In the final months of President Obama’s administration, the government’s main consumer regulator was negotiating a major deal with student loan collector Navient, which he said misled borrowers and made mistakes that have added billions of dollars to their bills.
But after President Trump’s victory, talks between the company and the Consumer Financial Protection Bureau collapsed. Two days before his inauguration, the office sued Navient, accusing him of “systematically and illegally defaulting borrowers at every stage of repayment”. Two states, Illinois and Washington, simultaneously filed their own lawsuits in state courts.
As the office has taken a softer approach to industries, including payday lending, and its own acting director has said he oversteps his authority too often, the possibility that the Trump administration is loosening Navient has prompted more states to join the legal fray. Five have now sued Navient, including two in the past four months.
“There is growing concern among me and state attorneys general that the federal government is not only losing interest in holding student loan managers like Navient accountable, but that the federal government is actively seeking ways to end the State enforcement action against Navient and other student loan officers, ”said Jim Hood, the Mississippi attorney general, who sued Navient in July. “The timing of our complaint reflects this concern. “
Two years ago, Navient was ready to strike a deal to end the office’s three-year investigation. He would adjust the way he handled loans and write off some private loans he held that were considered predatory, according to three people familiar with the talks.
But after election day, there was a greater sense of urgency on the part of office officials – a frequent target of criticism from Republicans. The office and a group of state attorneys general, who were conducting their own investigation, were aiming high: fines and debt relief that together would have exceeded $ 1 billion, the people said.
The talks collapsed, prompting a lawsuit against Navient, alleging that the company had harmed hundreds of thousands of borrowers by failing to direct them to the loan repayment options that would have been best for them. The borrowers incurred nearly $ 4 billion in additional interest charges that could have been avoided, the plaintiffs have argued in legal documents.
Other complaints include: Navient has repeatedly misallocated payments and falsely reported to credit bureaus that some borrowers with disabilities – including military veterans – defaulted when their loans were canceled.
Navient a denied any wrongdoing. “We have helped millions of borrowers register for income-tested and successfully repay their loans,” said Nikki Lavoie, spokesperson for the company.
If Navient loses in court, the company could be required to pay billions of dollars in damages and overhaul the way it handles the accounts of some six million borrowers. A defeat could also prompt other service providers to change their policies: Navient is one of eight companies paid by the Department of Education to handle the $ 1.4 trillion owed by 42 million federal loan borrowers .
“These problems are not limited to Navient; these are practices that we have seen with many different service providers, ”said Persis Yu, director of the National Consumer Law Center’s Student Loan Assistance Project. “It is essential that a federal agency finally recognize the problems and hold the company accountable.
In public, Navient promotes its commitment to guide borrowers. “We’re here to help you navigate your student loan payments successfully,” he said. said on his site. But in court, Navient said those assurances were strictly hype.
“It’s a friendly conversation, it’s buffoonish, but it’s not a matter of a legal obligation to become your financial advisor now,” Navient’s attorney told a Pennsylvania federal judge in the United States. part of a request to dismiss the office’s legal action.
Judge Robert D. Mariani denied the request. It is reasonable for borrowers to assume that their loan manager will act in their best interests, and Navient’s “active conduct has created an obligation to act in accordance with their own statements”, he wrote. Judges overseeing the Illinois and Washington cases have also rejected the dismissal requests.
As state and federal cases progress, Navient has stepped up his efforts to personally connect with government officials who are leading enforcement efforts against him. The company met with executives from the Federal Office of Consumer Affairs, hired two former Democratic attorneys general as advisers, and began donating to networking groups that help state attorneys general raise funds for the campaign. .
State lawsuits will take on increased importance if the consumer office drops its lawsuits against Navient.
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Such concerns were indirectly raised in a scathing resignation letter sent in August by the agency’s student loans ombudsman, Seth Frotman. Mr Frotman resigned while criticizing the bureau’s acting director, Mick Mulvaney, for putting the interests of powerful companies before consumers “harmed by the company that dominates this market”.
In one interview last month with CNBC, Mulvaney expressed concern about the consequences, “from a financial and moral point of view,” of the growing number of student borrowers who fail to repay their debts .
Navient openly sought to have the office’s lawsuit dropped.
“There is no evidence to date to support their case,” John F. Remondi, chief executive officer of Navient, told analysts on the latest Navient earnings conference call. “Our arguments here are, you’ve had five years to look for your evidence, you haven’t found any, it’s time to move on.”
Navient also made this argument privately to Mr. Mulvaney, who is also Mr. Trump’s budget manager, in February. in a meeting request email. The email was obtained following a public registration request.
Mr Remondi called the lawsuit against his company a “prime example of what was wrong with the office” under Mr Mulvaney’s predecessor. He also reiterated a number of Mr. Mulvaney’s talking points, accusing the office of trying to “make law through coercive measures”.
Four months later, Mr. Remondi met with a group of attorneys from the office and one of Mr. Mulvaney’s main collaborators, Eric Blankenstein, the policy manager of the office’s enforcement division, who was recently criticized. for past racist comments.
According to the two people familiar with the agency’s internal discussions, Mr. Blankenstein particularly examined the allegations at the heart of the lawsuit: that Navient steered borrowers towards more expensive and more administratively simpler repayment options for the loan. company.
A spokesperson for the office declined to comment.
Navient also ensures that it directly reaches those who have the power to decide whether the affairs of state move forward.
Last year, the company hired two former attorneys general – Douglas F. Gansler of Maryland and Martha Coakley of Massachusetts, both Democrats – to help it connect with their peers. Ms Coakley said her work at Navient was aimed at helping state officials better understand the company. Mr Gansler said he was helping Navient “to spread his story”.
And in March, Navient joined the Republican and Democratic associations of attorneys general, paying each $ 15,000 to do so. This was the company’s first contribution to groups.
Three months later, Mr Remondi spoke at the Democratic Association’s summer policy conference in Seattle, joining a panel discussion on how to help borrowers avoid debt for life. .
For about 15 minutes – until Ellen Rosenblum, the Attorney General for Oregon, who moderated the panel discussion, interrupted him – Mr. Remondi spoke about Navient’s efforts to help federal loan borrowers navigate their refund options and avoid falling behind, according to meeting attendees.
His argument failed to influence Xavier Becerra, the Attorney General of California, who had one of his main collaborators on the panel with Mr. Remondi. Three weeks later, his office sued Navient.
Immediately after the trial was announced, Senya Merchant, program director at the Center for American Progress, a progressive rights group, sent a message to one of Becerra’s advisers.
“Do you think that would replace the CFPB costume in case this one is dropped?” “Mrs. Marchand written in an email, which was obtained through a public records request.
“I can’t speculate,” Councilor Sarah Lovenheim replied, “but that’s a good question.”