Mulvaney Demotes Unit That Polices Student Loans

Posted May 9, 2018 3:06 p.m. EDT

Mick Mulvaney, interim director of the Consumer Financial Protection Bureau, will move the agency’s student loan investigation division into the bureau’s consumer information unit, a shift that career officials fear will sidetrack a major enforcement case the agency is pursuing against Navient, the nation’s largest private student lender.

The change, outlined in an email sent to the bureau’s career staff Wednesday morning, is part of an effort by Mulvaney to refocus the agency away from its consumer finance enforcement and rule-writing mission and more toward providing consumers with information about their legal rights.

It follows a similar move Mulvaney made in February, when he folded the bureau’s fair lending division into the consumer unit, telling staff it would “continue to focus on advocacy, coordination and education.”

Among the bureau’s career staff, the shift was regarded as a new attack on one of the bureau’s core statutory functions, and another attempt by Mulvaney and his team to dismantle a consumer watchdog reviled by President Donald Trump.

A spokesman for Mulvaney did not immediately respond to requests for comment. The memo also outlined several other moves, including delegating Brian Johnson — a former top aide to Rep. Jeb Hensarling, R-Texas, who is a staunch opponent of the bureau — to be Mulvaney’s “final stop” on all policy matters.

The change comes at a critical moment in the agency’s effort to rein in abuses in the student loan industry. The program, started under the Obama administration, has clawed back about $750 million from lenders since 2011. At the center of the bureau’s effort is its case against Navient, a spinoff of Sallie Mae, which the agency accused in 2017 of steering low-income borrowers into higher payments than they needed to make, misallocating payments and failing to provide customers with clear information about cost-saving options.

Three states, including Pennsylvania, have subsequently filed lawsuits alleging similar marketing and lending practices.

“At a time where Americans are saddled with $1.5 trillion in student loan debt, the last thing we should do is tear away critical support,” Attorney General Xavier Becerra of California, whose office is cracking down on lenders, said in a tweet after word of the reorganization leaked.

Navient has denied wrongdoing and deployed a team of Washington-based lobbyists to fight what they believe is an unfair investigation.

“The size of the student loan portfolio is massive, and it’s growing — second only to home mortgages — and now we are gutting oversight,” said Chris Peterson, a University of Utah law professor who was a top staff member at the bureau.

“It’s appalling,” he said. “They are trying to take the teeth out of enforcement, and it’s going to have a big impact on the most vulnerable student borrowers, who are being misled and bankrupted.” Mulvaney’s political appointees at the bureau have been discussing how to proceed on student loan enforcement, including the Navient case, with political appointees working for Education Secretary Betsy DeVos, according to two administration officials who spoke on condition of anonymity. Career investigators who have worked on the Navient case have largely been kept out of the loop, they said.

Mulvaney, responding to reports that he was considering a settlement favorable to the lender, told a Senate committee last month that the bureau was “reviewing all of the bureau’s enforcement matters to ensure that the ongoing work adheres to the proper interpretation of federal consumer financial law.”

Soon after, a group of Democratic senators released a statement calling that response “evasive” and demanding that the interim director not let Navient “off lightly.”

Mulvaney, who is also the president’s budget director, has publicly affirmed his commitment to abiding by the letter of the law that created the bureau after the 2008 financial crisis. But he has also said he thinks the agency has been too closely associated with Sen. Elizabeth Warren, D-Mass., who helped create the agency, and has hurt the institutions it was meant to police. He has proposed a wide slate of changes intended to blunt its impact — from using the bureau’s more obscure statutory name to pulling a roster of public consumer complaints from the consumer bureau’s website.

The announcement of the student loan enforcement change was buried at the bottom of a bullet-pointed memo sent by Mulvaney — who refers to himself as “Mick M” in bureau correspondence — to his staff.

“The office of ‘Students and Young Consumers,'” he wrote, “will be folded into the office of ‘Financial Education.'”