The Consumer Financial Protection Bureau announced Wednesday that it had sued Navient, the largest student loan servicer in the U.S., for cheating borrowers for years.
Along with the state attorneys general in Illinois and Washington, the agency said it would seek consumer relief for borrowers who the company steered into inappropriate repayment plans that cost them money and harmed their ability to repay their loans.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said Richard Cordray, the agency’s director. “Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”
The suit was filed in the last days of the Obama administration, in a moment of uncertainty for the consumer bureau. The bureau has raised warnings about the conduct of student loan servicers, which have received heightened scrutiny in recent months from other regulators.
Under the incoming Trump administration, however, Cordray’s leadership is in question. The Trump transition has signaled that it may seek to fire Cordray, a step that likely would prompt a legal battle.
Wednesday’s action would be a major last act for the agency under Obama. In a statement, Navient attributed the suit to politics while stating that it would fight the suit.
“The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations,” the company said in a statement.
Navient, formerly part of Sallie Mae, services the loans of 12 million borrowers, with 6 million of those through the Department of Education.
From 2010 to 2015, Cordray said in a call with reporters Wednesday, the company added $4 billion in extra interest costs to borrowers’ loan balances that they had placed in forebearance, where they grew in balance. Those borrowers could have been directed instead to income-based repayment plans available from the federal government that cap payments as a share of income.
In some cases, Cordray added, the company failed to get relief for borrowers who should have had their loan balances wiped away by government programs, including disabled veterans.
The poor treatment of borrowers was “institutionalized” throughout the company, Cordray said.
Specifically, the company’s treatment of borrowers violated the 2010 Dodd-Frank law, the Fair Credit Reporting Act and the Fair Debt Collections Practices Act, according to the bureau.
In a response the company noted that roughly half the loan balances it services for federal loans are in income-driven repayment plans, and that federal borrowers serviced by Navient are less likely to default than at peer companies.
