Lawsuit: DeVos, agency are failing student loan borrowers

A lawsuit filed Monday in federal court is not only going after the Education Department, but America's federal consumer watchdog agency as well — accusing it of abandoning its authority to oversee companies that service federal student loans.

The Consumer Financial Protection Bureau is "shirking their legal obligation" and changing federal public policy so that it only has supervisory authority over "issues related to student loans owned by private creditors, including private student loans, but not over the 81 percent of loans that are held by the federal government," according to the suit filed in California.

As a result, the plaintiffs say, millions of student borrowers are at risk of being subjected to fraud or financial errors.

Democracy Forward, a nonpartisan, liberal-leaning legal organization, filed the suit on behalf of Student Debt Crisis, a nonprofit advocacy group. Named in the suit are the bureau and its director, Kathy Kraninger, as well as the Education Department and its secretary, Betsy DeVos.

The filing, which follows a string of legal action taken against the Education Department for its handling of student loans, makes a point to include the Consumer Financial Protection Bureau — the brainchild of Democratic presidential candidate Sen. Elizabeth Warren and established under the Obama administration a decade ago in the wake of the Wall Street financial crisis.

Student advocates warn that the growing $1.6 trillion student debt crisis, which outranks credit card and auto loan debts, is having a serious effect on consumers' financial health and without reform, could be a larger drag on the U.S. economy.

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Betsy DeVos through the years
U.S. Education Secretary Betsy DeVos speaks at Harvard University's Kennedy School of Government in Cambridge, Massachusetts, U.S., September 28, 2017. REUTERS/Mary Schwalm

Continuing a day of one-on-one meetings with candidates for positions in his cabinet, President-elect Donald Trump met with Betsy DeVos, two polar opposites thought to be in contention for the education portfolio.

(Photo by Andy Katz/Pacific Press/LightRocket via Getty Images)

U.S. Secretary of Education Betsy DeVos, U.S. first lady Melania Trump and Jordan?s Queen Rania speak with students and administrators at the Excel Academy public charter school in Washington, U.S., April 5, 2017. REUTERS/Joshua Roberts
U.S. Secretary of Education Betsy DeVos speaks before U.S. President Donald Trump signed a memorandum "Increasing Access to High-Quality Science, Technology, Engineering and Math (STEM) Education" in the Oval Office of the White House in Washington, U.S., September 25, 2017. REUTERS/Joshua Roberts
WASHINGTON, DC - OCTOBER 30: U.S. Education Secretary Betsy DeVos (L), who was dressed as Ms. Frizzle from 'The Magic Schoolbus' series, and Counselor to the President Kellyanne Conway attend Halloween at the White House on the South Lawn October 30, 2017 in Washington, DC. President Donald Trump and first lady Melania Trump gave cookies away to costumed trick-or-treaters one day before the Halloween holiday. (Photo by Chip Somodevilla/Getty Images)

U.S. President-elect Donald Trump and Vice President-elect Mike Pence stand with Betsy DeVos before their meeting at the main clubhouse at Trump National Golf Club in Bedminster, New Jersey, U.S., November 19, 2016.

(REUTERS/Mike Segar)

Continuing a day of one-on-one meetings with candidates for positions in his cabinet, President-elect Donald Trump and Vice President Mike Pence met with Betsy DeVos, two polar opposites thought to be in contention for the education portfolio.

(Photo by Andy Katz/Pacific Press/LightRocket via Getty Images)

U.S. President Donald Trump (C, background) waits to interrupt Education Secretary Betsy DeVos as she speaks to students at a school choice event at the White House in Washington, U.S. May 3, 2017. REUTERS/Jonathan Ernst

Grant Hill #33 of the Los Angeles Clippers shakes hands with Owner Dick DeVos, Chairman of Amway and his wife Betsy DeVos during the game against the Orlando Magic during the game on February 6, 2013 at Amway Center in Orlando, Florida.

(Photo by Fernando Medina/NBAE via Getty Images)

US President George W. Bush and First Lady Laura Bush wave after they were introduced by the Chair of the Michigan Republican Party Betsy DeVos 30 October 2004 in Grand Rapids, Michigan. Bush is on his final three days of campaigning prior for the election November 02.

(STEPHEN JAFFE/AFP/Getty Images)

Education Secretary Betsy DeVos makes remarks during a major policy address on Title IX enforcement, which in college covers sexual harassment, rape and assault, at George Mason University, in Arlington, Virginia, U.S., September 7, 2017. REUTERS/Mike Theiler
U.S. Secretary of Education Betsy DeVos and U.S. first lady Melania Trump are greeted by a student during a visit the Excel Academy public charter school in Washington, U.S., April 5, 2017. REUTERS/Joshua Roberts
U.S. Secretary of Education Betsy DeVos (C) and Secretary of Health and Human Services (HHS) Tom Price (R) attend a cabinet meeting with President Donald Trump at the White House in Washington, U.S. March 13, 2017. REUTERS/Jonathan Ernst
U.S. President Donald Trump, joined by U.S. Senator Marco Rubio (from L), advisor Jared Kushner and U.S. Education Secretary Betsy DeVos, thanks fourth-grade students Janayah Chatelier (3rd R) and Landon Fritz (R) for the "Happy Birthday Florida" card they gave him as he visits their classroom at Saint Andrew Catholic School in Orlando, Florida, U.S. March 3, 2017. REUTERS/Jonathan Ernst
U.S. President Donald Trump talks to U.S. Secretary of Education Betsy DeVos during a meeting with teachers and parents at the White House in Washington, U.S., February 14, 2017. REUTERS/Kevin Lamarque
U.S. Education Secretary Betsy DeVos (2nd R) and U.S. Senator Marco Rubio (R-FL) (R) arrive with President Donald Trump aboard Air Force One at Orlando International Airport in Orlando, Florida, U.S. March 3, 2017. REUTERS/Jonathan Ernst
CAMBRIDGE, MA - SEPTEMBER 28: U.S. Secretary of Education Betsy DeVos speaks in a forum at Harvard University Kennedy School of Government on Thursday, September 28, 2017. (Photo by Katye Martens Brier for The Washington Post via Getty Images)

U.S. President-elect Donald Trump and Vice President-elect Mike Pence emerge with Betsy DeVos after their meeting at the main clubhouse at Trump National Golf Club in Bedminster, New Jersey, U.S., November 19, 2016.

(REUTERS/Mike Segar)

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DeVos and Kraninger are "ignoring student loan industry abuses at a time when stronger consumer protection laws are desperately needed," Natalia Abrams, executive director of Student Debt Crisis, said in a statement.

Seth Frotman, the executive director of the Student Borrower Protection Center, a consumer advocacy group supporting the lawsuit, added that the Trump administration's "failure to do its job exposes a trillion-dollar blind spot at the heart of our economy."

"These practices are alarmingly similar to the lax oversight of the mortgage market before its meltdown," added Frotman, who was the student loan ombudsman at the Consumer Financial Protection Bureau before resigning in 2018 and accused the Trump administration of curbing the agency's authority to look into the student loan industry.

The bureau did not immediately return a request for comment Monday about the lawsuit.

Education Department spokeswoman Angela Morabito said the department does not comment on pending litigation.

Student advocates say an independent and unencumbered Consumer Financial Protection Bureau is necessary for ensuring the nine companies that are currently contracted to handle federal student loans are operating with students' best interests in mind.

The latest lawsuit comes as the fate of the bureau is in the hands of the Supreme Court, which said it will hear a case challenging the bureau's constitutionality. A California law firm claims the agency has too much power because its director can only be removed by a president "for inefficiency, neglect of duty, or malfeasance in office."

The bureau has also been spurned by conservative lawmakers who believe it has more latitude than necessary.

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