Federal regulators have filed a lawsuit against Navient Corp., the nation’s biggest student loan company, which had been part of Sallie Mae until spinning off in 2014, accusing them of making repaying the loans more difficult by giving out bad information, processing payments incorrectly and failing to act on complaints.
The lawsuit, filed by the Consumer Federal Protection Bureau is in addition to another lawsuit filed by Illinois Attorney General Lisa Madigan and Washington State Attorney General Bob Ferguson, both alleging some of the same deceptive methods of business.
Navient manages and collects payments on more than $300 billion in federal and private-market student loans, according to the CFPB. The company services loans held by more than 12 million borrowers, including over 6 million loan accounts under its contract with the Education Department. But the company says the lawsuit is unfair because “improperly seeks to impose penalties on Navient based on new (loan) servicing standards applied retroactively and applied only against one servicer.”
They say borrowers with loans serviced by them are 31 percent less likely to default then those with loans with other companies.
Here are five interesting points about the lawsuit:
- What’s really got people upset is the late fee, five percent of the payment amount not received or $5.00 (whichever is larger), which the lawsuit says is inappropriate because it is not “compensatory” but instead “punitive.” The lawsuit says although the fee is intended to compensate the lender, it instead makes money from it. “Sallie Mae’s revenue from late fees far exceeds the costs it incurs as a result of late payments,” according to the lawsuit.
- The CFPB believes that the company intentionally obscured the information that borrowers needed to have and pointed them toward forbearance, meaning they would be allowed to stop making their payments for a short time, but interest on the loans continues to accrue. The agency says as much as $4 billion were added up to principal that borrowers already had.
- Timing is everything. The lawsuit was filed two days before the inauguration of President-elect Donald Trump. This has raised eyebrows regarding the political tug-of-war surrounding both the CFPB and Navient. The consumer watchdog agency was created with the financial overhaul law that came after the 2008 economic crisis, and has been prodded by Republicans ever since. On the other hand, Navient gave more than 62 percent of its political donations to people linked to the GOP in 2015-16, according to Forbes.
- But none of this is new at all. The CFPB and the Illinois and Washington attorney generals offices have been investigating this issue for at least two years. Multiple depositions and interviews of Navient executives and scrutiny of company documents led to the filing of the lawsuit. In fact, several states have investigated the lending practices of Navient for violating state laws.
- Still, Navient denies everything. In fact, they defended their practices in a statement. “The timing of this lawsuit — midnight action filed on the eve of a new administration — reflects their political motivations,” the company stated. “We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers. We will vigorously defend against these false allegations and continue to help our customers achieve financial success.”
With Associated Press