District Court Grants Interlocutory Appeal in CFPB’s Enforcement Action Against Student Loan Trusts, Stays Case Pending Appellate Review Finance & Banking

On February 11, 2022, the U.S. District Court for the District of Delaware granted an interlocutory appeal motion in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts filed by defendants The National Collegiate Student Loan Trusts (the “Trusts”) and certain interveners in the action. The District Court certified two issues for consideration by the United States Court of Appeals for the Third Circuit: (1) whether, under the Consumer Financial Protection Act (“CFPA”), trusts are “Covered Persons” subject to the enforcement authority of the CFPB; and (2) if, after Collins vs Yellenthe CFPB was required to approve the enforcement measure before the expiration of the three-year limitation period.

Appellate review of certified matters is not, however, automatic. In a next step, the Third Circuit will decide, at its discretion, whether to appeal. If the Third Circuit grants review, an appeal will be filed and the appellate court will consider the merits of the certified issues. If, instead, the Third Circuit denies review, no appeal will be filed and enforcement action against the trusts will proceed in the district court. The District Court stayed the CFPB’s enforcement action pending Third Circuit review.

As noted in previous articles, the CFPB filed a lawsuit directly against the trusts in 2017, alleging that the trusts violated the CFPA by engaging in unfair and deceptive practices in connection with the servicing and collection of student loans. . The Trusts and certain intervenors in the action filed a motion to dismiss, arguing that the Trusts are not “covered persons” under the CFPA because they are “passive securitization vehicles that take no action servicing student loans or collecting debts” and are therefore not subject to the enforcement power of the CFPB. The trusts further argued that the action was premature because the CFPB failed to ratify the suit before the statute of limitations expired, rendering the action statute-barred.

Judge Stephanos Bibas, Third Circuit Visiting Judge sitting by designate for the District of Delaware, rejected both arguments and denied the motion to dismiss. On December 23, 2021, the Trusts and certain intervenors filed a motion for interlocutory appeal of the district court’s order denying the motion to dismiss. On February 11, 2022, the District Court granted the motion, finding that (1) the issues raised in the Trusts’ motion involve “a compelling question of law”; (2) there is a “serious cause” for a difference of opinion in the interpretation of the applicable law; and (3) the interlocutory appeal would “advance the ultimate end of the litigation”.

As noted previously, the District Court’s interpretation of “covered person” under the CFPA is noteworthy and creates a new line of potential exposure for entities, including securitization and investment trusts. ‘other full loan buyers, who acquire consumer loans on a retained management basis. or enter into service agreements with third-party providers acting as independent contractors. If interlocutory review is granted, the Third Circuit will be the first federal appeals court to rule on the scope of the CFPA’s definition of “covered person” as applied to securitization trusts, with significant implications for any buyer of a loan in the secondary market, including hedging transactions. funds and institutional investors (for examplepension schemes), with the possibility of all being subject to the oversight and enforcement jurisdiction of the CFPB to the extent that these entities purchase consumer loans.

We will continue to monitor this action and others for legal developments under the CFPA affecting the secondary market.


1 Memorandum notice at 2, no. 17-1323, ECF no. 397 (D. Del. February 11, 2022).

2 Ordinance à 1, n° 17-1323, ECF n° 398 (D. Del. 11 Feb. 2022).

See 28 USC § 1292(b).

4 Command,
above score 2, to 1.

See, for exampleEllen Holloman et al., Federal Court Rules Student Loan Trusts Subject to CFPB Enforcement Authority: What This Means for Consumer Securitizations and Other Full Loan Buyers, Cadwalader, Wickersham & Taft LLP (December 15, 2021), https://www.cadwalader.com/resources/clients-friends-memos/federal-court-holds-that-student-loan-trusts-are-subject-to -the-cfpb-enforcement-authority–what-it-means-for-consumer-securitisations-and-other-whole-loan-purchasers#_ftnref2; Ellen Holloman et al., CFPB lawsuit against student loan trusts dismissed, Cadwalader, Wickersham & Taft LLP (April 1, 2021), https://www.cadwalader.com/resources/clients-friends-memos/cfpb-suit-against-student-loan-trusts-dismissed#_ftnref7; Ellen Holloman et al., Moving Forward in the Consumer Financial Protection Bureau’s Student Loan Litigation: What It Means for SecuritizationCadwalader, Wickersham & Taft LLP (November 2, 2018), https://www.cadwalader.com/resources/clients-friends-memos/forward-movement-in-the-bureau-of-consumer-financial-protections-litige- student-loan-what-it-means-for-securitization.

6 Memorandum notice at 8, no. 17-1323, ECF no. 380 (D. Del. 13 Dec. 2022).

ID. at 5-6.

8 Opinion on the memorandum, above note 1, at 3-4, 6-7. In support of this conclusion, Judge Bibas recalled that the previously appointed judge, Judge Maryellen Noreika, “expressed ‘some doubt’ that trusts are covered persons ‘under the plain language of the law'”. ID. at 5.

9 Holman, Federal Court Rules Student Loan Trusts Subject to CFPB Enforcement Authority: What This Means for Consumer Securitizations and Other Full Loan Buyers, aboveremark 4.

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