Navient can’t block U.S. claim it duped student debtors, judge rules

Student loan giant Navient Corp., the industry’s largest, has suffered a pair of courtroom defeats in its attempt to block government lawsuits alleging borrowers had been mistreated.

The losses come in a trio of lawsuits filed in January by the U.S. Consumer Financial Protection Bureau and state attorneys general of Washington, D.C., and Illinois. They collectively allege Navient mistreated hundreds of thousands of student debtors by taking shortcuts to minimize its own costs, while adding what the CFPB said was as much as $4 billion in interest charges to borrower loan balances.

Navient illegally steered struggling borrowers facing long-term hardship into payment plans that temporarily postponed bills (while interest continued to accrue), the officials alleged, rather than helping them enroll in federal programs that cap payments relative to their earnings and offer the promise of loan forgiveness. Navient has denied the allegations.

Navient, based in Wilmington, Delaware, has more than 2,000 employees in Indiana at offices in Fishers and Muncie.

On Friday, U.S. District Judge Robert D. Mariani in Scranton, Pennsylvania, denied Navient’s motion to dismiss the CFPB lawsuit. Mariani wrote in his ruling that Navient’s argument that its activities complied with the Higher Education Act, Department of Education regulations, and its loan servicing contract with the Education department didn’t relieve the company of its obligation to not commit unfair, deceptive, or abusive acts in violation of the Consumer Financial Protection Act.

Navient “created a duty to act in accordance” with its own statements, the court ruled.

Mariani also dismissed Navient’s argument that borrowers can’t reasonably rely on it to counsel them on their many options, ruling that Navient’s previous public statements to the contrary “created a duty to act in accordance with their own statements.”

A CFPB analysis earlier this year found that Navient was the nation’s most-complained about financial company.

Mariani’s ruling followed a July 7 decision by state court Judge Veronica Alicea-Galván in Seattle, who denied Navient’s motion to toss out Washington Attorney General Bob Ferguson’s lawsuit.

Meanwhile, Judge Kathleen M. Pantle in Chicago has yet to rule on Navient’s motion to dismiss Illinois Attorney General Lisa Madigan’s lawsuit. Navient argued that both the Washington and Illinois cases should be dismissed in part because state law is preempted by federal laws that govern the loan company.

For now, the two courtroom losses mean the Washington and CFPB lawsuits can move toward trial, allowing authorities to demand evidence from the company and providing them with more leverage to force a settlement. Moreover, Navient remains under investigation by other state authorities while it seeks to land a lucrative Trump administration contract to continue collecting payments from borrowers with federal student loans.

“We are confident we will prevail in the legal process,” Patricia Christel, a Navient spokeswoman, said in a prepared statement about Mariani’s decision.

One Navient argument fell particularly flat with the federal court. In its complaint, the CFPB claimed that one way Navient failed borrowers was through what it described as inadequate e-mail notices warning them that their income-based repayment plans were coming to an end. In these plans, the U.S. government allows borrowers to make monthly payments based on their earnings, rather than based on how much they owe.

To allow for personal income changes over time, the payment amounts are good for only one year, after which borrowers need to re-certify what they make for the next year’s batch of monthly payments.

The CFPB argued that Navient’s emails to debtors didn’t explain that their repayment terms were ending. Rather, the emails simply directed borrowers to log onto their accounts on Navient’s website. During a courtroom hearing, Mariani wrote, Navient said its email was similar to the outside of an envelope. Borrowers need to click on the link in emails Navient sent, just like recipients need to open envelopes to see what’s inside.

But Mariani wasn’t persuaded. Navient’s reminder email was akin to “receiving an envelope, opening it, and finding that the letter instructed the recipient to call a phone number to receive more information as to what the letter concerns,” the judge wrote.