On February 11, 2022, the U.S. District Courtroom for the District of Delaware granted a movement for interlocutory enchantment in Client Monetary Safety Bureau v. The Nationwide Collegiate Grasp Pupil Mortgage Trusts filed by defendants The Nationwide Collegiate Pupil Mortgage Trusts (the “Trusts”) and sure interveners within the motion. The district court docket licensed two questions for assessment by the U.S. Courtroom of Appeals for the Third Circuit: (1) whether or not, beneath the Client Monetary Safety Act (“CFPA”), the Trusts are “coated individuals” topic to the CFPB enforcement authority; and (2) whether or not, after Collins v. Yellen, the CFPB was required to ratify the enforcement motion earlier than the three-year statute of limitations ran out.
Appellate assessment of the licensed questions will not be computerized, nevertheless. As a subsequent step, the Third Circuit will resolve—in its discretion—whether or not to take up the enchantment. If the Third Circuit grants assessment, an enchantment shall be docketed, and the court docket of appeals will take into account the deserves of the licensed questions. If as an alternative the Third Circuit denies assessment, no enchantment shall be docketed, and the enforcement motion in opposition to the Trusts will proceed in district court docket. The district court docket has stayed the CFPB’s enforcement motion pending the Third Circuit’s assessment.
As mentioned in earlier articles, the CFPB initiated an enforcement motion straight in opposition to the Trusts in 2017, alleging that the Trusts had violated the CFPA by partaking in unfair and misleading practices in reference to the servicing and assortment of pupil loans. The Trusts and sure interveners within the motion filed a movement to dismiss, arguing that the Trusts are usually not “coated individuals” beneath the CFPA as a result of they’re “passive securitization automobiles that take no motion associated to the servicing of pupil loans or amassing debt” and, thus, are usually not topic to the CFPB’s enforcement authority. The Trusts additional argued that the motion was premature as a result of the CFPB did not ratify the go well with earlier than the statute of limitations expired, rendering the motion time-barred.
Decide Stephanos Bibas, a visiting choose from the Third Circuit sitting by designation within the District of Delaware, rejected each arguments and denied the movement to dismiss. On December 23, 2021, the Trusts and sure interveners filed a movement for interlocutory enchantment of the district court docket’s order denying the movement to dismiss. On February 11, 2022, the district court docket granted the movement, ruling that (1) the questions raised within the Trusts’ movement contain “a controlling query of regulation”; (2) there may be “substantial floor” for a distinction of opinion within the interpretation of the controlling regulation; and (3) the interlocutory enchantment would “advance the last word termination of the litigation.”
As now we have beforehand famous, the district court docket’s interpretation of “coated individual” beneath the CFPA is noteworthy and creates a brand new line of potential publicity for entities, together with securitization trusts and different complete mortgage patrons, that purchase shopper loans on a servicing-retained foundation or enter into servicing agreements with third-party servicers appearing as unbiased contractors. If interlocutory assessment is granted, the Third Circuit would be the first federal court docket of appeals to opine on the scope of the CFPA’s “coated individual” definition as utilized to securitization trusts, with vital implications for any secondary market purchaser of a mortgage, together with hedge funds and institutional buyers (e.g., pension plans), with the likelihood that each one of them might change into topic to the CFPB supervisory and enforcement jurisdiction to the extent such entities buy shopper loans.
We’ll proceed to watch this motion and others for authorized developments beneath the CFPA affecting the secondary market.
1 Memorandum Opinion at 2, No. 17-1323, ECF No. 397 (D. Del. Feb. 11, 2022).
2 Order at 1, No. 17-1323, ECF No. 398 (D. Del. Feb. 11, 2022).
3 See 28 U.S.C. § 1292(b).
4 Order, supra notice 2, at 1.
5 See, e.g., Ellen Holloman et al., Federal Courtroom Holds That Pupil Mortgage Trusts Are Topic to CFPB Enforcement Authority: What This Means for Client Securitizations and Different Complete Mortgage Patrons, Cadwalader, Wickersham & Taft LLP (Dec. 15, 2021), https://www.cadwalader.com/sources/clients-friends-memos/federal-court-holds-that-student-loan-trusts-are-subject-to-cfpb-enforcement-authority–what-this-means-for-consumer-securitizations-and-other-whole-loan-buyers#_ftnref2; Ellen Holloman et al., CFPB Swimsuit In opposition to Pupil Mortgage Trusts Dismissed, Cadwalader, Wickersham & Taft LLP (Apr. 1, 2021), https://www.cadwalader.com/sources/clients-friends-memos/cfpb-suit-against-student-loan-trusts-dismissed#_ftnref7; Ellen Holloman et al., Ahead Motion within the Bureau of Client Monetary Safety’s Pupil Mortgage Litigation: What This Means for Securitization, Cadwalader, Wickersham & Taft LLP (Nov. 2, 2018), https://www.cadwalader.com/sources/clients-friends-memos/forward-movement-in-the-bureau-of-consumer-financial-protections-student-loan-litigation-what-this-means-for-securitization.
6 Memorandum Opinion at 8, No. 17-1323, ECF No. 380 (D. Del. Dec. 13, 2022).
7 Id. at 5-6.
8 Memorandum Opinion, supra notice 1, at 3-4, 6-7. Additional supporting this conclusion, Decide Bibas recalled that the beforehand assigned choose, Decide Maryellen Noreika, “expressed ‘some doubt’ that the Trusts are coated individuals ‘beneath the plain language of the statute.’” Id. at 5.
9 Holloman, Federal Courtroom Holds That Pupil Mortgage Trusts Are Topic to CFPB Enforcement Authority: What This Means for Client Securitizations and Different Complete Mortgage Patrons, supra notice 4.