On May 13, The First Marblehead Corporation became the latest in a series of student loan servicers to disclose possible forthcoming enforcement action by the Consumer Financial Protection Bureau (CFPB). While CFPB investigations are generally non-public, First Marblehead’s disclosure and those of other companies that preceded it suggest that the CFPB’s Office of Enforcement has focused on student loan servicing and collection investigations and now has a pipeline of cases close to resolution. The series of disclosures suggests that 2016 may see as many as four separate enforcement actions focused on student loan servicing.
First Marblehead disclosed that on May 11, 2016, it received a NORA notice from the CFPB relating to the collection and litigation of delinquent and defaulted private student loans. NORA is the CFPB’s “Notice and Opportunity to Respond and Advise” process, by which the agency Office of Enforcement informs investigation targets of potential claims that Enforcement staff is considering recommending be brought against the party. It provides a party the chance to submit a written submission explaining why enforcement action is not warranted for factual, legal, or policy reasons. While a NORA submission may persuade staff to not pursue an action, most investigations that reach this stage result in a public enforcement action of some kind.
Last fall, Navient Solutions, Inc. also disclosed that it had received a NORA notice. Navient received the notice on August 19, 2015, relating to the CFPB’s investigation of the company’s disclosures and assessment of late fees. Nine months have passed, suggesting that a consent order or contested enforcement action is likely in the near future.
Navient also disclosed that in November 2014 its subsidiary Pioneer Credit Recovery, Inc. had received a Civil Investigative Demand (CID) from the CFPB as part of the CFPB’s investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt. While no disclosure has been made of a NORA in that case, CFPB investigations typically conclude within two years, so a case against Pioneer may also be in the offing.
Finally, Xerox Educational Services, Inc. has disclosed that it received a NORA notice from the CFPB on January 5, 2016, relating to its servicing of student loans. That matter too should wrap up in the coming months.
All of this suggests that the CFPB’s focus on student loan servicing is about to bear fruit in the form of consent orders or contested enforcement actions. To date, the CFPB has brought a single enforcement action concerning student loan servicing, and has flagged student loan servicing issues in its Supervisory Highlights publication. But the agency has identified student loan servicing as one of its priorities over the next two years – with full knowledge of the pipeline of investigations nearing conclusion. Barring a surprising change, 2016 is shaping up as the year of student loan servicing enforcement at the CFPB.