CFPB Constitutional, Federal Judge Says in Enforcement Lawsuit

By Chris Bruce

The Consumer Financial Protection Bureau’s structure meets the requirements of the U.S. Constitution, a federal judge said Aug. 4 in an enforcement lawsuit brought by the CFPB ( Cons. Fin. Protection Bureau v. Navient Corp. , M.D. Pa., 17-cv-00101, 8/4/17 ).

The decision is the latest on the CFPB’s constitutional status, a question that’s before several courts, most prominently the U.S. Court of Appeals for the District of Columbia Circuit. It’s hearing a case that could end up in the U.S. Supreme Court. The Aug. 4 ruling also insulates the CFPB against other decisions that say it doesn’t pass constitutional muster.

Navient Corp., a student loan servicer based in Wilmington, Del., sought to dismiss a suit filed by the CFPB by saying the agency is unconstitutional. Navient cited the agency’s single-director leadership, limits on the director’s removal by the president under the Dodd-Frank Act, and a funding mechanism outside the normal budget process.

Judge Robert D. Mariani of the U.S. District Court for the Middle District of Pennsylvania disagreed and denied Navient’s motion to dismiss a host of CFPB claims. He said the CFPB is constitutional, and that its structure may actually make it more accountable to the president.

“In sum, the Court finds that the CFPB’s structure does not violate Article II or the principle of separation of powers in that it does not impede the President’s ability to `take Care that the Laws be faithfully executed,’ ” Mariani said. He also rejected Navient’s claim that it couldn’t bring its enforcement action without first engaging in rulemaking.

Navient Expects Win

In an Aug. 7 email to Bloomberg BNA, Navient spokesperson Patricia Christel said the company expects to win the legal battle. “Our work has helped borrowers successfully navigate loan repayment, resulting in higher enrollment in income-driven repayment and lower default rates,” Christel said. “We are confident we will prevail in the legal process, following a review of the facts and of our results.”

Navient, which calls itself the nation’s leading loan management, servicing and asset recovery company, services more than 12 million student loans, including 6 million accounts through a contract with the U.S. Department of Education. Navient used to be part of Sallie Mae, the publicly traded U.S. company that makes, services, and collects on private educational loans.

The CFPB sued Navient in January, claiming the company deceptively cheated borrowers out of their rights to lower repayments. According to the Jan. 18 complaint, Navient made it harder for borrowers to use an option known as income-driven repayment, where payments are based on what students could afford.

Navient issued a statement the same day, calling the CFPB’s claims false and branding the lawsuit an “unsubstantiated, unjustified and politically driven action” filed on the eve of a new administration.

Ruling Insulates CFPB

The D.C. Circuit case involves PHH Corp. of Mount Laurel, N.J., which appealed an enforcement order by CFPB Director Richard Cordray. A decision by the D.C. Circuit’s full bench could come by the end of the year. However, according to Mariani, even a ruling there against the CFPB wouldn’t disturb the CFPB’s action against Navient. He said the agency may press its suit even if his court “or any other” court rules against the CFPB on the constitutional question.

“Accordingly, in the event that the Bureau’s structure is found to be unconstitutional and the problematic provisions are severed from the CFP Act, the severance would not affect the CFPB’s ability to maintain the present suit,” Mariani said, referring to the portion of the Dodd-Frank Act that created the CFPB.

Navient is represented by Daniel P. Kearney, Gideon Hart, Jonathan E. Paikin, Karin Dryhurst, and Matthew T. Martens at Wilmer Cutler Pickering & Hale in Washington, and Daniel T. Brier and Donna A. Walsh of Myers Brier & Kelly in Scranton.

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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