PHILADELPHIA (Legal Newsline) - A federal appeals court will not stand in the way of the Consumer Financial Protection Bureau as it targets student loan trusts.
Finding the suit was timely and the trusts are "covered persons" under the Consumer Financial Protection Act, the U.S. Court of Appeals for the Third Circuit ruled March 19 against the trusts, which are accused of using lawsuits to collect from those with student loans.
The 15 trusts purchased more than 800,000 student loans from their original lenders and use deceptive means to collect, the CFPB feels. They used companies to oversee collection efforts that included lawsuits brought in the name of the trust.
Relevant to the Third Circuit's decision was a U.S. Supreme Court ruling that found the CFPB's structure unconstitutional, since its director could not be removed without cause - even by a new president who wanted to install his or her own director.
That gave rise to arguments that actions taken by the CFPB while it was unconstitutionally structured should be voided, unless the agency went through a ratification process for those actions.
And that brought into question whether, when ratified, the CFPB had missed the statute of limitations for suing the trusts.
"Here... the Trusts claim that an unconstitutional provision violating the separation of powers caused them harm," the Third Circuit wrote.
"But a mere allegation that the unconstitutional provision inherently caused them harm is insufficient. There must be something more.
"For example, if the CFPA suggested 'any link whatsoever between the removal provision and claimant's case,' then the Trusts may be entitled to some relief."
And even though they hired servicers to pursue collection lawsuits, the trusts still "engaged" in collecting debt or servicing loans, making them subject to the CFPA, the court ruled.
The Third Circuit noted that an agreement the trusts entered into with each other states their purpose is "to engage" in acquiring student loans, servicing those loans and engaging in other activities "required in connection with conservation of the Trust Property and Distributions to Owners."
"Thus, the agreement itself states that the Trusts 'engage' in these activities, which include consumer financial products or services," the court wrote.