TRENTON – Attorney General Gurbir S. Grewal yesterday urged a federal court of appeals to preserve states’ authority to enforce their consumer protection laws against student loan servicers. The U.S. Court of Appeals for the Third Circuit is considering the issue in a case brought by Pennsylvania against Navient Corp. and Navient Solutions LLC (“Navient”), in which the company argues that federal law exempts student loan servicers from state consumer protection laws.
The amicus brief filed by New Jersey, New York, and a bi-partisan coalition of 30 other states also argues that state attorneys general can sue to enforce federal consumer financial protection laws even when a federal agency is already pursuing a similar case against the same defendant.
An adverse ruling by the Third Circuit could have significant implications for the Attorney General's Division of Consumer Affairs, which is currently investigating Navient, one of the country's largest student loan servicing company. Navient has publicly disclosed that it has received civil investigative demands or subpoenas from New Jersey, New York, Colorado, Kansas, Oregon, and the District of Columbia in investigations pursuant to state consumer fraud and deceptive business practice laws. In addition, Navient already faces consumer protection lawsuits filed by California, Illinois, Mississippi, Pennsylvania, Washington, and the federal Consumer Financial Protection Bureau.
Other states have investigated or sued other student loan servicers under their own consumer protection laws.
“So many of our residents have complaints about student loan servicers that it’s no surprise to see the industry arguing they should be exempt from the same consumer protection laws that apply to other businesses,” said Attorney General Grewal. “But student loan servicers are not above the law. And now, with the U.S. Department of Education refusing to hold them accountable, it’s more important than ever for the states to protect borrowers from industry abuses.”
“We are committed to ensuring that student loan borrowers are not cheated or abused by the loan servicers that promise to help them manage their student loan debt,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “Navient’s claim that it cannot be held to account by states, who have long played a joint role with the federal government in protecting student loan borrowers from mistreatment, is simply wrong.”
The multistate amicus brief filed yesterday supports Pennsylvania in a lawsuit that the Commonwealth filed against Navient in 2017. Pennsylvania’s complaint alleges that Navient engaged in unlawful student loan origination and servicing practices in violation of both federal and state consumer protection laws. The court of appeals is now considering Navient’s appeal from a district court decision denying its motion to dismiss Pennsylvania’s case.
Among the allegations of unfair, deceptive, and abusive practices by Navient are accusations that the company has steered borrowers into less favorable repayment options, deceived delinquent borrowers about the amount needed to bring their accounts current, and consistently made payment processing errors that resulted in borrowers paying unnecessary late fees (and in some cases entering into delinquency).
“If this court accepts Navient’s arguments and ousts States from regulating fraud and deception in the federal student loan industry, then millions of borrowers holding nearly $1.5 trillion in debt – approximately 11 percent of all household and consumer debt nationally – will lose state-law protections that previously had applied to them,” the amicus brief asserts. For Americans between the ages of 18 and 39, student loan obligations represent between 20 percent and 40 percent of all debt.
The brief also points to studies showing that “ballooning student loan debt harms borrowers’ economic, physical and mental well-being, and inhibits their ability to participate as full and contributing members of their communities.”
New Jersey residents had $41.67 billion in outstanding student loan debt in 2016, according to the Consumer Financial Protection Bureau.
According to the brief, there is “a long and effective tradition of the federal government working side-by-side with state law enforcement to promote active oversight in the student loan industry” and “no provision of federal law precludes that productive and cooperative enforcement regime.”
New Jersey’s participation in the Navient lawsuit follows a series of other actions taken by the Murphy Administration to address abuses by student loan servicers:
- In July 2019, Acting Governor Sheila Oliver signed legislation to create strong new protections for student loan borrowers by requiring student loan servicing companies to be licensed by the Department of Banking and Insurance (“DOBI”), cracking down on deceptive practices, and creating a New Jersey Student Loan Ombudsman within DOBI to help borrowers with complaints or unanswered questions about student loans and to monitor and review complaints about student loan servicers operating in our state.
- In September 2018, Attorney General Grewal filed an amicus brief arguing that federal law does not preempt state laws requiring student loan servicers to be licensed by the state.
- In March 2018, Attorney General Grewal joined a bipartisan coalition of 28 State Attorneys General in urging Congress to reject proposed amendments to the Higher Education Act that would have immunized student loan originators, servicers, and debt collectors from state oversight.
“The State of New Jersey is focused on the needs of its students and this means having their backs when it comes to unfair practices by loan servicers. Our students deserve to have protection and support from their state government when it comes to unscrupulous practices of all kinds,” said Secretary of Higher Education Zakiya Smith Ellis.
“The state has a responsibility to protect student loan borrowers against unfair and deceptive practices that contribute to the student debt crisis, and place an incredible financial burden on New Jersey families. The Murphy Administration has taken action to enhance consumer protections for borrowers, including the recent signing of two laws to ensure residents are treated fairly by loan servicers and have access to clear information about the impact of college loans,” said Department of Banking and Insurance Commissioners Marlene Caride. “Joining other states in this amicus brief is consistent with our commitment to making college more accessible. It is also critical to ensuring the state can hold accountable companies that are now required to be licensed and regulated by the department, if they do not comply with our laws.”
“Most New Jersey students and their families take out student loans to help finance the postsecondary education that enables success in today’s economy. Reducing the burden of student debt is a critical part of our comprehensive strategy to make college more affordable, alongside our efforts to boost debt-free options to pay for college with grants, scholarships, and college savings, and to increase the transparency of consumer information. When companies servicing loan repayments act in violation of state consumer protection standards, New Jersey will step in to protect student borrowers,” said David Socolow, Executive Director of the New Jersey Higher Education Student Assistance Authority.
If you have a complaint about the servicing of your student loans, you may file a complaint with the Division of Consumer Affairs at: www.njconsumeraffairs.gov/Pages/File-a-Complaint-old.aspx.