Yesterday the Consumer Financial Protection Bureau (CFPB) and the Attorneys General for the states of Illinois and Washington announced the filing of three separate enforcement actions against Navient Corporation and related entities.

A copy of the CFPB complaint can be found here.

Named as defendants in the action are Navient Corporation, Navient Solutions, Inc., and Pioneer Credit Recovery, Inc. (a unit of Navient that specializes in collecting on defaulted loans). The lawsuit alleges that Navient has been in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act. The suit seeks redress for consumers harmed by Navient’s illegal practices. The CFPB is also seeking to keep Navient from continuing the illegal conduct described in the complaint, and to prevent new borrowers from being harmed. 

The CFPB reports that Navient (formerly part of Sallie Mae, Inc.) currently services the student loan accounts of more than 12 million borrowers, over half of them under its contract with the Department of Education. Altogether, it services more than $300 billion in federal and private student loans, which is more than one-in-four borrowers in the United States.

In the complaint, the CFPB alleges that Navient "failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans. Navient provided bad information in writing and over the phone, processed payments incorrectly, and failed to act when borrowers complained about problems."

The Bureau further alleges that Navient "systematically made it harder for borrowers to obtain the important right to pay according to what they can afford and that those practices made paying back student loans more difficult and costly for certain borrowers."

Among the allegations in 66-page lawsuit, the Bureau charges that Navient: 

  • Failed to correctly apply or allocate borrower payments to their accounts
  • Steered struggling borrowers toward paying more than they had to on loans
  • Obscured information consumers needed to maintain their lower payments
  • Deceived private student loan borrowers about requirements to release their co-signer from the loan
  • Harmed the credit of disabled borrowers, including severely injured veterans       

The Bureau also alleges that Navient, through its subsidiary Pioneer Credit Recovery, Inc.  (Pioneer), made illegal misrepresentations relating to the federal loan rehabilitation program available to defaulted borrowers. They allege that Pioneer misrepresented the effect of completing the federal loan rehabilitation program by falsely stating or implying that doing so would remove all adverse information about the defaulted loan from the borrower’s credit report.

Finally, the Bureau alleges that Pioneer also misrepresented the collection fees that would be forgiven upon completion of the program. 

Separately, but coordinated with the CFPB action, the states of Illinois and Washington filed their own enforcement proceedings.

The Illinois lawsuit can be found here.

The Washington lawsuit can be found here.

In the Illinois proceeding Sallie Mae Bank and General Revenue Corporation (another unit of Navient that collects on defaulted student loans) are added as named defendants.  In a statement on the Illinois Attorney General website, Attorney General Lisa Madigan commented:

“My investigation found Sallie Mae put student borrowers into expensive subprime loans that it knew were going to fail. Navient’s actions have led to student borrowers needlessly carrying billions of dollars in debt and the company must be held accountable.”

In the Washington proceeding only General Revenue Corporation is added as an additional named defendant.  A statement published yesterday on Washington Attorney General Bob Ferguson’s website notes:

“Today’s lawsuit is the culmination of a multi-year investigation by Washington, Illinois and the federal Consumer Financial Protection Bureau, involving depositions and interviews of Navient executives and the review of thousands of pages of company documents.” 

In a statement released by Navient yesterday the company responded to the CFPB action: 

“The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations. Navient welcomes clear and well-designed guidelines that all parties can follow, and we had hoped our extensive engagement with the regulators would achieve this objective. Instead, the suit improperly seeks to impose penalties on Navient based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.

Navient has a responsibility to its customers, shareholders, and employees to defend itself—publicly and in court—against this unsubstantiated, unjustified and politically driven action. We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers. We will vigorously defend against these false allegations and continue to help our customers achieve financial success.”

Navient also published a Fact Sheet that provides bullet point responses to many of the CFPB allegations. Among the responses:

Allegation: Navient didn’t do enough to help borrowers to complete reenrollment so they could stay enrolled in income-driven repayment plans.

Facts: Navient goes above and beyond Department of Education requirements to help borrowers complete government-mandated annual IDR reenrollment requirements.

Under Department of Education regulations, borrowers must reenroll annually in income- drive repayment by submitting updated information about their income and family size. This is not Navient’s requirement.

    • Navient sends multiple notices and communications to borrowers to help them complete reenrollment on time, meeting or exceeding all federal requirements.
    • Navient has pioneered supplemental approaches to support borrowers to reenroll on time. The approaches—evaluated and enhanced over time—go well beyond what is required by federal regulation or contract and have increased reenrollment rates.
    • Navient has also advocated for a streamlined process with policymakers, the Department of Education, Department of Treasury, and the CFPB, including a multi-year enrollment income-driven repayment solution. Numerous consumer advocates have joined in this call for a simpler process.
    • It is not in Navient’s financial or reputational interest for borrowers to fail to reenroll in IDR as those borrowers have higher rates of delinquency. In fact, servicers are paid less for past- due borrowers and higher delinquency rates are reflected in Direct Loan servicer performance measures.

insideARM Perspective

The timing of these filings is interesting and does lead one to wonder whether there is some political motivation. However, student loans has been a hot topic for some time, and Navient is one of the larger companies operating in the space.  Scrutiny by government agencies is not surprising. 

The complaints - which contain allegations only - should be compared against the responses in the above referenced Fact Sheet. Nothing has been proven at this stage of the proceedings.

Based on the initial response from Navient, insideARM suspects that these matters will not be resolved quickly. We will continue to monitor and report on further developments.

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