CFPB Sues Nation’s Largest Student Loan Company in Connection With its Servicing and Collection of Student Loans

On January 18, 2017, the Consumer Financial Protection Bureau (“CFPB”) filed a Complaint for Permanent Injunction and Other Relief (“Complaint”) against the largest student loan servicer in the United States (“Company”). The Complaint asserts that the Company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act and its implementing Regulation V, and the Fair Debt Collection Practices Act based on unlawful acts and practices in connection with its servicing and collection of student loans.

Among the allegations contained in the Complaint, the CFPB contends that the Company failed to correctly apply or allocate borrowers’ payments to their accounts, steered struggling borrowers toward paying more than was required on their loans, obscured information regarding the enrollment recertification that borrowers enrolled in an income-driven repayment plan needed to complete annually in order to maintain their lower payments (resulting in the expiration of such plans for hundreds of thousands of borrowers), deceived private student loan borrowers about requirements to release their co-signer from the loan, and harmed the credit of disabled borrowers, including severely injured veterans, by making it appear as if those borrowers had defaulted on their student loans when they had not.

The CFPB also alleged that the Company, through a subsidiary – much of whose work relates to the federal loan rehabilitation program that allows federal student loan borrowers who are in default to effectively “cure” one or more defaulted federal loans – made illegal misrepresentations in relation to the availability of the program to borrowers in default. Specifically, the CFPB contends that the Company’s subsidiary misrepresented the effect of completing the federal loan rehabilitation program by falsely stating or implying (1) that doing so would remove all adverse information about the defaulted loan from the borrower’s credit report and (2) that the collection fees charged to borrowers would be forgiven upon completion of the program.

The CFPB seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties and other relief.

A copy of the Complaint is available here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Navient-Pioneer-Credit-Recovery-complaint.pdf.