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LEGAL NEWSLINE

Friday, March 29, 2024

Navient argument against CFPB: Lawsuit was unconstitutional, ratification pointless

Federal Court
Cordray

Cordray

SCRANTON, Pa. (Legal Newsline) – In light of the U.S. Supreme Court finding the structure of the Consumer Financial Protection Bureau unconstitutional, one of the agency’s targets is asking a federal judge to throw out the lawsuit.

Navient, the nation’s largest student loan-processor, filed a motion for judgment on July 10, some three years after the CFPB filed suit against it. The lawsuit claims Navient pushes forbearance on students struggling to pay back loans.

The company has claimed it is an effort to regulate its practices through litigation and that actual education agencies – and not the CFPB, which tracks financial institutions – should be in charge of any changes.

Navient is armed with a former CFPB lawyer who will testify against the agency, much to CFPB’s dismay.

Now added to its ammo is the Seila Law decision recently reached by the Supreme Court that said under the Obama-era creation of the CFPB, its director was placed in a position of power that left him or her accountable to no one – not even the President, who was unable to fire the director.

That was unconstitutional, SCOTUS ruled. Navient says it shows the CFPB never had constitutional authority to bring the lawsuit in the first place.

“Although Seila Law allowed the CFPB to survive and remanded the issue of whether the CFPB’s prior unlawful actions could be ‘ratified’ by a properly constituted agency, there has been no such ratification here,” the motion says.

“Nor could there be: binding Supreme Court and Third Circuit law dictates that any such ratification could not enable this suit to proceed because the statute of limitations has long since expired on the Bureau’s claims, and a post-hoc effort of ‘ratification’ by a properly constituted agency cannot revive the statute of limitations period.”

Four days after the motion, CFPB director Kathleen Kraninger tried anyway. She filed a declaration with the Pennsylvania federal court hearing the case notifying Judge Robert Mariani that she has ratified the decision to file suit made by Obama’s CFPB head, Richard Cordray.

It would be the second win in recent months for CFPB if Mariani grants its motion. It recently settled a class action lawsuit brought by teachers who were eligible for loan forgiveness for far less than what plaintiffs lawyers hoped for.

Their case was pared down to only one claim last year, and plaintiffs lawyers say they lost $5 million in the settlement.

Navient filed for summary judgment in the CFPB case in May, before the Seila Law decision.

Borrowers were not told about income-driven repayment, the CFPB alleged, but the company says every witness put forward during the long discovery process had been “repeatedly informed by Navient about the availability of IDR and other repayment options.”

“Unable to prove its claims under the applicable legal standards, the CFPB seeks to invent a novel and unsupported one,” the motion says.

“According to the CFPB, any isolated call with a borrower was unlawful if the representative did not engage in an elaborate matrix of CFPB-prescribed questions and answers before granting a request for forbearance benefits.

“The failure to run through the CFPB’s contrived Q&A on every call (which it labels ‘steering’) is not a coercive act.”

Navient’s motion seeks judgment on 11 claims made by the CFPB. It complains that the feds are attempting to impose new regulations through its litigation against Navient rather than going through a proper rulemaking procedure.

Part of that change would be requiring servicers to go through a question-and-answer process designed by the CFPB.

“(T)he CFPB seeks instead to discourage access to a federal prescribed benefit – forbearance – in favor of its preferred option, IDR,” the motion says.

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