The CFPB has filed an amicus brief in support of the Department of Education’s appeal asking the U.S. Court of Appeals for the Federal Circuit to vacate a preliminary injunction entered by the Court of Federal Claims that bars the ED from assigning defaulted student loans to certain small business private collection agency contractors and other contractors. The injunction was issued in a lawsuit filed by companies challenging ED decisions not to award or continue contracts with such companies to collect student loans.
In its brief, the CFPB states that “to the extent the trial court’s preliminary injunction precludes the [ED] from assigning or reassigning a debt collector to a borrower’s student-loan account, that injunction implicates the Bureau’s consumer-education mission.”
The CFPB asserts that the trial court was mistaken in suggesting that the October 2016 report issued by its Student Loan Ombudsman supports an injunction precluding the ED from assigning debt collectors to defaulted federal student loans. According to the CFPB, while the report recommended reforms to the process for collecting and restructuring federal student loan debt, the process as currently structured makes debt collectors “the primary contact for borrowers seeking information about how to rehabilitate, consolidate, or otherwise manage their federal student-loan debt” and “the primary contact for borrowers seeking to make any payment toward defaulted federal student loan debt.”
The CFPB argues that by preventing the ED from assigning debt collectors to defaulted loans, the preliminary injunction impedes or prevents borrowers from managing their federal student loan debt. As a result, according to the CFPB, the injunction “leaves some borrowers worse off—potentially interfering with access to important consumer protections and preventing some borrowers from making payments toward accruing interest charges—while doing nothing to advance the reforms proposed by the Ombudsman.” The CFPB asserts that borrowers in default “will be better off if they have access to Education’s debt-collection contractors during the pendency of this litigation than if they do not.”