the case against CFPB, Navient filed a motion to dismiss this case claiming that this case was preempted by the Higher Education Act. On July 27, 2020, the Court of Appeals for the Third Circuit rejected Navient’s motion to dismiss the case. This outcome is significant because this could become a trend that is most favorable to states and consumers in which states are allowed to sue student loan servicers under state consumer protection laws. Also, this brings forth an important issue that a state could likely bring an action against a company while it is being sued by the CFPB, thus shutting down any “copycat” claims.


Matthew A. Martel et al., United States: A New Frontier: Massachusetts Steps Up Its Focus On Student Loan Servicers, MONDAQ (Sept. 17, 2020, 8:14 PM), tes/financial-services/855034/a-new-frontier-massachusetts-steps-up-its-focus-on-student-loan-servicers.

NERA Economic Consulting, United States: Student Loans And Student Loan Asset-Backed Securities: A Primer, MONDAQ (Sept. 17, 2020, 7:18 PM), dstates/banking-finance/81108/student-loans-and-student-loan-asset-backed-securities-a-primer?signup=true.


Shearman & Sterling LLP, United States: District of New Jersey Upholds Securities Fraud Action Against Major Student Loan Servicer Based Upon Alleged Forbearance Scheme Harming Borrowers, MONDAQ (Sept. 17, 2020, 8:17 PM), s/securities/881100/district-of-new-jersey-upholds-securities-fraud-action-against-major-student-loan-servicer-based-upon-alleged-forbearance-scheme-harming-borrowers.

Kat Greene, CFPB Can Pursue Suit Over Navient’s Loan Servicing, LAW360 (Sept. 17, 2020, 11:13 PM),


Jillian Berman, Lawsuit against Navient can move forward, boosting efforts to regulate student-loan companies, MARKETWATCH (Sept. 17, 2020, 8:04 PM),



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