Pennsylvania attorney general, Josh Shapiro, has filed a lawsuit against Navient Corporation NAVI, accusing the company of engaging in deceptive lending practices, which have cost billions of dollars to borrowers. Following the news, shares of Navient fell nearly 14.3%.
Navient, which was once a part of Sallie Mae SLM, has now become the largest provider of student loans in the United States. The company services more than $300 billion in student loans to more than 12 million customers.
The lawsuit, filed in the U.S. District Court for the Middle District of Pennsylvania, relates to the time period mainly between 2004 and 2014. During that time, the company was engaged in making predatory loans to college students with poor credit. These students attended colleges with a very low graduation rate, which increased their possibility of not being able to complete their degrees. Ultimately, the borrowers were not being able to repay their loans.
Further, there were claims that the company expanded subprime loan offerings that were at greater risk of default.
Shapiro said, “Navient's deceptive practices and predatory conduct harmed student borrowers and put their own profits ahead of the interests of millions of families across our country who are struggling to repay student loans.”
Per Shapiro’s statement, Pennsylvania residents have already filed more than 1,000 complaints with the Consumer Financial Protection Bureau (CFPB) against the company.
This is not the first time that Navient has been accused of making abusive loans to customers. Earlier in January, the CFPB had sued Navient, claiming that the company had “cheated many struggling borrowers out of their rights to lower repayments, which caused them to pay much more than they had to for their loans.”
Moreover, the states of Illinois and Washington too had sued the company earlier on similar charges.
Shapiro claimed, “The more businesses like Navient put their bottom line ahead of the interests of their customers and consumers, the more vigilant we will be to protect Pennsylvanians and hold businesses like Navient accountable for their misconduct.”
Notably, Navient has been asked to provide full restitution to the borrowers who have been affected by its alleged misconduct. Shapiro has also asked the company to disgorge the profits that it earned through unlawful means.
However, the company has not yet accepted any of the charges against it. The company said, “The allegations are completely unfounded and the case was filed without any review of Pennsylvania residents' customer accounts. We comply with the rules that govern the student loan program as set by Congress and the U.S. Department of Education, and there are no allegations that we have violated these rules.”
Navient continues to struggle with several litigation issues amid the heightened regulatory scrutiny over alleged anti-consumer practices in the U.S. student loan industry.
Shares of the company have lost 13.4% over the past year, compared with 18.5% growth for the industry it belongs to.
Currently, the stock carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks from the finance space are The Toronto-Dominion Bank TD and M&T Bank Corporation MTB.
Toronto-Dominion Bank has witnessed an upward earnings estimate revision of 11.2% for the current fiscal year over the past 60 days. Its share price has increased nearly 28% in the past year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
M&T Bank’s shares have gained more than 36% in a year’s time. Its Zacks Consensus Estimate for current-year earnings has been marginally revised upward in the last 60 days. It carries a Zacks Rank #2 (Buy).
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