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Navient Banned to Service Federal Direct Loans, To Pay $120M to CFPB
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A proposed order has been filed by the U.S. Consumer Financial Protection Bureau (“CFPB”) against Navient Corporation (NAVI - Free Report) , according to which the student loan servicer will be permanently banned from servicing federal direct loans and directly servicing or acquiring most loans under the Federal Family Education Loan Program.
NAVI will have to pay $120 million for years of student lending failures, which includes $100 million in restitution and a $20-million civil penalty.
The CFPB’s Remarks About Navient
The CFPB’s director, Rohit Chopra, said that his agency was “closing the book on Navient” as the company “harmed millions of borrowers across the country.”
Navient has been accused of deceiving borrowers into delaying loan repayments even if they qualified for affordable repayment plans based on their incomes, which resulted in them paying more interest because it was cheaper and simpler.
The CFPB has claimed that Navient made mistakes in processing payments and misleading borrowers about their rights.
Chopra stated, “Borrowers don’t get to select who services their student loan, so more than a quarter of all student loan borrowers had no choice but to rely on Navient as their servicer.”
He added, “Navient is now almost completely out of the federal student loan servicing market and we’ve ensured they cannot re-enter it in the future.”
Digging Deep Into the CFPB’s Investigations Against NAVI
The CFPB began investigating Navient a decade ago, almost at the same time the company split off from the consumer banking corporation Sallie Mae.
In 2017, the regulator sued Navient, accusing the firm of predatory lending practices. At that time, NAVI was servicing student loans of more than 12 million borrowers, including more than 6 million accounts under its contract with the Education Department. In total, Navient serviced more than $300 billion in federal and private student loans back then.
In the following years, states began to examine such allegations of forbearance steering, leading to debt cancelations for many borrowers across the country.
Thus, in January 2022, Navient reached a $1.85-billion settlement with 38 U.S. states and Washington, DC, to resolve charges that it made predatory loans that borrowers struggled to repay.
In 2021, NAVI transferred its contract to service government loans to a third party, ending its contract with the U.S. Education Department to service direct loans. Earlier this year, Navient reached an agreement to outsource servicing of legacy loans from the Federal Family Education Loan Program to another servicer starting July 1.
According to NAVI, the latest settlement “puts these decade-old issues behind us. While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company.”
Navient’s Price Performance & Zacks Rank
So far this year, NAVI shares have lost 17% against the industry’s growth of 7.1%.
Image Source: Zacks Investment Research
Currently, Navient carries a Zacks Rank #4 (Sell).
This July, Ameriprise Financial Services (AMP - Free Report) filed a lawsuit against LPL Financial Holdings’ (LPLA - Free Report) subsidiary, LPL Financial LLC, in the United States District Court. The lawsuit accused LPLA of malpractice and mishandling of private and confidential client data, and recruiting advisors while violating legal, regulatory and industry obligations.
The lawsuit, in particular, claimed that LPLA deliberately directed the advisors it recruits from Ameriprise and other competitors to take confidential information with themselves on the way out of their former organizations. The actions were deemed to be in direct violation of several securities laws and regulations and the standards that LPLA is obliged to comply with as a member of the broker protocol for recruiting.
AMP further alleged that LPLA’s actions disregard all reasonable expectations of client privacy rights, and expose its advisors to regulatory and criminal risks.
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Navient Banned to Service Federal Direct Loans, To Pay $120M to CFPB
A proposed order has been filed by the U.S. Consumer Financial Protection Bureau (“CFPB”) against Navient Corporation (NAVI - Free Report) , according to which the student loan servicer will be permanently banned from servicing federal direct loans and directly servicing or acquiring most loans under the Federal Family Education Loan Program.
NAVI will have to pay $120 million for years of student lending failures, which includes $100 million in restitution and a $20-million civil penalty.
The CFPB’s Remarks About Navient
The CFPB’s director, Rohit Chopra, said that his agency was “closing the book on Navient” as the company “harmed millions of borrowers across the country.”
Navient has been accused of deceiving borrowers into delaying loan repayments even if they qualified for affordable repayment plans based on their incomes, which resulted in them paying more interest because it was cheaper and simpler.
The CFPB has claimed that Navient made mistakes in processing payments and misleading borrowers about their rights.
Chopra stated, “Borrowers don’t get to select who services their student loan, so more than a quarter of all student loan borrowers had no choice but to rely on Navient as their servicer.”
He added, “Navient is now almost completely out of the federal student loan servicing market and we’ve ensured they cannot re-enter it in the future.”
Digging Deep Into the CFPB’s Investigations Against NAVI
The CFPB began investigating Navient a decade ago, almost at the same time the company split off from the consumer banking corporation Sallie Mae.
In 2017, the regulator sued Navient, accusing the firm of predatory lending practices. At that time, NAVI was servicing student loans of more than 12 million borrowers, including more than 6 million accounts under its contract with the Education Department. In total, Navient serviced more than $300 billion in federal and private student loans back then.
In the following years, states began to examine such allegations of forbearance steering, leading to debt cancelations for many borrowers across the country.
Thus, in January 2022, Navient reached a $1.85-billion settlement with 38 U.S. states and Washington, DC, to resolve charges that it made predatory loans that borrowers struggled to repay.
In 2021, NAVI transferred its contract to service government loans to a third party, ending its contract with the U.S. Education Department to service direct loans. Earlier this year, Navient reached an agreement to outsource servicing of legacy loans from the Federal Family Education Loan Program to another servicer starting July 1.
According to NAVI, the latest settlement “puts these decade-old issues behind us. While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company.”
Navient’s Price Performance & Zacks Rank
So far this year, NAVI shares have lost 17% against the industry’s growth of 7.1%.
Image Source: Zacks Investment Research
Currently, Navient carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Legal Issues Faced by Other Finance Companies
This July, Ameriprise Financial Services (AMP - Free Report) filed a lawsuit against LPL Financial Holdings’ (LPLA - Free Report) subsidiary, LPL Financial LLC, in the United States District Court. The lawsuit accused LPLA of malpractice and mishandling of private and confidential client data, and recruiting advisors while violating legal, regulatory and industry obligations.
The lawsuit, in particular, claimed that LPLA deliberately directed the advisors it recruits from Ameriprise and other competitors to take confidential information with themselves on the way out of their former organizations. The actions were deemed to be in direct violation of several securities laws and regulations and the standards that LPLA is obliged to comply with as a member of the broker protocol for recruiting.
AMP further alleged that LPLA’s actions disregard all reasonable expectations of client privacy rights, and expose its advisors to regulatory and criminal risks.