Third Circuit Court Allows Case Against Student Loan Giant to Move Forward

On July 27, 2020, Pennsylvania Attorney General Josh Shapiro announced that his office had obtained an important win in a decision from the United States Court of Appeals for the Third Circuit, as part of the Office of Attorney General’s ongoing court battle with the nation’s second-largest servicer of federal and private student loans.

In October 2017, we reported that Attorney General Shapiro sued the student loan servicer for engaging in unfair and deceptive lending and failing to offer proper repayment plans to students.  Then, in December 2018, the United States District Court for the Middle District of Pennsylvania denied the servicer’s Motion to Dismiss in its entirety.  The servicer appealed that ruling and, now the Third Circuit Court of Appeals has affirmed the district court’s ruling.  As a result of this court order, discovery will resume and the case will proceed towards trial.

In its 42-page Order, the Third Circuit rejected the servicer’s core argument that the Federal Consumer Financial Protection Act (CFPA) prohibits states from bringing CFPA claims where there is already a pending lawsuit by the Consumer Financial Protection Bureau to address the same violative conduct. The Court wrote that CFPA’s “plain meaning” is “that the Pennsylvania attorney general may bring an action to enforce the [CFPA].”  It also rejected the servicer’s argument that parallel state and Federal lawsuits would waste judicial resources.  Finally, the Third Circuit rejected the servicer’s preemption argument, i.e, that the Federal Higher Education Act preempts state laws that prohibit unfair and deceptive acts and practices.