A lawsuit accusing student loan giant Navient NAVI,
Violating Pennsylvania and federal consumer protection laws can go ahead, in a move that could bolster the state’s efforts to regulate student loan companies.
Lawsuit, filed by Pennsylvania Attorney General Josh Shapiro, makes its way through the court system since 2017. In a ruling on Monday, the Third Circuit Court of Appeals dismissed Navient’s request to dismiss the case. The ruling also added to a growing number of rulings confirming efforts by state law enforcement officials to regulate student loan services.
“This is a huge victory for the rule of law and it is a huge victory for student borrowers,” Shapiro said in an interview.
The last of an ongoing battle
The decision is the most recent of a battle in progress between states, industry, and the federal government over who has the power to regulate student loan providers, the companies that are the primary source of contact for borrowers during the repayment process.
Student Loan Companies and Betsy DeVos’ Department of Education argued that the companies are not subject to state law, given federal laws governing the student loan program. The claim stems from a legal concept known as preemption, or the idea that federal law supersedes state law when they are in conflict.
Monday’s ruling is significant in part because it is the latest in a string of state-friendly and consumer-friendly appeals court rulings, said David Rubenstein, law professor and James R. Ahrens Chair. in Constitutional Law from Washburn University.
“This is another major decision which rules that claims of state law are not preempted by higher education law,” said Rubenstein, author of two law review articles at seem focused on state authority to regulate federal student loan services.
Two other appeal circuits have issued decisions – one this year and one in 2019 – in cases against another student loan manager, Great Lakes, which borrowers could sue under state consumer protection laws over allegations that the company illegally referred them to credit plans. reimbursement that was not in their best interest, despite the company’s claim that it was not subject to state regulation.
States can take over from federal agencies
Monday’s ruling also addresses an issue that has not played a role in previous cases: whether a state can sue a company while it is being sued by the Consumer Financial Protection Bureau on similar issues. Navigate, which was sued by the CFPB in 2017, argued that consumer protection law does not allow a state attorney general to bring “copying” action.
In the ruling, circuit judges said the Pennsylvania lawsuit could continue even though the CFPB case is pending, noting that “the interests of the states and the Bureau may not always be fully aligned.”
“States may be able to fall behind when the federal government fails to enforce and regulate. If the Bureau were pressured to settle or withdraw its lawsuit, states would still be free to protect the rights of consumers in their states, ”the ruling says.
Or, as Rubenstein put it, “There is nothing in federal law that suggests Congress intended to prevent the availability of a backup plan.”
The court’s decision comes after years of back-and-forth between states, the federal government, and business over state power to regulate business. In 2015, states have started to pass laws regulate student loan services, which are contractors of the federal government. As President Donald Trump prepares to take office, a business group of student lenders wrote to his transition team requesting that officials review these laws and “determine that federal law and contractual requirements prevail over state law in the federal administration of student loans.”
In 2018, DeVos posted a memo arguing that state laws undermined the purpose of the federal student loan program and were essentially invalid. In court cases across the country, student loan companies have in some instances used the note to argue that they are immune from state laws.
Borrower advocates have accused student loan companies for years of making repayment too costly
The problem with many of these cases, including the Pennsylvania lawsuit against Navient, is that the companies are dealing with borrowers struggling with their student loans. Federal borrowers with a student loan are entitled to an affordable repayment plan under the law, but defenders have been complaining for years that companies have steered borrowers into expensive repayment plans.
Among the allegations in the Pennsylvania lawsuit: that the company repeatedly pressured a borrower for forbearance – a statute where payments stop but interest continues to run – for more than a decade, allowing 27,000 $ interest to accumulate even if the borrower was eligible for a more affordable payment plan.
The lawsuit also alleges that the company gave a borrower hoping to qualify for Public Service Loan Forgiveness – a program that allows officials to have their federal student loans canceled after 120 payments – false information. As a result, the borrower lost seven years of repayments that could have been applied to the remission, according to the lawsuit.
The company “has consistently met and exceeded its requirements to educate borrowers about income-tested repayment options to help them navigate an overly complicated federal student loan repayment process,” said Paul Hartwick, a spokesperson. de Navient, in a press release sent by email.
“We look forward to working on each of the plaintiff’s claims with the district court to show that they are preempted,” the statement said. The likely next step in the case will be for the lawsuit to be referred to the district court and assessed there.
Shapiro said he is not giving up either, vowing to see through the case and ensure borrowers are affected by the lawsuit’s allegations – a particularly important consideration in times of widespread economic challenge.
The high levels of student debt in Shapiro state have been compounded by both the pandemic-induced slowdown and “the deceptive practices of a student loan company like Navient,” he said. .
“You have created enormous hardship for students and their families and this is simply unacceptable,” he said.