The nation's consumer watchdog agency is accusing the Education Department of impeding a lawsuit that could potentially bring financial relief to millions of student loan borrowers.
The Consumer Financial Protection Bureau is suing Navient Solutions, alleging that the nation's largest student loan servicer violated consumer protection laws and in some cases caused students to pay back too much on their student loans.
But in court filings, the CFPB says the Education Department is refusing to authorize Navient to turn over documents. Without that authorization, the federal government, as well as several state attorneys general suing Navient, could find it difficult to show what type of damage the company's alleged misbehavior caused to borrowers.
Under the Obama administration, the Education Department and the CFPB agreed to share records and resources in cases of potential violations of student-borrowing or consumer-protection laws. But after Trump appointee Betsy DeVos took over, the Education Department rescinded that agreement, calling the CFPB “overreaching and unaccountable” and saying the bureau had no authority to oversee federal student loan servicers.
It appears the Education Department is sticking to that position, even though the CFPB is now also run by a Trump appointee, Mick Mulvaney. Mulvaney was named the bureau’s acting director in November after Obama appointee Richard Cordray stepped down.
Caught in the middle of the dispute: a potentially large number of student loan borrowers.
Kristen Donoghue, the CFPB's assistant director for enforcement, sent a letter to DeVos' general counsel May 30 demanding that the Education Department produce the records it needs for its lawsuit. The letter appeared in court records filed with U.S. District Court for the Middle District of Pennsylvania, where the CFPB originally filed its lawsuit.
“These records are necessary for the Bureau's litigation against Navient Solutions so that the Bureau can identify the consumers potentially harmed by the practices described in the Bureau's complaint, and can quantify the amount of harm suffered by the consumers,” Donoghue wrote.
Navient is using the Education Department's new interpretation of student loan privacy laws to shield itself from having to disclose records to federal investigators. Navient's lawyers say that until the Education Department gives approval for the CFPB to obtain the records, Navient will not cooperate with federal investigators.
The impasse is likely to also affect lawsuits filed by California, Illinois, Pennsylvania and other states if the CFPB is unable to make its case.
The CFPB's letter also shows that the bureau, under Mulvaney, is moving forward with its lawsuit against Navient. It had been rumored that Mulvaney would eventually drop the Navient case — as he did other cases filed in the waning days of the Obama administration. A CFPB spokesman declined to comment, citing pending litigation, and declined to say whether Donoghue was acting independently or with the approval of top CFPB officials.