The Consumer Financial Protection Bureau sued the nation's largest servicer of student loans Wednesday, alleging that Navient Corp. cheated borrowers, resulting in higher payments for Americans struggling to payback their student loans.
The federal consumer agency said that Navient, formerly part of Sallie Mae, "failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans."
Navient, the agency claimed, provided student borrowers with inaccurate information, ignored complaints and processed payments incorrectly.
"For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans," bureau Drector Richard Cordray said in a statement. "At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today's action seeks to hold them accountable."
The lawsuit claims thatNavient violated the Dodd-Frank reform act, the Fair Credit Reporting Act and the Fair Debt Collections Practices Act. The agency is seeking redress for borrowers harmed by the practices and to prevent any future harm.
In response, Navient called the bureau's allegations "unfounded" and questioned the timing of Wednesday's lawsuit, noting it came just days before the Obama administration is set to leave office.
"The timing of this lawsuit _ midnight action filed on the eve of a new administration _ reflects their political motivations," the company said in a statement posted on its website.
The filing of the lawsuit comes during a flurry of new rules and regulations in the waning days of the Obama administration and as the Consumer Financial Protection Bureau is likely to come under renewed threat from long-time Republican critics, who have complained the bureau holds too much power over financial products, and that its attempts to help consumers have led to restricted access to credit.
Some Republican senators have even asked President-elect Donald Trump to remove Cordray as director, which would likely set up a legal showdown over Trump's right to do so.
Consumer advocates have praised the agency for its aggressive actions, including Wednesday's suit against Navient.
"The action by the CFPB against Navient demonstrates the importance of having a strong and independent consumer watchdog on the side of students and working families," said Persis Yu, director of National Consumer Law Center's student loan borrower assistance project. "We call on President-elect Trump to reject calls from Wall Street to fire CFPB Director Rich Cordray or to weaken the consumer watchdog."
In its lawsuit, the consumer agency specifically alleged that Navient misapplied or misallocated borrowers' payments and steered struggling borrowers into payment options that saddled them with higher costs.
Navient also did not provide enough information on critical deadlines to renew income-driven repayment plans that lowered costs, the agency claimed. That caused students to miss enrollment, which "could have caused their monthly payments to jump by hundreds or even thousands of dollars," the bureau said in a news release.
Navient services private and federal loans for more than 12 million borrowers, according to the agency.
