Banking and Finance Law Daily States not barred from parallel enforcement actions under CFPA after CFPB has filed suit
Tuesday, July 28, 2020

States not barred from parallel enforcement actions under CFPA after CFPB has filed suit

By Nicole D. Prysby, J.D.

Pennsylvania was not barred from bringing a parallel enforcement action against a student loan servicer after the CFPB filed suit.

Pennsylvania was not barred from bringing a parallel enforcement action against student loan servicer Navient Corporation under the Consumer Financial Protection Act (CFPA) after the Consumer Financial Protection Bureau filed suit, held the Third Circuit Court of Appeals. The Commonwealth alleged violations of the CFPA and Pennsylvania consumer protection law. The Third Circuit held that the CFPA permits concurrent state law claims, based on the plain language of the statute. The law’s pre-suit notice requirement and its provision authorizing the CFPB to intervene in state lawsuits do not bar parallel proceedings. The court also held that while the federal Higher Education Act preempts claims based on failures to disclose information as required by the statute, it does not preempt the claims brought in this case, which were based on affirmative misrepresentations (Pennsylvania v. Navient Corp., July 27, 2020, Ambro, T.).

The Commonwealth of Pennsylvania alleged that Navient committed unfair, deceptive, and abusive practices in violation of the CFPA and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. For example, Navient was alleged to have steered borrowers into forbearance, rather than income-driven repayment (IDR). Navient sought to dismiss the claims, asserting that a proper reading of the CFPA bars Pennsylvania from bringing a "copycat" action under the CFPA where the CFPB has already filed a similar lawsuit alleging identical claims under the CFPA. The federal district court denied Navient’s motion and certified questions of law for interlocutory appeal: whether the Commonwealth may bring a parallel enforcement action after the Bureau has filed suit and whether the Education Act preempts the Commonwealth’s loan-servicing claims under the Pennsylvania law (see Banking and Finance Law Daily, Dec. 19, 2018).

The Third Circuit held that the CFPA permits concurrent state law claims. The plain meaning of the Act supports that conclusion, as it states "the attorney general of any State may bring a civil action to enforce provisions of this title…and to secure remedies under provisions of this title or remedies otherwise provided under other law" (12 U.S.C. section 5552(a)(1)). Other provisions of the Act prohibit concurrent claims (for example, there is an explicit bar against a state’s right of action to enforce mortgage rules where the Bureau has already filed its own action). Therefore, the court presumed that Congress’s omission of an explicit prohibition against concurrent claims from section 5552(a)(1) was intentional. Although the CFPA contains a pre-suit notice provision requiring the state attorney general to provide notice to the Bureau, that provision does not bar parallel proceedings. Similarly, the provision in the Act that authorizes the Bureau to intervene as a party-plaintiff in any state-filed lawsuit does not demonstrate that Congress intended to prevent concurrent state law claims. The court rejected Navient’s claim that allowing Pennsylvania’s concurrent claims would be a waste of judicial resources because the states could not obtain relief beyond what the Bureau could obtain. The Commonwealth could find witnesses and facts that persuade the court to order relief beyond that obtained by the Bureau. In addition, Pennsylvania and other states have a fundamental right to protect their citizens and prevent harmful conduct from occurring in their jurisdictions.

The court also held that the Education Act does not expressly preempt the Commonwealth’s claim under the state law. Section 1098g provides that "[l]oans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act shall not be subject to any disclosure requirements of any State law" (20 U.S.C. section 1098g). The court found a distinction (as have the Seventh, Ninth, and Eleventh Circuits) between affirmative misrepresentation and failure to disclosure information as required by the Education Act and concluded that section 1098g does not expressly preempt claims to the extent they are alleging affirmative misrepresentations rather than failures of disclosure. Here, the Commonwealth’s core allegations are that Navient improperly steered consumers into costly forbearances and made misrepresentations to consumers regarding the recertification of their IDR plans. To the extent the Commonwealth faults Navient for failing to disclose or notify borrowers of certain information, it does so only because Navient’s failure to disclose certain information furthered the affirmative misrepresentations Navient voluntarily chose to make. The court also found no implied preemption—there is no indication that Congress had the sweeping goal of regulating all misconduct that could possibly occur in student-loan financing and requiring uniformity of all claims tangentially related to the Education Act. Finally, the court rejected Navient’s argument of field preemption. Taken to its logical conclusion, Navient’s proposed outcome would mean that servicers would in theory be free to mislead consumers provided that they met the Education Act’s technical disclosure requirements.

Response. "Today’s decision is a big step in favor of all Pennsylvania consumers, especially anyone with student loans," said Pennsylvania Attorney General Josh Shapiro. "Navient repeatedly and deliberately put their own profits ahead of the goals of every borrower who worked to better their lives through education. Navient has attempted to delay this case at every turn and failed yet again with the Third Circuit Court’s decision. Despite their efforts, my Office won’t stop pursuing Navient until I know that they can’t deceive Pennsylvanians again. The decision also makes clear consumers won’t be left unprotected when the Federal government fails to step up as has happened all too often during the current administration."

The case is No. 19-2116.

Attorneys: Josh Shapiro, Office of the Attorney General of Pennsylvania, for Commonwealth of Pennsylvania. Daniel T. Brier (Myers, Brier, & Kelly LLP), James P. Brown (Kirkland & Ellis LLP) and Michael Shumsky (Hyman, Phelps & McNamara, P.C.) for Navient Corp. and Navient Solutions LLC.

Companies: Commonwealth of Pennsylvania; Navient Corp.; Navient Solutions LLC

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