A new CFPB Student Loan Lawsuit accuses Navient Corp. of misleading borrowers, a Pennsylvania federal judge ruled Friday, rejecting the nation’s largest student loan servicer’s contention the suit should be tossed because the CFPB itself is unconstitutional.
U.S. District Judge Robert D. Mariani eviscerated Navient’s contentions that the agency lacks the authority to file lawsuits against companies over alleged unfair practices, and that the agency’s very structure interferes with the president’s powers under Article II of the U.S. Constitution, finding in a 60-page ruling that Navient was overlooking long-established court precedent, federal laws and existing agencies in making its case against the agency.
Noting that several courts, including the D.C. Circuit, had already examined the constitutionality issue, Judge Mariani ruled that the CFPB isn’t outside the bounds of the constitution, in part because its provision making it difficult for the president to remove the CFPB’s executive from his post isn’t any more burdensome than those of other agencies that have held up under judicial scrutiny since President Franklin Delano Roosevelt.
Navient had also argued that, because the president is limited in his ability to cut funding to the CFPB, the executive powers are violated by the CFPB’s control over its own budget, but the court found that it’s Congress, not the president, that makes a budget anyway, and because the CFPB is controlled by the Consumer Financial Protection Act, legislators can change the funding rule when they need to.
“More importantly, however, this argument ignores the fact that an independent agency with funding outside the normal appropriations process has existed for over one hundred years,” Judge Mariani wrote, citing the Federal Reserve Act, which in 1913 created the Federal Reserve Board of Governors.
“Moreover, the Federal Reserve Board of Governors’ composition presents no anomaly. There are at least five other independent agencies that operate completely outside of the normal annual appropriations process,” the judge added.
The CFPB had in January lodged a suit in Judge Mariani’s court accusing Navient of steering borrowers to more expensive repayment plans and creating obstacles to their right to lower their monthly payments.
Navient, which holds a U.S. Department of Education contract for servicing and managing more than $300 billion in federal and private student loans for 12 million borrowers, allegedly gave its customers incorrect information about repayment plans, applied payments to the wrong loans and failed to respond to borrowers’ complaints, according to the suit.
As a whole, the suit alleges violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act and the Fair Debt Collections Practices Act.
Judge Mariani’s long decision Friday, which in part served as a history lesson that toured U.S. Supreme Court decisions on the constitutionality of federal agencies as far back as when former President William Howard Taft was chief justice in the 1920s, also addressed Navient’s objections to each of the eight counts against it in the government agency’s suit, refusing to trim any aspect of the claims “at this early stage” in the case.
Representatives for the parties didn’t immediately respond to requests for comment late Friday.
The CFPB is represented by Andrea J. Matthews, Nicholas K. Jabbour, Ebony S. Johnson and Thomas H. Kim.
Navient is represented by Daniel P. Kearney, Gideon Hart, Jonathan E. Paikin, Daniel T. Brier, Karin Dryhurst and Matthew T. Martens of WilmerHale.
The case is Consumer Financial Protection Bureau v. Navient Corp. et al., case number 3:17-cv-00101, in the U.S. District Court for the Middle District of Pennsylvania.
The above was first reported by Kat Greene of Law360.