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Lawsuits & Litigation

California Sues Student Loan Servicer Navient for Deception and Error

— July 3, 2018

California is the latest entrant in a series of lawsuit against Navient, the nation’s largest servicer of student loans.

On Thursday, state attorney general Xavier Becerra said he’d initiate litigation against the company, accusing of it widespread deception and error. California says Navient’s misdeeds and oversights cost borrowers millions of dollars.

As the New York Times notes, action against Navient was instigated by the Consumer Financial Protection Bureau last year. But the inauguration of President Trump has seen enforcement wane. Conservatives have frequently attacked the CFPB as cumbersome and bureaucratic agency.

The agency’s acting director, Mick Mulvaney, has reduced many of the bureau’s powers since taking office. The Times speculates that uncertainty over Mulvaney’s willingness to pursue Navient has led to states taking the effort into their own hands.

California will be the fourth state to sue Navient, following the lead of Illinois, Pennsylvania and Rhode Island.

While states have sued Navient over its handling of private and public loans, California’s suit will focus specifically on the company’s handling of federal loans—loans that are made and backed by the government. Navient, writes the New York Times, ‘is among the largest of eight servicers hired by the government to collect $1.4 trillion owed by nearly 43 million people.’ The company services 12 million borrowers, about a tenth of whom reside in California.

Courts haven’t been keen to sympathize with Navient, with the company’s requests to dismiss litigation frequently discarded. Gavel; image courtesy of bloomsberries, via Flickr, CC BY-ND 2.0, no changes made.

Becerra’s complaint will focus on Navient’s lack of transparency. Servicers of federal loans should inform borrowers of their repayment options, which can include income-based options. Instead of doing that, Becerra maintains that Navient often raised monthly rates—a discrepancy Becerra says violates California laws prohibiting unfair competition and false advertising.

“Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college,” said Becerra on Thursday.

Navient, meanwhile, has lashed out against its critics, including California. John F. Remondi, the company’s chief executive, said the complaint “is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes.”

But Navient, says the Times, hasn’t fared well in court, with judges frequently turning down its requests to dismiss litigation and verdicts.

Last week, a Florida judge allowed a class action suit, brought by borrowers, to proceed against Navient. Judge Susan Bucklew discarded the company’s argument, which suggested that borrowers couldn’t sue a servicer for violating state consumer protection statutes.

“There is a strong presumption against pre-emption for matters that have typically been left to the states, and consumer protection is one of those traditionally state-regulated matters,” wrote Bucklew.

Bucklew’s case, writes the Times¸ centers around mistakes Navient purportedly made in assigning loan forgiveness to individuals who’d dedicated 10 years or more to public service or nonprofit work.


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