The following article was co-authored by Matthew Adams
The efforts of Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger have gone a long way in reversing egregious Obama-era actions that plagued the agency, helping to make it more transparent, accountable, and friendly to consumer choice.
However, while these efforts should be applauded, there remains unfinished business that must be taken care of — chief among them the flawed lawsuit levied by the CFPB against the finance company Navient.
The lawsuit against Navient, a servicer of student loans for both private lenders and the federal government, was launched in January 2017, just two days before the Inauguration of President Donald Trump. Not only did the lawsuit give the appearance of being rushed through before a change of leadership, it soon looked even weaker when the primary allegations of the suit were shown to be overblown or outright false.
In the suit, the CFPB argued that Navient had "systematically and illegally fail[ed] borrowers at every stage of repayment" by misleading them and steering them towards forbearance — a loan status where payments are temporally suspended but where interest continues to accrue—instead of other repayment options such as income-based repayment. The suit aimed to provide "appropriate restitution" to those "consumers harmed by [Navient’s] unlawful conduct."
In January of this year, Navient filed for summary judgment, accusing the CFPB of failing to provide proof of the claims it made in the lawsuit. The CFPB then filed a legal brief defending its suit in March. Last month, Pennsylvania’s Clerk of Court chose to unseal the complete legal brief which shines light on the weakness CFPB’s case.
Included in the CFPB’s legal brief was a chart used by Navient staff when helping borrowers choose their best option for repayment. Despite CFPB allegations that Navient pushed forbearance above all else, the chart actually places forbearance at the bottom of the list, after extended repayment, graduated repayment, income-based repayment (IBR), income-contingent repayment (ICR), income-sensitive repayment (ISR), and deferment.
The chart states in bold white lettering, "Forbearance should not be considered until all other options have been exhausted." From a business perspective, this makes sense when considering that the Department of Education pays student loan servicers significantly less for accounts in forbearance than those in other repayment plans.
Beyond this, the documents indicate that the CFPB had actually cherry picked evidence in the case. Writing in Legal Newswire, Colin Froment pointed out that "According to the brief, Navient claims that the CFPB filed its complaints before the bureau collected and thoroughly analyzed all the documents needed." This builds on revelations during litigation where Navient asked the CFPB to identify specific borrowers who were harmed by their business practices.
The CFPB used its immensely flawed consumer compliant database to produce fifteen witnesses who alleged they were hurt by Navient. As it turns out, when Navient had the chance to examine records of these specific witnesses, it showed that Navient hadn’t done anything to mislead or intentionally harm these borrowers. In fact, at least one witness had lied to Navient about her income to become eligible for other repayment options.
Alas, none of this evidence has discouraged Sen. Elizabeth Warren, D-Mass., architect of the CFPB from her days as an academic, from continuing her crusade against the company. Last month, Warren sent a letter to U.S. Dept. of Education Secretary Betsy DeVos urging her to cut the Department of Education’s contract with Navient due to the company’s purported "decade-long record of terrible servicing practices."
Responding to Warren’s attack, Navient President and CEO Jack Remondi wrote to Secretary DeVos on Nov. 9:
Sadly, the letter recycles disproven Consumer Financial Protection Bureau allegations. Even after nearly six years of investigation and false claims, the CFPB has not identified even one borrower to support claims of "steering" away from an income-driven repayment (IDR) plan into forbearance. That is because there was no policy and no practice to do so.
Navient has also said that it goes well beyond the Department of Education’s student loans servicing standards and their business practices are consistent with the Consumer Data Industry Association’s guidance.
As noted by American Enterprise Institute resident fellow Jason Delisle, "You need to understand the context of all of this, and once you understand the context, it doesn’t look like the CFPB has much of a case so far."
While headlines around student loans capture attention for good reasons, it’s important to sort fact from fiction. With such a severe lack of evidence, the CFPB should drop the case entirely and move forward with actions that truly help consumers — including student borrowers — by lifting barriers to innovation and facilitating more financial choices.
John Berlau is a senior fellow at the Competitive Enterprise Institute (CEI). He is the author of the book "Eco-Freaks." Read more reports from John Berlau — Click Here Now.
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