On May 6, 2024, the CFPB resolved an enforcement action against a group of Delaware student loan trusts and a loan servicer (found here and here) for their failures to adequately respond to borrowers’ requests for relief, including during the COVID-19 pandemic. When entered by the court, the stipulated final judgments will require defendants to pay almost $3 million in redress to borrowers, and pay a fine of $2.15 million.

The trusts acquired, pooled, and securitized student loans, and hired a third party servicer to service them. As of February 2024, the trusts held roughly 163,000 individual private student loans representing approximately $907 million in student debt.

The Bureau alleged that between 2015 and 2021, defendants failed to respond to thousands of borrower requests, often for forms of relief such as forbearance, deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other types of payment or interest rate relief. The Bureau alleged the loan servicer misrepresented to consumers that requests would be answered when it was evident they would not be as well as failing to notify borrowers the requests submitted to the trusts were not properly processed. The Bureau claimed the defendants actions violated the Consumer Financial Protections Act prohibition of unfair or deceptive conduct.

This lawsuit represents the CFPB’s second enforcement action against the trusts. In March of this year, the Third Circuit Court of Appeals in that case affirmed that the trusts were subject to CFPB authority despite the fact that they had outsourced debt collection and not engaged in it directly (we previously discussed this lawsuit here).

Putting It Into Practice: This action has significant implications for the consumer financial services industry and shows the Bureau’s expanding its reach to go after investors of financial services products. The trusts that held the student loans claimed they were not “engaged” in providing financial services because they outsourced all of the servicing work to a third party. The Bureau disagreed and held them vicarious liable for the servicers failures. Companies that leverage trust arrangements, pool and securitize loans, or have similar arrangements should consider strategies to insulate themselves from Bureau enforcement jurisdiction.