Consumer Financial Protection Bureau V. Navient Corporation Et Al
Case Background
On January 18, 2017, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Navient Corporation, Navient Solutions, Inc., and Pioneer Credit Recovery, Inc., accusing them of unlawful practices in managing and collecting student loans. The Bureau sought restitution, damages, penalties, and other remedies for violations of federal consumer protection laws.
The consumer protection lawsuit was filed in the United States District Court, Pennsylvania Middle (Scranton), with Honorable Robert D Mariani presiding. [Case Number: 3:17cv101]
Cause
Defendant Navient Solutions, Inc., a wholly-owned subsidiary of Navient Corporation, is a Delaware corporation. Navient, formerly Sallie Mae, Inc., is the largest student loan servicer in the United States. It manages loans for over 12 million borrowers, including six million under a U.S. Department of Education contract. Despite its role to assist borrowers with repayment plans and manage accounts, Navient failed in key responsibilities, breaching federal laws and borrowers’ trust.
Navient discouraged borrowers from enrolling in income-based repayment plans, which offer long-term relief by adjusting payments based on income. Instead, the company pushed many struggling borrowers into short-term, costly forbearance options. Borrowers who enrolled in income-driven plans faced additional hurdles, as Navient failed to notify them of annual renewal deadlines or misrepresented the consequences of missing those deadlines. These failures caused significant financial harm, including sudden payment increases.
The company also misreported information about borrowers, including disabled veterans, to credit agencies, falsely marking loans as defaulted. Navient misled borrowers about requirements to release cosigners from loans and repeatedly mishandled payment processing, even after complaints.
Pioneer Credit Recovery, another Defendant, collected defaulted federal student loans. It misrepresented the impact of loan rehabilitation on borrowers’ credit reports and exaggerated the benefits of reduced collection fees, further misleading borrowers.
Since 2011, thousands of borrowers and cosigners have reported issues with Navient and Pioneer, highlighting systemic failures that worsened financial burdens for vulnerable individuals. These practices undermined federal programs meant to ease student debt challenges.
Damages
The Bureau asked the Court to take several actions to address the Defendants’ alleged misconduct. First, it sought a permanent order prohibiting the Defendants from violating federal consumer protection laws, including the Consumer Financial Protection Act (CFPA), Fair Credit Reporting Act (FCRA), Regulation V, Fair Debt Collection Practices Act (FDCPA)
. It also requested restitution for consumers harmed by the Defendants’ actions. Additionally, the Bureau urged the Court to require the Defendants to implement appropriate corrective measures.
The Bureau called for the disgorgement of any revenue gained unlawfully by the Defendants. It also requested civil penalties to hold the Defendants accountable for their actions. Furthermore, the Bureau sought to have certain contracts rescinded or revised to address consumer harm. It asked the Court to require the Defendants to cover the costs incurred in pursuing this legal action. Finally, the Bureau requested any additional relief the Court deemed fair and appropriate to ensure justice.
Key Arguments and Proceedings
Legal Representation
- Plaintiff(s): Consumer Financial Protection Bureau
- Counsel for Plaintiff(s): Carl L Moore | Christopher Sousa | Katherine Wong | Lawrence DeMille-Wagman | Nicholas C Lee | Thomas H. Kim | Tracee Plowell-Page
- Defendant(s): Navient Corporation | Navient Solutions, Inc. (Navient) | Pioneer Credit Recovery, Inc. (Pioneer)
- Counsel for Defendant(s): Jonathan E Paikin | Daniel T. Brier | Donna A. Walsh | Karin Dryhurst | Matthew T. Martens | Richard L. Armezzani
Claims
Navient faced allegations of various unfair and deceptive practices related to its student loan servicing. Borrowers reasonably relied on Navient for advice about repayment options during financial hardship. However, Navient often steered borrowers toward forbearance instead of income-driven repayment plans, which would have been more beneficial. This practice increased borrowers’ loan costs and reduced Navient’s administrative expenses, benefiting the company at consumers’ expense.
Additionally, Navient failed to provide clear notifications for income-driven repayment plan renewals. Many borrowers missed deadlines, resulting in higher payments, interest capitalization, and loss of subsidies. Navient’s vague communications created unnecessary obstacles, causing significant financial harm to consumers.
The company also misrepresented cosigner release requirements. Borrowers were told they could apply after consecutive on-time payments but were denied eligibility under unclear terms. These misleading practices left many borrowers unable to secure cosigner releases despite meeting the stated criteria.
Navient’s errors extended to payment processing. The company misallocated payments, leading to late fees, increased interest, and negative credit reporting. Despite recurring mistakes, Navient failed to improve its processes, leaving borrowers unable to avoid these issues.
Pioneer, a Navient affiliate, was accused of deceptive practices in rehabilitation programs. Borrowers were misled to believe that completing these programs would remove adverse credit information, though late payment records remained. Pioneer also misrepresented collection fee forgiveness, causing borrowers to incur unexpected costs.
Finally, Navient violated regulations by failing to establish adequate policies for reporting accurate information to credit agencies. This included errors in reporting loans discharged due to total and permanent disability.
These actions resulted in allegations of abusive, unfair, and deceptive practices under consumer protection laws, including the CFPA, Fair Debt Collection Practices Act, and Regulation V.
Defense
On September 7, 2017, Navient Corporation, Navient Solutions, and Pioneer Credit Recovery responded to the CFPB’s lawsuit by filing their answer and affirmative defenses. They denied many of the allegations and raised several defenses. For instance, they argued that the CFPB’s structure violated Article II of the Constitution. They also claimed the CFPB failed to provide clear notice of what conduct it considered unlawful and argued that the claims lacked sufficient legal basis for relief.
In 2022, Navient resolved separate claims with 39 state attorneys general. As part of the settlement, the company agreed to cancel $1.7 billion in student loan debt and pay $142.5 million. This settlement addressed allegations of predatory practices and provided significant relief to borrowers.
Settlement
On September 12, 2024, the CFPB announced a proposed settlement requiring Navient to pay $120 million to resolve allegations about its student lending practices. The agreement included $100 million in payments to borrowers and a $20 million fine. As part of the settlement, Navient faced a permanent ban on servicing federal Direct Loans issued by the U.S. Department of Education. Additionally, the company could no longer service or acquire most loans under the Federal Family Education Loan Program. This resolution marked a significant step in addressing concerns about Navient’s handling of federal student loans.
Court Documents:
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