Navient says losses in CFPB case could be as high as $250 million

Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau sued Navient in 2017, charging that the company added $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances. Navient says the lawsuit's allegations are false.
Ting Shen/Bloomberg

The student loan servicer Navient, which has been locked in a legal fight with the Consumer Financial Protection Bureau since the late days of the Obama administration, may finally be nearing a settlement of the high-stakes litigation.

The Wilmington, Delaware, company said Wednesday that it has recorded a $45 million contingency loss in connection with recent developments in the CFPB case. It also disclosed an aggregate range of reasonably possible losses of between $0 and $250 million.

On a call with analysts, Navient CEO David Yowan said that the company is very confident in the strength of its case. But he added: "At the same time, we're open to an out-of-court settlement that's acceptable to all parties. And the accrual that we made this quarter reflects the developments to date in that matter."

The CFPB has been a thorn in Navient's side since it filed suit in January 2017, if not longer. The consumer bureau first demanded documents around 2013, company officials have said.

The conduct at issue in the litigation dates back to before Navient's split from SLM Corp. in 2014, at which point Navient assumed the liabilities of the predecessor company.

The CFPB alleges that the student loan servicer added $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances, and that a large portion of the charges could have been avoided if the firm had followed the law.

Navient has fought the charges vigorously. In 2018, after Mick Mulvaney — an appointee of President Trump — had taken the reins at the consumer bureau, then-Navient CEO Jack Remondi publicly urged the CFPB to drop the case.

"You've had five years to look for your evidence, you've found none," Remondi said on an earnings call at the time. "It's time to move on."

Navient continues to dispute the CFPB's allegations. In a securities filing Wednesday, the company reiterated its contention that "the allegations in the CFPB suit are false and that they improperly seek to impose penalties on Navient based on new, previously unannounced servicing standards applied retroactively against only one servicer."

In January 2022, Navient settled similar lawsuits brought by state attorneys general, agreeing  to cancel $1.7 billion of debt and to provide $95 million of restitution to 350,000 federal loan borrowers.

The state attorneys general had alleged that the company peddled subprime student loans to borrowers even though it knew they could not pay the loans back, and then steered borrowers into expensive forbearance plans when less expensive repayment options were available.

On Wednesday, Navient reported third-quarter net income of $79 million, which was down from $105 million in the same period in 2022. The company's earnings were hurt by a provision for loan losses of $72 million, up 157% from a year earlier.

Yowan, who took over as Navient's CEO in May, has started an in-depth review of the entire business. That business includes private student loan originations in addition to loan servicing operations. 

During Navient's earnings call on Wednesday, Yowan said that Navient has reduced the large capital investment it had planned to make in student loan originations to current students. Through the first three quarters of 2023, Navient has originated $292 million of in-school loans, which is flat with last year, he said.

"Our plans for the year had included an ambitious in-school loan origination growth target. That target required a substantial and long-term commitment of capital," Yowan said. "I needed to be more confident that we could achieve our targeted returns before committing that capital."

Vincent Caintic, an analyst at Stephens, wrote in a research note that he lowered his expectations for student loan origination volume following Yowan's comments.

"Navient's evaluation of its businesses is ongoing and, therefore, we have a hard time with our forecasts and with defining what investment we're ultimately providing a recommendation on," Caintic wrote.

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