The Consumer Financial Protection Bureau is suing Navient, the country's largest student loan servicer, for illegal repayment practices.
The CFPB charges that Navient, formerly part of Sallie Mae, provided bad information to borrowers, processed payments incorrectly and failed to act when borrowers complained. Moreover, it "systematically made it harder for borrowers to obtain the important right to pay according to what they can afford," according to the CFPB press release, referring to income-driven prepayment plans for struggling borrowers.
"At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs," said CFPB Director Richard Cordray, in a statement. "Today's action seems to hold them accountable."
In its press release, the CFPB said it seeks to recover "significant relief" for borrowers harmed by these illegal practices, but it did not specify an amount.
Perhaps that's why Navient stock did not falter on the news. In midafternoon trading, it was up a little more than 1% at $15.98. Since the beginning of the year, it's down 2.7%.
Navient services more than $300 billion in federal and private student loans for more than 12 million borrowers, which is equivalent to about one-fifth of the $1.4 trillion in outstanding student loan debt and a little more than a quarter of the 44 million borrowers.
The CFPB is suing Navient and two subsidiaries: Navient Solutions, which is responsible for loan servicing operations, and Pioneer Credit Recovery, which collects on defaulted student loans.
The state attorneys general of Washington State and Illinois are also suing Navient and its subsidiaries for abuses in loan servicing options, but those suits were filed in their respective state courts. The CFPB suit was filed in U.S. District Court for the Middle District of Pennsylvania.
In its lawsuit the CFPB paints a picture of a loan servicer that has taken advantage of student loan borrowers in order to maximize its own profits at the expense of those borrowers. It charges Navient with:
Repeatedly misapplying or misallocating borrowers' payments and failing to correct those errors. For example, Navient would allocate a payment across a number of a borrower's loans rather than paying off a particular loan first, which the borrower had instructed it do.
