The Consumer Financial Protection Bureau (CFPB) is set to close its student lending office, according to a memo written by its acting director, Mick Mulvaney. The office had been tasked with returning $750 million in student loan relief while investigating potential abuses. It had been primarily responsible for looking into Navient and its alleged unfair practices. The department also sued Corinthian Colleges, a for-profit education company. Mulvaney’s decision to close the office will cause the CFPB to reallocate its responsibilities to “financial education.”
Navient, a spinoff of Sallie Mae, has been accused of luring low-income borrowers into higher payments that were needed, misallocating payments, and failing to provide students with clear and distinct information about cost-saving opportunities. It has denied any wrongdoing in court and actually sent a team of Washington-based lobbyists to fight against what the company believed was an unfair investigation while spending $4 million last quarter in legal fees.
The company indicated in court last year that the promises it made to its customers on its website and in conversations regarding its ability to help students navigate their repayment options were simply part of its marketing efforts. “These are general marketing statements,” argued Matthew T. Martens, Navient’s attorney. “It’s friendly talk, it’s puffery, but it is not the stuff of legal obligation to now become your financial counselor.”
However, Judge Robert D. Mariani in the Federal District Court for the Middle District of Pennsylvania, nominated by former President Barack Obama, rejected Navient’s request for dismissal. He disagreed with their claims and responded that Navient “created a duty to act in accordance with their own statements.”
The restructuring of the office is minimal, according to insiders. “The work of the office continues, personnel are all on the job and working on the same material as they were before. The bottom line is there is no functional or even practical change,” assured John Czwartacki, chief spokesperson for the bureau. He also called the restructuring a “very modest organizational chart change.”
Mulvaney had been a long-time critic of the CFPB while he was a South Carolina Congressman, and has added a new agenda item to the agencies to-dos, indicating a review is needed of the “outdated, unnecessary, or unduly burdensome regulations.” His decision follows a previous move made in February of this year in which he folded the fair lending division into the consumer unit, stating that staff would “continue to focus on advocacy, coordination, and education.”
Approximately 4.6 million Americans are defaulting on their student loans (as of the end of 2017), according to the Department of Education. This is more than double what the statistic was four years ago. Consumer advocates are strongly opposing the decision, believing this is yet another move to dismantle the powers of a much-needed watchdog amid this crisis.
“Education alone cannot stop predatory behaviors on the part of for-profit schools and servicers, nor can it help hundreds of thousands of Americans in serious debt because of these practices,” explained Whitney Barkley-Denney, senior policy counsel at the Center for Responsible Lending.
California Attorney General Xavier Becerra also chimed in on Twitter, “At a time where Americans are saddled with $1.5 trillion in student loan debt, the last thing we should do is tear away critical support.”