On August 21, the CFPB filed an amicus brief in the Court of Appeals for the Federal Circuit, urging the court to reverse a trial court’s order and arguing that precluding the Department of Education (Department) from sending billions of dollars in defaulted student loans to debt collection companies is contrary to public interest. The Bureau, siding with the Department, claims the trial court’s preliminary injunction deprives “borrowers in default of access to basic information about key consumer protections and the opportunity to arrange repayment—functions performed by debt collection contractors under [the Department’s] current collections regime—[and] does not facilitate, but impedes, borrowers’ ability to enter into income-driven repayment plans, whether through rehabilitation or consolidation.” As previously reported in InfoBytes, on May 31, U.S. Court of Federal Claims Chief Judge Susan G. Braden ordered a continuation of her preliminary injunction, which prevents the Department from collecting on defaulted student loans—a process that was halted on March 29 when Judge Braden issued a temporary restraining order in this matter. The May order, Judge Braden stated, would stay in place “until the viability of the debt collection contracts at issue is resolved.”
In its amicus brief, the Bureau contended that data presented in its 2016 Ombudsman Report (Report) providing recommendations for reforms to the current process for collection and restructuring federal student loan debt does not support the trial court’s position, a claim the court made when issuing its order. Rather, the Bureau’s position is that the Report provides several recommendations for improvements to the current system, which focus on which companies will be granted debt collection contracts and, additionally, suggests solutions such as moving rehabilitated borrowers into income-driven repayment plans. The Bureau also proposes ways policymakers can simplify and streamline the rehabilitation process. Thus, the Bureau countered, the preliminary injunction is “wholly divorced from these concerns and recommendations and is, in fact, inconsistent with them.”
Two of the defendant-appellants also filed separate briefs August 14 and 15. The Department claimed in its August 15 brief that, as of May 31, the injunction has “deprived approximately 234,000 defaulted borrowers, holding accounts valued at $4.6 billion, of loans servicing services” and, furthermore, has resulted in approximately $2.4 million in uncollected funds.
Notably, the appeals court issued an order on July 18 holding the defendant-appellants motions to stay in abeyance pending the trial court’s decision and denying the plaintiff-appellee’s motion to dismiss.