WASHINGTON, D.C. – On Monday September 10, 2018, the national Lawyers’ Committee for Civil Rights Under Law (Lawyers’ Committee), the Center for Responsible Lending (CRL), and the National Student Legal Defense Network (NSLDN) filed a brief in the D.C. District Court to advocate on behalf of D.C. in a lawsuit challenging the District’s right to pass laws that better protect residents against the problematic practices of servicing companies that manage student loan repayment.
The brief filed in Student Loan Servicing Alliance v. Taylor, et al. urges the court to reject the plaintiff loan servicer association’s “federal preemption” argument, which claims that existing federal law bars states and the District from engaging in any regulatory oversight of loan servicers. As the brief highlights, this preemption argument is legally unfounded and unwise. In fact, D.C.’s efforts to regulate loan servicers finds strong support in legal precedent and sound policy to prevent disastrous consequences for the most vulnerable student borrowers and communities, especially borrowers of color.
“Fair and effective loan servicing is critical to addressing the crippling debt and default that is disproportionately shouldered by students of color due to persistent racial inequities and the predatory practices of for-profit colleges,” said Brenda Shum, Educational Opportunities Project Director at the Lawyers’ Committee for Civil Rights Under Law. “It is critical to preserve states’ traditional consumer protection role to adequately address the misconduct of loan servicers, particularly during a time when the Department is rapidly scaling back its enforcement efforts. States are stepping up to protect lower-income and minority students from the undue financial harm caused by poor servicing practices, and we are proud to support those efforts in our amicus briefs.”
“Undermining state law is a tactic that predatory lenders use. States and the District of Columbia should be able to exercise their authority to protect their student loan borrowers from untrustworthy, abusive servicers,” said Lisa Stifler, CRL’s Deputy Director of State Policy. “The student loan debt crisis is real, and it disproportionately impacts communities of color. Forty-four million Americans share the burden of a still-growing $1.4 trillion in student loan debt, which makes it difficult each year for borrowers to buy a house, start a business, and raise a family. Preserving the traditional role of states to enact commonsense consumer protection safeguards is paramount if we want to keep servicers transparent and accountable to the public."
“By seeking to bar state and District oversight of student loan servicers, SLSA and Secretary DeVos are impeding states and the District from fulfilling their traditional consumer protection role,” said Martha Fulford, Senior Counsel for the National Student Legal Defense Network. “Student loan servicers play an essential role in keeping borrowers out of default and helping them access protections guaranteed to them by Federal law. When these companies are failing D.C. student loan borrowers, it is imperative that the District step up to protect its residents.”
The filed Amici brief addresses four issues:
- States have regulated the student loan servicing market consistent with states’ traditional consumer protection mandate.
- Poor servicing practices harms student borrowers, especially borrowers of color, and any finding of preemption would have disastrous results for the most vulnerable borrowers and their communities.
- Borrowers depend upon robust enforcement of state laws for protection because the Department of Education has limited statutory authority and has failed to use what limited authority it has.
- D.C.’s actions are entirely appropriate, within its traditional consumer protection role, and not preempted by federal law.
The lawsuit was brought after the Department of Education took a series of steps to dismantle various protections for student borrowers and prevent any other government body, state or federal, from coming to their aid. In April 2017, the Department withdrew several policy memos which were issued to strengthen consumer protections for student borrowers and increase accountability and transparency for servicers. In August 2017, the Department terminated agreements with the Consumer Financial Protection Bureau which were aimed at making regulatory oversight of servicers more effective and efficient. In March 2018, the Department published a Notice of Interpretation asserting a broad theory of preemption that stands in stark contrast with its previous legal interpretations and prior embrace federal-state cooperation. Moreover, the Trump administration has recently come to the aid of industry actors being sued by state attorney general offices for violating state and federal consumer protection laws. On August 24, 2018, the Department of Justice filed a Statement of Interest supporting the plaintiff loan servicer association’s theory of federal preemption.
In contesting the broad preemption argument made by the plaintiff loan servicer SLSA (and more recently by the Department), the brief filed by the Lawyers’ Committee, CRL, and NSLDN emphasizes that states are merely acting within their traditional role in enforcing and implementing consumer protections, as they do in other contexts. Lawyers’ Committee, CRL, and NSLDN resist any effort—in the courts or by the Department—that seeks to shut down states’ traditional consumer protection role in an area where student borrowers, and particularly low-income borrowers of color, have little recourse save for state law.
About The Lawyers’ Committee for Civil Rights Under Law: The Lawyers’ Committee, a nonpartisan, nonprofit organization, was formed in 1963 at the request of President John F. Kennedy to involve the private bar in providing legal services to address racial discrimination. The Lawyers’ Committee celebrated its 55th anniversary in 2018 as it continued its quest of “Moving America Toward Justice.” The principal mission of the Lawyers’ Committee is to secure, through the rule of law, equal justice under law, particularly in the areas of voting rights, fair housing, criminal justice, economic justice, education and hate crimes. For more information about the Lawyers’ Committee, visit www.lawyerscommittee.org.
About the Center for Responsible Lending: The Center for Responsible Lending (CRL) is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is an affiliate of Self-Help, a community economic development lender headquartered in Durham, NC. Since 1980, Self-Help has provided more than $7 billion in financing to 131,000 families, individuals, and businesses under-served by traditional financial institutions.
About the National Student Legal Defense Network: The National Student Legal Defense Network is a non-profit organization that works, through litigation and advocacy, to advance students’ rights to educational opportunity and to ensure that higher education provides a launching point for economic mobility. Learn more at www.nsldn.org and follow on twitter at @StudentLegalNet.