A student borrower advocacy group filed a lawsuit Monday against the Consumer Financial Protection Bureau (CFPB) and Department of Education (ED), arguing that both agencies continue to fail to protect federal student loan borrowers through actions that “allow and exacerbate student loan and servicer problems.”
Specifically, the group, Student Debt Crisis, argued that CFPB unlawfully relinquished its authority to oversee federal student borrowers by adopting a “New Supervision Rule” that mandates it only focus on issues related to private student borrowers, despite issues that have come to light with servicers' administration of the Public Service Loan Forgiveness (PSLF) program. The rule amended regulations created through a negotiated rulemaking process, which are open for public comment before final rules are published. The group argued the new rule “not only harms millions of student borrowers, but it violates the [Administrative Procedure Act] (APA) for lacking a public notice and comment process, being contrary to law, lacking a required statement of basis, and being arbitrary and capricious.”
“Time and time again, we speak with student loan borrowers who dedicate their lives to public service, yet they lose access to federal loan forgiveness due to bad behavior by their loan servicer. The Trump administration is breaking the law and our supporters can no longer trust the government to work in their best interests. They truly feel they have no one to turn to,” the group said in a statement.
In the court filing, the group asked a judge to vacate the amended rule.
Also of issue in the lawsuit was ED’s termination of a data-sharing partnership with CFPB in 2017 to share information on student borrowers. ED justified its decision to rescind its Memoranda of Understanding (MOUs) with CFPB by arguing it had the sole authority to oversee federal student loan complaints and that CFPB’s actions had "undermined" ED’s mission to protect borrowers.
Notably, the new CFPB student loan ombudsman Robert Cameron wrote in his first annual agency report last month that despite having no MOU in place, “during the past two years, the CFPB and [ED] continued to assist borrowers and to receive, review, and attempt to resolve borrower complaints,” and signaled that he planned to reestablish an MOU.
Seth Frotman, former CFPB student loan ombudsman and executive director of the Student Borrower Protection Center, said Monday that the actions by ED and CFPB “are alarmingly similar to the lax oversight of the mortgage market before its meltdown.”
“Today’s action is a warning to [CFPB] Director [Kathy] Kraninger and Secretary DeVos — ignoring industry abuses is unacceptable. It’s time to do your jobs and to stand up for borrowers,” he said in a statement.
ED spokeswoman Angela Morabito declined to comment on the lawsuit to POLITICO, but told the outlet that ED “takes its oversight responsibilities very seriously” and is “currently working on an MOU with CFPB.”
Publication Date: 11/26/2019