On March 19th, the United States Court of Appeals for the Third Circuit issued an opinion in CFPB v. National Collegiate Master Student Loan Trust et al. (the “Trusts”). The issue before the Third Circuit was whether certain Trusts are “covered persons” subject to the Consumer Financial Protection Act (“CFPA”) and whether the CFPB was required to ratify the underlying action. The Court held that the Trusts were “covered persons” subject to the CFPA and that the CFPB did not have to ratify the action.


As a refresher, this case stems from a 2017 CFPB enforcement action against the Trusts related to collections lawsuits against borrowers. This enforcement action was among the CFPB lawsuits ratified by former CFPB Director Kathy Kraninger following the U.S. Supreme Court’s decision in Selia Law, which held that the Director was unconstitutionally insulated from removal by the President (i.e., only removable for cause). The ratification of the enforcement action occurred more than three years after it was initially filed, allowing the CFPB to refile. The Trusts moved to dismiss arguing that the enforcement action was invalid as they were not “covered persons” under the CFPA. In CFPB v. National Collegiate Master Student Loan Trust et al., the district court rejected the Trusts’ arguments that they were not “covered persons” under the CFPA and that because the enforcement action was filed by an unconstitutionally structured CFPB, it was void when filed and could not stop the statute of limitations from running. The district court certified two questions to the Third Circuit for interlocutory appeal: whether the Trusts are “covered persons” and whether the filing of the enforcement action by an unconstitutionally structured CFPB made the filing invalid, thereby requiring the Bureau to ratify the lawsuit before the statute of limitations ran out.

Are the Trusts Covered Persons?

The Court determined that the Trusts “engaged” in consumer financial products or services, and, are therefore “covered persons” under the CFPA.

The Trusts were formed for the purpose of acquiring and servicing portfolios of over 800,000 private student loans. Each Trust entered into a Trust Agreement governed by Delaware law. Each Trust then entered into Administration Agreements whereby an administrator contracted with third parties through various Servicing Agreements. Servicers promised to provide services including communications with borrowers, and provide procedures for delinquency and default.

In connection with the initial question, the Court reviewed the underlying Trust Agreements and highlighted that the language of the agreements indicated that the purpose of the Trusts is to “engage” in acquiring a pool of student loans, and engage in activities that are necessary to accomplish that purpose. The Court highlighted that through the Administration Agreements, the Trusts involved themselves in consumer financial products or services. The Court highlighted that the Trusts further involved themselves in agreements for the servicing of loans though the Servicing Agreements. Lastly, the Court noted that the Trusts had the power to engage in other activities required in connection with conservation of trust property. When lawsuits are brought against borrowers, the Servicing Agreements allow collectors to act for the benefit of the Trusts; therefore, the Trusts take part in collecting debts.

Must the CFPB Ratify the Action?

Next, the Court determined that ratification was not necessary. The Trusts argued that ratification was necessary, as the underlying suit was initiated by the CFPB when the Director was improperly insulated (i.e., only removable for cause), and that ratification did not occur within the statute of limitations. The Court held that the Trusts were not harmed by the unconstitutional limitation on the President’s authority to remove the Director, and decided not to remand this question to the District Court.

Broader Implications for Securitization Trusts

This case may have broader implications given the Court’s interpretation of “engaging” in consumer financial services and products within the definition of a “covered person.” The Court held that the CPFA expressly contemplated that a trust could be a “covered person,” so long as the entity engaged in a consumer financial product or service. The holding expands the CFPB’s regulatory and enforcement powers to Trusts, which solely engage in consumer financial services through contractual delegation to third parties. This decision further indicates that a passive securitization trust is subject to the CFPB’s enforcement authority.