The U.S. Court of Appeals for the Third Circuit ruled last week in Commonwealth of Pennsylvania v. Navient Corp. that the PA Attorney General could bring a parallel enforcement action against Navient, a servicer of federal student loans, under the Consumer Financial Protection Act (CFPA) even though the CFPB had previously filed a lawsuit against Navient based on the same alleged conduct. The Third Circuit also ruled that the federal Higher Education Act (HEA) did not preempt the PA AG’s loan-servicing claims against Navient for alleged violations of PA’s Unfair Trade Practices and Consumer Protection Law to the extent such claims were based on voluntary affirmative misrepresentations.
Navient services federal student loans made under the Direct Loan Program, under which the Department of Education (ED) makes loans directly to borrowers. It also services federal student loans made under the Federal Family Education Loan Program, under which the federal government guarantees privately funded student loans (Indirect Loans). Both Direct and Indirect Loans are subject to comprehensive ED regulations that address all aspects of the loan process, including how and when servicers must communicate with borrowers about forbearance and the availability of income-driven repayment plans.
Concurrent actions. While the CFPA at 12 U.S.C. 5552 (a)(1) permits state AGs to file lawsuits asserting CFPA claims, it requires state AGs to notify the Bureau before filing such a lawsuit and grants the Bureau authority to intervene in such lawsuits. Deciding that it did not need to address the significant constitutional issues inherent in the prosecution of concurrent actions over the same alleged violation of law, on the grounds that they were not part of the interlocutory appeal, the Third Circuit concluded that the notification requirement is largely perfunctory. Pointing to other CFPA sections that expressly prohibit concurrent actions, the Third Circuit concluded that Congress’s omission of an explicit prohibition against concurrent actions in Section 5552(a)(1) was intentional and therefore the section’s plain language permits concurrent actions.It was unwilling to find that either the CFPA’s pre-suit notification requirement or its authorization for the Bureau to intervene in state-filed actions was sufficient to override the CFPA’s statutory language.
Preemption. The HEA, at 20 U.S.C. 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.” The Third Circuit concluded that Section 1098g did not expressly preempt the PA AG’s UDAP claims to the extent they alleged affirmative misrepresentations rather than failures of disclosure. The Third Circuit also concluded that Section 1098g did not impliedly conflict with the PA AG’s state law claims or preempt the field of regulation of student loans.
It is important to note that while the Third Circuit did not agree with Navient’s position regarding the scope of HEA preemption, it affirmed that the HEA establishes the disclosure requirements for the servicing of Direct and Indirect Loans and preempts any state law claims alleging violations of those disclosure requirements. In addition, while the Third Circuit found that the district court had correctly concluded that claims based on affirmative misrepresentations were not preempted by the HEA, it acknowledged the possibility that on remand, a closer allegation-by-allegation analysis of the PA AG’s claims might reveal that certain claims were not based on voluntary affirmative misrepresentations and instead were based on failures of disclosure (and therefore preempted by the HEA). It likewise left open the constitutional challenges to concurrent jurisdiction.