In a significant ruling on March 19, the Third Circuit Court of Appeals held that the CFPB can proceed with its lawsuit against a group of Delaware student loan trusts rejecting their claims that they are just passive financing entities outside the reach of the Bureau’s authority. 

The agency’s lawsuit, filed in 2017, alleges the trusts, through third-party contractors acting on their behalf, engaged in unfair and deceptive debt collection practices against student borrowers in violation of the CFPA. These practices included filing lawsuits with inaccurate documentation and pursuing debts that were too old to legally collect on. The trusts contended that since they employed contractors for loan servicing and collections, they did not “engage” in these activities, which is required to fall within the CFPB’s reach. The court disagreed, and held that even if the trusts outsourced the debt collection work, they “engage[d] in offering or providing a consumer financial product or service,” which made them subject to the CFPB’s enforcement authority. 

Putting it into Practice: The decision marks a notable affirmation of the CFPB’s enforcement capabilities in the ongoing string of legal battles implicating the scope of the CFPB’s powers (discussed here, here and here). The ruling may cause a ripple effect in the broader market for securitized assets and sets a precedent for how entities involved in securitization arrangements may be held accountable for the acts of third parties they employ. Accordingly, companies that operate in this space should ensure they have strong vendor management oversight. 

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Maxwell Earp-Thomas also contributed to this article.