Judge Denies MTD in Amended CFPB Debt Collection Case

An Appeals Court judge, sitting in the District Court for the District of Delaware by designation, has denied a motion to dismiss filed by 15 defendants who were sued by the Consumer Financial Protection Bureau for engaging in illegal debt collection practices related to student loans, because the defense raised by the defendants is “premature” and needs to be made at the summary judgment stage instead. The case had been dismissed earlier this year, but the CFPB filed an amended complaint, which now is allowed to proceed.

A copy of the ruling in the case of CFPB v. National Collegiate Master Student Loan Trust et al can be accessed by clicking here.

The CFPB announced the enforcement action and a proposed judgment back in 2017, accusing the defendants of suing individuals to recover unpaid private student loans, even though the defendants allegedly could not prove the debts were owed or because the statutes of limitation had expired. The suit involved more than 800,000 student loans that were going to have to be audited and levied more than $20 million in fines.

The defendants filed a motion to dismiss after the Supreme Court’s ruling in Seila Law v. CFPB, which found the leadership structure of the regulator to be unconstitutional, and a District Court judge ruled that a ratification by former Director Kathleen Kraninger was not enough to allow the suit to continue, granting the motion. The CFPB then filed an amended complaint, to which the defendants filed this motion to dismiss. The defendants argued that the case should be dismissed because the CFPB filed its suit after the three-year statute of limitations to do so had expired. But Judge Stephanos Bibas — at this stage of the case — ruled he was not allowed to determine if the case was time-barred.

Applying the ruling from the Supreme Court in Seila, Judge Bibas ruled that the CFPB’s decision to file its original lawsuit likely would have been the same regardless of its leadership structure.

On the motion to dismiss, Judge Bibas said he was bound to deny it because the defendants’ statute of limitations defense relied on a civil investigative demand letter that was outside of its complaint. At this stage of a case, the judge is forced to only look at the details in the complaint and accept them as true, because there has not yet been any discovery. The defendants may still raise a statute of limitations defense, but it will have to be at the summary judgment stage of the case, Judge Bibas ruled.

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