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Advocacy Group Sues CFPB Over Lack of Student Loan Supervision

An advocacy group filed suit against the Consumer Financial Protection Bureau yesterday, accusing the agency of not doing enough to protect individuals from companies that service and collect on student loans.

The group — Student Debt Crisis — filed the complaint against the CFPB and the Department of Education in a California federal court, alleging the CFPB is “abandon[ing]” its authority over the majority of student loan servicers by adopting a rule that says it can only supervise student loans owned by private creditors and not those owned by the federal government, which represent 81% of the outstanding student loans across the country.

Calling the new supervision rule “unlawful,” the group is seeking declaratory and injunctive relief, accusing the CFPB of violating the Administrative Procedures Act.

“Today’s action is a warning to [CFPB] Director [Kathy] Kraninger and Secretary DeVos — ignoring industry abuses is unacceptable. It’s time to do your jobs and to stand up for borrowers,” said Seth Frotman, a former CFPB student loan ombudsman and now the executive director of the Student Borrower Protection Center, in a statement, adding that the actions by Education Department and the CFPB “are alarmingly similar to the lax oversight of the mortgage market before its meltdown.”

The group is using a statement from CFPB Director Kraninger, who, during testimony before the Senate Banking Committee earlier this year, referred questions about a program aimed at forgiving student loans for individuals who work in the private sector to the Department of Education as evidence that the CFPB has “cede[d]” supervision of large federal loan servicers.

“The New Supervision Rule not only harms millions of student borrowers, but it violates the APA for lacking a public notice and comment process, being contrary to law, lacking a required statement of basis, and being arbitrary and capricious,” the advocacy group argued in its complaint. “It also unlawfully withholds agency supervision of large student loan servicers in violation of the APA.”

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