A federal appeals court found that 15 securitization trusts associated with the National Collegiate Master Student Loan Trust are covered persons subject to actions by the Consumer Financial Protection Bureau (CFPB).
The 3rd U.S. Circuit Court of Appeals also held that the CFPB was not required to ratify enforcement proceedings before a statute of limitations had run out. After a March 19 filing, the decision returned the case to the U.S. District Court for the district of Delaware.
Industry advocates warn that the district court's finding that the National Collegiate Master Student Loan Trust's, incorporated in Delaware, are covered persons, should be rejected.
"That is a legal error with grave consequences for the multi-trillion dollar U.S. securitization market," reads an amicus brief from the Structured Finance Association. "The ruling … has the potential to materially disrupt this critical market."
The dispute erupted in September 2017, when the CFPB initiated enforcement proceedings against the 15 National Collegiate Master Student Loan trusts, claiming that the trusts improperly sued student loan borrowers over debts that the entities could not prove was owed, or were too old to sue over, according to the CFPB's website. Initially, the trusts and the bureau had reached a settlement, but the district court declined to enter the consent order, and the CFPB brought its complaint to the federal court, according to the federal court's filing.
The federal court was asked to resolve several questions but opted to address two. The first of those two was whether trusts were "covered persons" subject to the Consumer Financial Protection Act, and the second was whether the suit had to be ratified because the bureau's enforcement action was initiated while a constitutional deficiency within the agency was being resolved.
The second point revolved around whether enforcement actions taken by a director improperly insulated from removal are void, and whether they need to be ratified. That point cited two decisions, including Collins v. Yellen, which eventually wound up before the Supreme Court. The court found that even if a director is improperly insulated from removal, actions taken by that party do not need to be ratified—unless a plaintiff can demonstrate that the provision caused harm, according to the 3rd U.S. Circuit Court of Appeals' March 19 filing.
