CFPB appeals federal court ruling on trusts


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In its ongoing lawsuit against the National Collegiate Student Loan Trust (NCSLT), the Consumer Financial Protection Bureau (CFPB) has asked a federal court to deny the NCSLTs petition to appeal an earlier decision that would allow them to be considered “covered persons”.

The CFPB made its request on March 3, saying the debate is not an “exceptional issue justifying review prior to entry of a final judgment,” the CFPB response said. “There is no substantial ground for difference of opinion.”

The NCSLTs disagree, saying that deciding on whether more than a dozen student loan ABS trusts “covered persons” and thus under the Consumer Finance Protection Bureau’s regulation is not something that a court of appeals should take on, according to the agency’s response.

The Consumer Finance Protection Act defines “covered persons” as “any person who provides or engages in providing a consumer financial product or service” or any associate of that person if the associated person acts as a service provider.

Weighing in last month, Moody’s Investors Service, said that the court’s ruling could be potentially costly and damaging to trusts and investors.

“If the CFPB or state attorneys general or both increasingly sue trusts over servicers that run afoul of consumer protections, legal costs and potential damages will rise, exposing investors to additional risk,” the rating agency said. “Similarly, if trusts settle and agree to financially unfavorable terms, investors’ loss risks will rise.”

The dispute stems from 2017, when the CFPB filed suit against 15 Delaware statutory student loan securitization trusts. The CFPB argued that the NCSLTs employed questionable debt collection and litigation methods. The agency says that the student loan trusts can be considered “covered persons” for the purpose of the complaint.

However, the structured-finance industry and its legal representation say that NCSLTs programs aren’t covered persons because the Trusts have no internal management or employees, leaving the sub-servicers and servicers to collect on the student loans.

Now, both parties are waiting to see if the court of appeals will agree to hear the appeal.

If the court of appeals hears the appeal, then both the NCSLTs and CFPB will file briefs about their concerns and the court of appeals will hear oral arguments before deciding. If the court of appeals declines to hear the appeal, the case will go back to the district court.