A nonprofit student loan consumer group has filed a lawsuit against the Consumer Financial Protection Bureau alleging it has manipulated federal policy and failed in its duty to regulate companies that service student loans. The lawsuit also names the Department of Education.
Student Debt Crisis alleged that negligence in government supervision has created such a mess that it is getting overrun with calls from people who need help.
“We are suing the Department of Education and the CFPB because they are not doing their jobs,” said Natalia Abrams, the founder of Student Debt Crisis.
“Failure by loan servicers to comply with legal requirements can add significant costs to individual borrowers,” the lawsuit states. “Supervision by an independent financial regulator is therefore a crucial component of a well-functioning student loan market.” The lawsuit alleges that the CFPB’s conduct is a violation of the Administrative Procedures Act.
Student Debt Crisis alleges three particularly egregious abuses. First, the lawsuit alleges that CFPB Director Kathy Kraninger has failed to assert authority over all student loans. According to the complaint, “In September 2018, then-acting CFPB Director Mick Mulvaney announced a New Supervision Rule and stated publicly that Dodd-Frank limited the CFPB’s supervisory authority to private student loans and that the CFPB would not be responsible for issues related to servicing federal student loans.” Student Debt Crisis claims this is not an accurate reading of Dodd-Frank.
Second, the complaint states that Kraninger hired an industry insider, Robert Cameron, to fill the role of student loan ombudsman, the office that oversees student loan servicers. Prior to his appointment to the CFPB, Cameron was a top lawyer for one of the country’s largest student loan servicers. Presidential hopeful Sen. Elizabeth Warren (D-Mass.) has called the appointment of Cameron “an outrageous slap in the face to student loan borrowers across the country.”
Third, the complaint is critical of the CFPB’s management of the Public Service Loan Forgiveness program, which promises firefighters, public defenders, teachers, people who work at nonprofits and others that if they make payments for 10 years, the remainder of their federal student loans will be forgiven.
Congress created the program in 2007 to encourage people to work in public service jobs that are often lower-paying than other careers. The Department of Education’s own accounting shows that 99 percent of people who have applied for loan forgiveness have been rejected.