Earlier this year the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Navient for “systematically and illegally failing borrowers at every stage of repayment.”
The CFPB alleged that Navient was guilty of the following:
- Enrolled borrowers in a forbearance instead of signing them up for income-driven repayment plans because it was cheaper for Navient to process a forbearance. Navient did this despite the fact that signing up for an income-driven plan is in the best interest of borrowers.
- Navient failed to adequately notify borrowers that their income-driven repayment plans needed their yearly re-certification. This caused borrowers to miss expensive deadlines.
- Navient failed to establish procedures to prevent payment processing errors from occurring month after month. As a result, borrowers who contacted customer service to correct an error would often have to call repeatedly to correct the same errors with each payment.
Navient responded to the lawsuit by filing a motion to dismiss. A motion to dismiss is basically a request to the court to throw out the case before a trial starts.
Navient made a number of technical legal arguments in support of their motion to dismiss, including arguing that the CFPB organizational structure was unconstitutional.
The argument that generated the most headlines was Navient’s claim that they are merely a servicer and, “A servicer’s role is to collect payments owed by borrowers… and there is no expectation that the servicer will ‘act in the interest of the consumer.'”
The Judge’s Ruling on Navient’s Motion to Dismiss
The Judge ruled against every Navient argument.
While this is definitely a step forward for the CFPB and for borrowers, it is important to remember that the case is far from over. The Judge’s ruling means that the CFPB is allowed to proceed with the lawsuit, nothing more.
Perhaps the best news for borrowers is that the Judge noted that their could be legal implications based upon statements on the Navient. The example cited by the judge said: “If you’re experiencing problems making your loans payments, please contact us. Our representatives can help you by identifying options and solutions, so you can make the right decision for your situation.” By using this example the Judge is essentially saying that promises made by Navient to borrowers could create a legal obligation for Navient to provide information in the interests of borrowers.
Next Steps in the Lawsuit
Right now Navient and the CFPB are likely moving forward on two fronts.
First, the parties are exchanging discovery. This is the phase of a case where the parties exchange information that might be relevant to the case. Navient has to share any documents that the CFPB requests, so long as they are remotely related to the lawsuit, and the CFPB likewise has to share its documents with Navient.
In addition to discovery, the parties are also likely engaged in settlement talks. Unlike tv and the movies, the vast majority of cases are resolved without ever going to trial. The recent ruling in favor of the CFPB will help the agency in its efforts to gain a favorable settlement.
What does this all mean for me?
This ruling should serve as a wakeup call for federal student loan servicers. Promises made on the Navient website are part of the judge’s reasoning, so you can expect fewer promises on loan servicer websites.
Hopefully, servicers will also start doing a better job of steering people towards options that are in their best interests rather than what is easiest and/or cheapest for the loan servicer. Even a slight improvement in servicing quality could help a large amount of borrowers.