Demonstrators protest against cuts to the Consumer Financial Protection Bureau (CFPB) by US … More
Student loan borrowers got a much-needed court victory on Friday after a federal judge ordered the Trump administration to stop dismantling a key financial watchdog agency.
The Consumer Financial Protection Bureau is an independent federal agency that was established in the wake of the 2008 financial crisis. The CFBP’s mission is to protect Americans from unfair, deceptive, harmful, and predatory activities in the financial services industry. A substantial part of the CFPB’s work has been overseeing student loan lenders, servicers, and debt collectors.
But the CFPB, long targeted by conservatives who argue that the agency is too powerful and interferes with legitimate commerce, has been hit with massive changes under the Trump administration. President Donald Trump appointed Russel T. Vought to lead the agency in February. Vought then fired hundreds of CFPB employees, closed the CFPB offices, and ordered a halt to all enforcement activities. A labor union representing CFPB employees and consumer protection groups filed a legal challenge shortly thereafter. On Friday, a federal judge issued a scathing ruling concluding that the Trump administration’s efforts to shutter the watchdog agency were illegal.
Here’s the latest.
The CFPB Has Overseen Federal And Private Student Loan System
The CFPB is empowered under laws passed by Congress to issue regulations governing the financial services sector and to enforce consumer protection laws against lenders, servicers, and debt collectors. Since its inception less than 20 years ago, the agency has returned at least $21 billion in compensation to millions of Americans. The CFPB also operates a complaint system where individual consumers can submit an inquiry or a summary of a dispute with a financial services provider; the CFPB can then investigate those disputes and, in some cases, get a resolution.
The CFPB has been quite active in the student loan space, both in terms of federal student loans and private student loans, particularly with respect to loan servicing and debt collection activities. Recent wins include an enforcement action against the National College Student Loan Trusts, which are Delaware-based business trusts that acquired securitized private student loan debt from commercial lenders and banks; the enforcement action could have provided $2 million in compensation to student loan borrowers who were harmed by allegedly illegal debt collection practices. Last year, the CFPB reached a settlement agreement with Navient in a long-running legal battle over alleged improper loan servicing activities such as so-called forbearance steering (where the servicer allegedly pushed student loan borrowers into forbearances rather than income-driven repayment plans, resulting in huge balance increases and lost progress toward student loan forgiveness). The settlement could have resulted in $100 million in monetary compensation to student loan borrowers, as well as a ban on Navient servicing federal student loans in the future.
Former CFPB Student Loan Ombudsman Julia Barnard released a statement in February shortly after she was fired by the Trump administration, saying that the CFPB student loan team had “manually sifted through over 10,000 complaints, uncovering illegal conduct, identifying the most actionable cases for follow-up, and uncovering systemic and policy failures for Congress.” Barnard also provided examples of success stories, including getting a borrower’s private student loan discharged after she was scammed by her school, and obtaining refunds for student loan borrowers who had erroneous payment amounts debited from their bank accounts by their loan servicer.
“We guided countless borrowers through the Kafka-esque maze of PSLF and ensured others received refunds for money they overpaid out of fear,” wrote Barnard. “This work matters. It’s a lifeline for borrowers and a safeguard against a system that too often fails them. Dismantling this function is unconscionable and will cost real people real money.”
Federal Judge Orders Trump Administration To Stop Dismantling CFBP In Win For Student Loan Borrowers
In a lengthy and scathing decision on Friday, Judge Amy Berman Jackson ruled that the Trump administration’s efforts to shut down the CFPB through firings and stop work orders were illegal and showed “complete disregard for the decision Congress made 15 years ago, which was spurred by the devastating financial crisis of 2008 and embodied in the United States Code, that the agency must exist and that it must perform specific functions to protect the borrowing public. The elimination of the agency was interrupted only because plaintiffs sought and obtained the Court’s intervention on the day the overwhelming majority of the employees were going to be fired.”
The court’s sweeping preliminary injunction requires the Trump administration to maintain the existence of the CFPB and reinstate fired probationary employees as well as other critical staff, including Julia Barnard, the Student Loan Ombudsman. It also blocks the firing of any other CFPB employee without cause, orders the reopening of the CFPB offices, and restores the CFPB complaint system. The order is technically temporary as the litigation continues, but student loan borrower advocates praised the decision as an important early victory for borrowers and consumers.
“Student loan borrowers need to have someone in their corner,” said Julia Barnard in a statement on Friday. “I’m looking forward to my team getting back to this important work. Congress created the CFPB in recognition of the vulnerable position that millions of students are in when trying to finance their higher education. Judge Jackson’s decision highlights the harms that these students and borrowers face without a watchdog and advocate in their corner.”
“Today’s decision clears the way for the Consumer Financial Protection Bureau to get back to the work Congress created it to do – protecting people from predatory and unfair financial practices,” said Richard Dubois, executive director of the National Consumer Law Center in a statement on Friday. NCLC is one of the Plaintiffs in the ongoing legal challenge. “I am grateful to the legal team for fighting to reverse the illegal shuttering of the CFPB and to the court for its unequivocal action to stop this brazen attempt to undermine the essential work of the nation’s consumer watchdog.”
Legal Battles Continue For Student Loan Borrowers
The CFPB ruling came just days after the Trump administration reopened applications for income-driven repayment plans, critical federal student loan repayment programs that provide affordable payments and eventual loan forgiveness for millions of borrowers. The Trump administration had shut down the IDR system following a ruling last month by the 8th Circuit Court of Appeals, which expanded its ongoing injunction blocking the SAVE Plan, a Biden-era repayment program. A national labor union filed a lawsuit against the Trump administration, arguing that shutting down the entire IDR system was illegal and not at all required under the 8th Circuit’s decision. That court battle continues as the Department of Education has still not resumed processing IDR applications.
Meanwhile, legal challenges over the Trump administration’s efforts to shut down the Department of Education also continue. Trump officials have fired or bought out nearly half of the department’s staff, and President Trump has threatened to transfer the federal student loan system to the Small Business Administration. At least two legal challenges have been filed by labor unions arguing that the shutdown and planned transfer without congressional authorization are illegal, and that student loan repayment and loan forgiveness programs will suffer as a result.