CFPB, ED Sued for Failure to Oversee Student Loan Servicers

As the student loan crisis progresses, fingers are pointed in all directions to determine who should be doing more to solve the problem. Programs meant to aid borrowers seem to fail spectacularly, such as the public service loan forgiveness program (PSLF), under which only 1,216 out of 102,051 applications for loan forgiveness have been granted—roughly 1.2%. As borrowers look to regulators for help, the Consumer Financial Protection Bureau (CFPB) and the Department of Education (ED) have had a hard time determining which one is in charge. 

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Student Debt Crisis, a nonprofit student loan organization, places the onus on the CFPB and ED to undo the mess. The organization filed a lawsuit seeking declaratory relief by asking the court, among other things, to order vacate the CFPB’s position that it only has supervisory authority over private student loan servicers and order the CFPB to resume its supervision over federal student loan servicers. The suit seeks no monetary damages, only action.

According to the lawsuit, despite the CFPB’s mandate under the Dodd-Frank Act to regulate and supervise larger market participant student loan services, the CFPB allegedly issued a silent supervisory rule where it decided that it only has supervisory powers over private student loan servicers, not federal student loan servicers. This “new rule” allegedly seeks to unlawfully amend the CFPB’s Student Loan Servicing Supervision Rule that was obtained through a public rulemaking process. 

The lawsuit is critical of the CFPB’s appointment of Robert Cameron as its new student loan ombudsman. Cameron is a former executive at a federal student loan servicing company that was recently the subject of a congressional inquiry about its mismanagement of the PSLF program. This appointment follows the very vocal resignation of Seth Frotman, who resigned from the role due to his belief that the CFPB was failing student loan borrowers, and a year-long vacancy in the role. 

The lawsuit also calls for the CFPB and the Department of Education to timely issue a Memorandum of Understanding regarding their coordination on student loan issues, which is required by Dodd-Frank.

insideARM will follow the progress of this lawsuit and provide updates as they occur.