CEI has praised Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), for her many deregulatory initiatives that—in contrast to her predecessor, Richard Cordray—protect consumer choice and beneficial innovation. Yet, we have also criticized her for letting the CFPB continue to pursue some of the meritless litigation of the Cordray era.
Exhibit 1 is the lawsuit against the student loan servicer Navient that the CFPB filed in January 2017, just two days before the end of President Obama’s presidency. As my colleague Matthew Adams and I have written, “Not only did the lawsuit give the appearance of being rushed through before a change of leadership, it soon looked even weaker when the primary allegations of the suit were shown to be overblown or outright false.”
The Cordray-era suit contended that Navient had steered troubled borrowers towards forbearance—a loan status where payments are temporally suspended but where interest continues to accrue—instead of other repayment options such as income-based repayment. But the chart used by Navient staff when dealing with borrowers that the CFPB included in its court filing actually places forbearance at the bottom of the list, after extended repayment, graduated repayment, income-based repayment (IBR), income-contingent repayment (ICR), income-sensitive repayment (ISR), and deferment.
Further, when Navient had the chance to examine records of the CFPB’s purported victims of the company’s supposed “steering,” the examination found that Navient employees repeatedly informed these borrowers of other repayment options. According to Jason Delisle, resident fellow at the American Enterprise Institute, the CFPB ended up withdrawing over half these “victims” as witnesses.
If these flaws in the case were not enough reason for Kraninger to drop the litigation against Navient, as we have urged her to do, the Supreme Court’s recent ruling holding that the structure of the CFPB was unconstitutional provides an additional reason. In Seila Law v. CFPB, the court ruled that the CFPB had since its inception been operating in violation of the Constitution’s checks and balances because the head of the powerful government entity was not removable at will by the president. Although the court didn’t strike down the CFPB, as CEI would have liked, it left the plethora of rules and actions the CFPB initiated when it was operating unconstitutionally open to constitutional challenges.
And one of the first challenges was by Navient. The company filed a motion [uploaded here] in a federal court on July 10 asking for the case’s dismissal. “It is now established law that the CFPB never had constitutional authority to bring this action and that the filing of this lawsuit was unauthorized and unlawful. The Seila Law decision compels the immediate dismissal of the CFPB’s suit,” the motion reads.
So far, Kraninger is fighting Navient’s motion for dismissal. According to Legal Newsline, she “filed a declaration with the Pennsylvania federal court hearing the case notifying Judge Robert Mariani that she has ratified the decision to file suit made by Obama’s CFPB head, Richard Cordray.”
Agencies that have been ruled unconstitutional because of a structural defect will frequently try to ratify past actions once the defect has been fixed. But when challenged, these ratifications are not always upheld by the courts. Navient argues that the CFPB litigation against the company cannot be ratified in this case because the statute of limitation has expired. The company’s filing states that “binding Supreme Court and Third Circuit law dictates that any such ratification could not enable this suit to proceed because the statute of limitations has long since expired on the Bureau’s claims, and a post-hoc effort of ‘ratification’ by a properly constituted agency cannot revive the statute of limitations period.”
Navient notes that the statute of limitations under the Dodd-Frank financial overhaul, which created the CFPB, is “3 years after the date of discovery of the violation to which an action relates.” Thus, even if the supposed violation on the day the CFPB filed its lawsuit—January 18, 2017—the statute of limitations would have expired almost six months ago.
Given these facts and the other defects in the lawsuit against Navient, Kraninger should stop wasting CFPB resources on her predecessor’s meritless litigation. She should instead use those resources to continue deregulatory initiatives that enhance consumer choice and protect consumers from real fraud and deception.