The legal problems facing Navient, one of the nation’s largest student loan debt collectors, mounted on Thursday as California’s attorney general said he would file a lawsuit accusing the company of widespread deceptions and mistakes that cost borrowers millions of dollars.
The accusations echo those in a major enforcement case against Navient that was started by the Consumer Financial Protection Bureau last year, in the final days of President Obama’s administration. The bureau is still pursuing the case, but consumer advocates fear it will be dropped or settled by Mick Mulvaney, the bureau’s acting director, who has sharply reduced the agency’s powers and scrapped many of its lawsuits and investigations.
The actions of Mr. Mulvaney, who is also President Trump’s budget director, have prompted states to more aggressively flex their own consumer protection authority. California would be the fourth and largest state to sue Navient, joining Illinois, Pennsylvania and Washington.
States have sued over Navient’s handling of both private and federal student loans. The case in California focuses on the federal loans, which are made or backed by the government. Navient is among the largest of eight servicers hired by the government to collect $1.4 trillion owed by nearly 43 million people. The company services loans for 12 million borrowers, including an estimated 1.5 million in California, according to the attorney general’s office.
The attorney general, Xavier Becerra, said he would file the lawsuit this week in state Superior Court. The complaint will focus on how Navient guided borrowers through their repayment options. The company failed to steer borrowers toward the best options available to them, raising the repayment costs for some, according to Mr. Becerra’s office, which said it believed that Navient broke state laws prohibiting unfair competition and false advertising.
“Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college,” Mr. Becerra said.
Navient called the allegations “unfounded” and said it would fight the lawsuit.
California’s suit “is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes,” John F. Remondi, Navient’s chief executive, said in a statement.
Navient has not fared well so far in its legal skirmishes.
Last year, a federal judge in Pennsylvania rejected Navient’s request to dismiss the federal consumer bureau’s lawsuit.
A judge in Seattle also denied Navient’s attempt to have the case brought against it by Washington’s attorney general tossed out. Court rulings are still pending in the two other state cases, which Navient is also seeking to have dismissed.
Borrowers have also brought their own cases against Navient.
In Florida, a federal judge this week dealt the company a major setback, allowing a proposed class action lawsuit to proceed. Judge Susan Bucklew of the Federal District Court in Tampa rejected Navient’s argument that a federal law prevents borrowers from suing the company for violating state consumer protection rules.
“There is a strong presumption against pre-emption for matters that have typically been left to the states, and consumer protection is one of those traditionally state-regulated matters,” Judge Bucklew wrote.
In that case, Navient is being sued by borrowers who said that the company made costly mistakes in handling their eligibility for public service loan forgiveness, a trouble-plagued government program that is supposed to wipe away some student debt for those who spend at least 10 years working for a government agency or qualifying nonprofit organization.
An earlier version of this article misidentified Navient as the largest of the eight loan servicers hired by the government to collect federal student loan debt. It is among the largest, but other companies collect more federal student debt.