Updated from 2:19 pm with response from Department of Education in eighth paragraph.
NEW YORK ( TheStreet) -- Debt collectors are facing increasing scrutiny from the government, leading to uncertainty for investors.
Student loan debt collector Navient(NAVI) - Get Report was the latest casualty as shares lost almost 8% this week following a decision by the U.S. Department of Education to end a contract with the company.
In a press release Feb. 27, the department said Navient-owned Pioneer Credit Recovery and four other debt collectors "were providing inaccurate information to borrowers."
Navient shares fell 10% when they opened for trading on Monday and have retraced only a small part of those losses. On Friday afternoon, the stock was trading at $19.75, down 24 cents.
The Department of Education decision caught investors off guard, and even the company, which was spun out of Sallie Mae(SLM) - Get Report last year, appeared to have been blindsided, according to Sameer Gokhale, an analyst with Janney Capital Markets.
"There doesn't seem to be a lot of information supporting the Department of Education's position," Gokhale said. He added that the company was never given a chance to respond to the department's charges.
Gokhale believes the Department of Education should provide data to the debt collectors, adding, "It would be helpful from the outside to be able to at least gauge how the Department of Education is making these decisions."
Asked whether the DoE provided any data or gave the debt collectors a chance to respond, a Department of Education spokeswoman sent a message she said was from a DoE official. The statement, much of which was lifted directly from the Feb. 27 press release, stated that the debt collectors had failed to give borrowers accurate information about certain benefits "at unacceptably high rates."
A call and email to a Navient spokesman weren't returned.
Sen. Elizabeth Warren (D., Mass) has taken the Department of Education and the Treasury to task over their relationship with Sallie Mae and Pioneer giving them "little more than a slap on the wrist" despite a "pattern of breaking the rules and ignoring ... contractual obligations," she wrote in a 2013 letter to both agencies.
Asked about analyst Gokhale's questions, a spokeswoman for Warren sent the following statement:
"The Department of Education made the right decision to terminate contracts with debt collectors that were breaking the rules and hurting student loan borrowers. Cutting out these contractors was an important step that will strengthen accountability and make a real difference for many families. Congress has given the Department of Education the tools to do much more to help struggling borrowers, and it should use every one of those tools to make sure students are treated fairly," the statement read.
Navient's difficulties are just the latest regulatory problems for the debt collecting industry. Ocwen Financial(OCN) - Get Report shares have lost 78% during the past year due to state and federal government crackdowns on the mortgage servicer.
Gokhale still has a buy rating on Navient, but he warned in a report this week that "the debt recovery industry appears to be in the midst of examinations by the (Consumer Financial Protection Bureau) and other regulators." For Navient in particular, he warns about "some uncertainty regarding the fairness of regulatory actions."