SCRANTON, Pa. (Legal Newsline) – Though its structure was found to be unconstitutional, the Consumer Financial Protection Bureau is arguing old decisions can be fixed through the process of ratification as its case against the nation’s largest student loan servicer heads toward trial.
The agency’s authority came into question when the U.S. Supreme Court ruled this year that its director position was designed in a way that kept it from being accountable to anyone – including the President – because the director couldn’t be fired without cause.
Navient Corp., which has chosen to battle the CFPB rather than settle allegations that it misled individuals struggling with student loans about the benefits of forbearance, brought its argument in the U.S. District Court for the Middle District of Pennsylvania.
But on Sept. 4, the CFPB notified Judge Robert Mariani of two other decisions that held ratification of previous agency decisions in the wake of the SCOTUS ruling were valid.
In Los Angeles, a judge wrote “Any constitutional deficiency regarding the removability issue at the time the complaint was filed was cured by the Supreme Court severing the removal provision from the rest of the organic statute, coupled with the Director’s July 9 ratification of the action.”
The CFPB also cited New York judge Kenneth Karas, who in August ruled for the agency in a dispute with a debt-collection lawyer who has spent three years and $80,000 fighting a demand for records. That lawyer and the New Civil Liberties Alliance are appealing.
In the Navient case, the company made its argument against the “ratification” of the Consumer Financial Protection Bureau’s lawsuit against it. After the CFPB’s structure was found unconstitutional earlier this year by the U.S. Supreme Court, director Kathleen Kraninger filed an affidavit ratifying the case, which began in 2017.
It wasn’t valid, Navient argues, because the statute of limitations has expired on CFPB’s claims.
“Because Director Kraninger could not have instituted this lawsuit on July 9, 2020, based on the expiration of the statute of limitations, she also lacked the power to ratify the suit,” a reply memorandum in the U.S. District Court for the Middle District of Pennsylvania says.
“Thus, the ratification came ‘too late in the day to be effective,’ and the suit must be dismissed.”
Navient 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 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.
Navient’s motion seeks judgment on 11 claims. 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.