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Thursday, April 9, 2020

Trustee, U.S. Bank poke noses in CFPB's $21M student loan settlement

By Angela Underwood | Oct 17, 2017

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WILMINGTON, Del. (Legal Newsline) – Two financial agencies have filed motions to intervene in a federal agency's $21.6 million settlement with student loan trusts over allegations of illegal debt collection.

A motion to intervene was filed by Wilmington Trust Co. (WTC) in the U.S. District Court for the District of Delaware on Oct. 6 in Consumer Financial Protection Bureau v. The National Collegiate Student Loan Master Trust, et al. 

WTC is the owner trustee of the trusts and says it has declined to execute the settlement.

“The CFPB complaint seeks relief for various violations of the Consumer Financial Protection Act of 2010 resulting from the Trusts’ alleged use of false and misleading affidavits and improperly notarized affidavits in collection actions, filing of frivolous lawsuits, and efforts to collect time-barred debt,” according to the motion to intervene," the motion says.

"On July 5, 2017, after at least several months of negotiation with the United States Consumer Financial Protection Bureau (the CFPB) without WTC’s involvement, the Purported Owners directed WTC, as owner trustee on behalf of the Trusts (the CFPB Instruction), to execute a consent order proposed by the CFBP (the Consent Order).

"WTC declined to execute the consent order in light of the ownership dispute and because WTC, in reliance upon the advice of counsel, determined that the CFPB instruction was contrary to the trust agreements because the terms of the consent order would contravene the trusts’ indentures."

WTC stated that it "did not believe the proposed consent judgment has been validly executed" because it did not authorize McCarter & English LLP to execute documents on behalf of the trusts. Its motion states that McCarter signed the proposed consent judgment between the CPFB and the trusts.

An Oct. 10 opening brief made by the U.S. Bank National Association stated its role as successor special servicer to the trusts "is directly affected by the proposed consent and U.S. Bank's agreement to the proposed consent was neither solicited nor obtained by the CFPB or NCSLTs."

“At the outset, U.S. Bank wishes to emphasize that it shares the CFPB’s interest in ensuring that student loan collection litigation be conducted in a wholly lawful manner,” according to the motion. “This filing is not intended to address in any way the CFPB’s investigation or its election to take enforcement action.”

In its argument, U.S. Bank claims its responsibilities as the successor special servicer are limited. 

“Significantly, any direct servicing activities by U.S. Bank of delinquent and defaulted loans were expressly prohibited in the special servicing agreements,” according to the bank's motion.

Furthermore, special servicing agreements, according to the bank's motion, assure the special servicer is an independent contractor, thus not subject to the trusts' supervision. 

“U.S. Bank was not a party to the proposed consent or otherwise apprised of its terms in advance of the CFPB’s filing,” according to the motion, adding “U.S. Bank’s contractual obligations as successor special servicer would be directly affected by entry of the proposed consent.”

Ending its motion to intervene, U.S. Bank noted that neither CFPB nor NCSLT sufficiently considered U.S. Bank’s interests in the matter as the successor special servicer. 

“U.S. Bank’s interests as special successor servicer are affected by the proposed consent, will be impaired by the disposition of the motion to approve and are not adequately represented by an existing party in this action. For these reasons, and because its motion is timely, the successor special servicer respectfully requests that this court grant its motion to intervene," its motion stated.

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Organizations in this Story

Consumer Financial Protection BureauU.S. District Court for the District of Delaware