Will Trump's Efforts To Weaken Consumer Protection Agency Allow Student Loan Services To Run Amok?

It took University of Indianapolis graduate Joy Hernandez-Butler a couple of years to realize that the company servicing her student loans, Navient Solutions, Inc., was not the ally she thought it was. In 2012, she reached out for an income-based repayment plan to save money, but she was met by delays, lost paperwork and other obstacles. “It felt like they were throwing barrels in my way,” she says. 

Instead of an income-based repayment plan that would have lowered her payments, Navient was given “forbearance” – an option that suspends payments but allows interest to keep building up on unpaid loans. Like many other students that the company reportedly pushed into forbearance, Hernandez-Butler found that her loan was becoming a millstone around her neck.

Hernandez-Butler is one of thousands of students with complaints against Navient, which, with 12 million borrowers, is the nation’s largest student loan servicer. In January of this year, the federal Consumer Financial Protection Bureau (CFPB) sued the loan servicer for deceiving borrowers; at the same time, Illinois and Washington State slapped Navient with separate student loan lawsuits. Among other things, the CFPB charged that Navient, formerly part of Sallie Mae, used “shortcuts and deception” to charge unnecessary interest payments, cheated students out of their right to lower payments and devastated the credit scores of veterans, the disabled and others.

The CFPB’s lawsuit seeks compensation for students the agency says were “systematically and illegally” cheated out of income-based repayment programs they were eligible for. Instead, it says, they were pushed into forbearance options that left them with larger loan balances -- and almost $4 billion in needless interest charges. But Republicans and the Trump Administration are seeking to defang or get rid of the federal consumer finance watchdog, with Texas lawmakers Sen. Ted Cruz and Rep. John Ratcliffe introducing a bill this February to kill the agency. What will happen to the lawsuit against Navient if they succeed?

If the CFPB is crippled or destroyed by the new administration and unable to pursue Navient, “this would be a big bonanza for law-breaking companies,” according to Rohit Chopra, senior fellow at the Consumer Federation of America and a former official at the CFPB. 

“Too often, student loan companies will do everything they can to keep pumping up their profits, even if it comes at the expense of borrowers,” Chopra added.

One of those tactics – one that features in all three Navient lawsuits -- is giving employees financial incentives to push student loan borrowers into forbearance when they contact the company for help, even if they are eligible for income-based repayment programs. 

According to Persis Yu of the National Consumer Law Center, when student loan borrowers call their servicer, “the dialogue goes something like, ‘I can’t make that payment. I can’t afford to spend $150 and take that away from my food, my kids and rent payments.’ Often what they would hear in response is, ‘Well, we have these forbearance options’…when income-driven repayment programs would have been much better.”

Seeking To Put “An arsonist in the firehouse”

Nonetheless, Republicans are doubling down on efforts to get rid of the CFPB. Chopra doesn’t believe they will succeed in eliminating the agency, although in early March President Trump signed an executive order to scale back the Dodd-Frank Act, the post-crash law that created the consumer watchdog to help curb Wall Street from the kind of abuses that led to the Great Recession.   

“We expect to be cutting a lot out of Dodd-Frank, because frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money,” the president told an economic advisory group. 

The president has reportedly long been anxious to get rid of crusading CFPB director Richard Cordray, whose bureau’s work has resulted in more than $11.2 billion in relief for more than 25 million consumers, including victims of illegal credit card payments, mortgage fraud and payday loan abuses; it also resolved tens of thousands of complaints from veterans targeted by student loan fraud and financial scams and levied a $100 million fine against Wells Fargo for savings account fraud. Trump has reportedly met with at least one potential replacement for Cordray: Rep. Randy Neugebauer (R-Texas), a proponent of the payday loan industry, which charges interest rates up to the triple digits. “That’s like putting the biggest arsonist in the firehouse,” Senate Democrat leader Charles Schumer (D-NY) told reporters.

By law, Trump cannot currently fire Cordray without cause (and according to Sen. Elizabeth Warren (D-Mass), no federal agency head has been fired for cause for more than a century.) However, that could change due to a recent court case that questions the constitutionality of the CFPB. In March, the Justice Department under Jeff Sessions weighed in on the case, asserting the president’s right to fire the head of the independent agency – with or without cause. The Constitutional Accountability Center, a public interest think tank, filed a brief in support of the CFPB, and consumer advocacy groups and 17 state attorneys general recently vowed to defend the CFPB in court.

Experts note that even if the administration succeeded in crippling the CFPB, Navient would still have to contend with the Illinois and Washington lawsuits. “Our work continues independent of any changes at the federal level,” said Peter Lavallee in the office of Washington State Attorney General Bob Ferguson, who has already shown himself to be unfazed by presidential threats by directly challenging Trump’s international travel ban. 

“We believe the role of the states in consumer protection is more important than ever,” Lavallee said.

Meanwhile, the CFPB’s lawsuit against Navient is winding its way through court. The chief executive of Navient, who has often told audiences how devoted the company was to helping Americans navigate student debt, is now singing a different tune. In March 24 court filings asking to dismiss the multimillion case against it filed by the CFPB, Navient said, “There is no expectation that the servicer will act in the interest of the consumer.”

Freelance writer Sally Chew  is a former editor at Vibe magazine and Time Inc.’s Health.com.