Pennsylvania v. Navient Corp., No. 19-2116

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Writing for the Court: AMBRO, Circuit Judge
• Citation: 967 F.3d 273
• Parties: Commonwealth of PENNSYLVANIA v. NAVIENT CORP.; Navient Solutions LLC Appellants
• Docket Number: No. 19-2116
• Decision Date: 27 July 2020

967 F.3d 273

Commonwealth of PENNSYLVANIA
v.
NAVIENT CORP.; Navient Solutions LLC Appellants

No. 19-2116

United States Court of Appeals, Third Circuit.

Argued March 11, 2020
Opinion filed: July 27, 2020

Daniel T. Brier, Myers Brier & Kelly, 425 Spruce Street, Suite 200, Scranton, PA 18503, James P. Brown, Jennifer Levy, Patrick Brown, Mike Kilgarriff, Kirkland & Ellis, 1301 Pennsylvania Avenue, N.W., Washington, DC 20004, Michael Shumsky (Argued), Hyman Phelps & McNamara, 700 Thirteenth Street, N.W., Suite 1200, Washington, DC 20005, Counsel for Appellants

Josh Shapiro, Attorney General State of Pennsylvania, Howard G. Hopkirk (Argued), Senior Deputy Attorney General, Jesse F. Harvey, Chief Deputy Attorney General, John Abel, Senior Deputy Attorney General, Jill T. Ambrose, Deputy Attorney General, Office of the Attorney General of Pennsylvania, Strawberry Square, Harrisburg, PA 17120, Nicholas Smyth, Senior Deputy Attorney General, Office of Attorney General of Pennsylvania, 1251 Waterfront Place, Mezzanine Level, Pittsburgh, PA 15222 Counsel for Appellee

Mary McLeod, General Counsel, John Coleman, Deputy General Counsel, Steven Y. Bressler, Assistant General Counsel, Lawrence Demille-Wagman, Senior Litigation Counsel, Christopher Deal (Argued), Consumer Financial Protection Bureau, 1700 G Street, N.W., Washington, DC 20552, Counsel for Amicus Appellee Consumer Financial Protection Bureau

Faith E. Gay, Maria Ginzburg, Yelena Konanova, Margaret Larkin, Ryan W. Allison, Selendy & Gay, 1290 Avenue of the Americas, 17th Floor, New York, NY 10104, Mark Richard, Phillips, Richard & Rind, P.A., 9360 S.W., 72nd Street, Suite 283, Miami, FL 33173, Counsel for Amicus Appellee American Federation of Teachers

Letitia James, Attorney General State of New York, Barbara D. Underwood, Solicitor General, Steven C. Wu, Deputy Solicitor General, Ester Murdukhayeva, Assistant Solicitor General of Counsel, Office of Attorney General of New York, 28 Liberty Street, 23rd Floor, New York, NY 10005, Counsel for Amicus Appellee State of New York

Jon Greenbaum, Lawyers' Committee for Civil Rights Under Law, 1500 K Street, N.W., Suite 900, Washington, DC 20005, Counsel for Amicus Appellee Lawyers Committee for Civil Rights Under Law

Benjamin J. Roesch, Jensen Morse Baker, 1809 Seventh Avenue, Suite 410, Seattle, WA 98101, Counsel for Amicus Appellees Student Borrower Protection Center; Seniorlaw Center; Center for Responsible Lending; New Jersey Citizen Action; Lawyers Committee for Civil Rights Under Law; Community Legal Services of Philadelphia

Before: McKEE, AMBRO, and PHIPPS, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge

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We decide two issues in this appeal: first, whether the Commonwealth of Pennsylvania may bring a parallel enforcement action against Navient Corporation and Navient Solutions, LLC (together, "Navient") under the Consumer Financial Protection Act of 2010 (the "Consumer Protection Act"), codified in relevant part at 12 U.S.C. § 5552, after the Consumer Financial Protection Bureau (the "Bureau") has filed suit; and second, whether and to what extent the federal Higher Education Act of 1965 (the "Education Act"), 20 U.S.C. § 1001 et seq ., preempts the Commonwealth's loan-servicing claims under its Unfair Trade Practices and Consumer Protection Law (the "PA Protection Law"), 73 Pa. Cons. Stat. §§ 201-1 to 201-9.3.

We hold that the plain language of the Consumer Protection Act permits the Commonwealth's concurrent action. And we follow our sister Circuits in holding that although the preemption provision of the Education Act preempts claims based on failures to disclose information as required by the statute, it does not preempt claims based on affirmative misrepresentations. See Lawson-Ross v. Great Lakes Higher Educ. Corp. , 955 F.3d 908, 911 (11th Cir. 2020) ; Nelson v. Great Lakes Educ. Loan Servs., Inc ., 928 F.3d 639, 642 (7th Cir. 2019). cf. Chae v. SLM Corp ., 593 F.3d 936 (9th Cir. 2010). As the Commonwealth's claims under the PA Protection Law based on affirmative misrepresentations and misconduct are not preempted, we affirm the District Court's denial of Navient's motion to dismiss.

I. BACKGROUND

A. Statutory and Regulatory Background

Congress enacted the Education Act in order "to keep the college door open to all students of ability, regardless of socioeconomic background." Bible v. United Student Aid Funds, Inc ., 799 F.3d 633, 640 (7th Cir. 2015) (citation omitted). To that end, the Act established two federal student loan programs that are designed

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to help every student afford the college or trade school of his or her choice: (i) the Direct Loan Program, under which the Department of Education (the "DOE") lends federal taxpayer dollars directly to student borrowers, see 20 U.S.C. § 1087a et seq . ; and (ii) the Federal Family Education Loan Program (the "Indirect Loan Program"), under which the federal Government guarantees privately funded loans to student borrowers, see 20 U.S.C. § 1071 et seq .

The federal Government does not directly administer these loan programs. The DOE contracts with third parties like Navient to administer and service loans under the Direct Loan Program and imposes contractual requirements that govern what servicers may do when acting on the DOE's behalf. For both Direct Loan Program and Indirect Loan Program loans, the DOE has promulgated comprehensive regulations that control the student loan process, including the types of charges that are permitted, see 34 C.F.R. § 682.202 ; the kinds of repayment plans that are available, see §§ 682.209, 685.208; and the ways in which those plans can be restructured, see §§ 682.210–11, 685.204–05.

Federal student loans are eligible for several types of deferred payment plans to help borrowers avoid defaulting. Servicers may grant a "forbearance" to borrowers having financial trouble during the repayment period. This "permit[s] the temporary cessation of payments, allowing an extension of time for making payments, or temporarily accepting smaller payments than previously were scheduled." § 682.211(a)(1). The DOE's regulations specify the circumstances under which a loan servicer may offer forbearance. See, e.g. , §§ 682.211(a)(2), 685.205. Borrowers who enter forbearance face significant costs, such as, among other things, having their monthly payments increase due to accumulated unpaid interest.

DOE regulations dictate how loan issuers and servicers must communicate with borrowers about forbearance. Lenders and servicers must make extensive disclosures, including those related to fees and repayment options, at many stages of a loan's lifecycle: "before disbursement," 20 U.S.C. § 1083(a) ; "before repayment," § 1083(b) ; "during repayment," § 1083(e) ; to "a borrower having difficulty making payments," § 1083(e)(2) ; and to "a borrower who is 60 days delinquent in making payments on a loan," § 1083(e)(3). Before placing borrowers into forbearance, loan servicers must disclose its terms, including that deferred interest will be capitalized. See §§ 1083(a)(6)(B), 1083(e)(2) ; see also § 1087e(p); 34 C.F.R. § 682.211. Servicers must repeat that disclosure within 30 days of granting forbearance and must disclose every 180 days during the forbearance period. See §§ 1083(b), 1087e(p) ; 34 C.F.R. § 682.211(e)(2).

In addition to forbearance, loan servicers offer an array of alternate repayment plans, referred to as Income-Driven Repayment ("IDR") plans, when borrowers encounter difficulties during the repayment period, each with varying qualification requirements and repayment provisions plans. Borrowers who enter an IDR plan do not defer payments entirely but instead adjust their monthly payments. To qualify for IDR, borrowers must fill out a federal application, submit supporting documents, and then recertify their income and family size annually. 34 C.F.R. §§ 682.215(e), 685.221(e).

As with forbearance, federal law details what, when, and how loan servicers must communicate with borrowers regarding the availability of IDR. See 20 U.S.C. § 1087e(p) ; 34 C.F.R. § 682.205(e). Once repayment begins, if "a borrower ... has

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notified the lender that the borrower is having difficulty making payments," the servicer must provide a written disclosure "in simple and understandable terms" that details both the expected costs associated with forbearance if the borrower chooses that option, and instructions for seeking IDR if a student borrower seeks an alternative to forbearance. 20 U.S.C. § 1083(e)(2) (Indirect Loan Program); see also § 1087e(p) (Direct Loan Program).¹

DOE regulations also require that loan servicers provide oral disclosures regarding forbearance and IDR at other times. When a defaulted borrower orally requests a forbearance, the servicer must "orally review with the borrower the terms and conditions of the forbearance, including the consequences of interest capitalization, and all other repayment options available to the borrower," and must send a written notice with similar information. 34 C.F.R. §§ 682.211(d)(iii), 685.205(a)(8). DOE regulations do not require federal loan servicers to disclose the...