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  • State AGs Sue Department of Education for Withholding Promised Student Loan Debt Relief

    State Issues

    On December 14, state attorneys general from California, Massachusetts, Illinois, and New York, filed lawsuits (see here and here) against the U.S. Department of Education (Department) in federal courts in California and Washington, D.C., accusing the Department of withholding student loan debt relief to tens of thousands of borrowers determined to have been defrauded by a now-defunct chain of for-profit colleges. According to the complaints, the Department promised borrowers expedited discharges of their federal student loans, reimbursements of previously paid amounts, and, according to the California complaint, “streamlined review procedures” to quickly process relief. However, the attorneys general made a variety of claims, including asserting that the Department has (i) since January 20, 2017, delayed approval of all pending borrower-defense claims; (ii) pursued unlawful debt-collection actions against borrowers, such as seizing students’ tax refunds and garnishing their wages in violation of the Administrative Procedure Act; and (iii) failed to justify the “disparate and unequal treatment of similarly situated claimants.” In addition to a request that the court vacate denials of covered borrower-defense claims, the attorneys general seek, among other things, that the Department (i) resume discharging the loans of affected borrowers; (ii) cease the alleged unlawful collections; and (iii) according to the Massachusetts, Illinois, and New York lawsuit, provide ancillary relief “including refunding amounts already seized from . . . borrowers pursuant to the unlawful certification for offset or administrative wage garnishment.”

    The lawsuits follow other challenges and proposals of state attorneys general to the Department related to its oversight of federal student loans (see previous InfoBytes coverage here, here, and here).

    State Issues State AG Student Lending Department of Education Debt Relief

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  • Jury Verdict Clears Student Loan Servicer in FCA Suit

    Courts

    On December 5, after a five-day trial, a jury in the U.S. District Court for the Eastern District of Virginia entered a unanimous verdict clearing a Pennsylvania-based student loan servicing agency (defendant) accused of improper billing practices under the False Claims Act (FCA) and bilking the federal government of millions of dollars. The plaintiff—a former Department of Education employee whistleblower—sought treble damages and forfeitures under the FCA. The case stems from a qui tam suit originally filed in 2007, in which the plaintiff alleged that multiple state-run student loan financing agencies overcharged the U.S. government through fraudulent claims to the Federal Family Education Loan Program in order to unlawfully obtain 9.5 percent special allowance interest payments. Although the district court dismissed four of the agencies from the suit in 2009, ruling that they were state agencies and therefore immune from lawsuits brought by a qui tam relator, a Fourth Circuit Panel eventually reversed the ruling with respect to the Pennsylvania-based state agency defendant, holding that the entity “is an independent political subdivision, not an arm of the commonwealth,” and “therefore a 'person' subject to liability under the False Claims Act.” The panel held that the defendant failed to qualify as a state entity because the defendant’s board is responsible for decision-making and its revenue derives from commercial activities, notwithstanding the fact that the defendant is operated by state employees and is required to deposit its funds in the state’s treasury.

    Upon remand, the district court cleared the way for the jury trial by denying the defendant’s motion for judgment on the pleadings, which argued that the plaintiff cannot establish the materiality requirement set under Universal Health Services, Inc. v. U.S. ex rel. Escobar. In a memorandum opinion, the court concluded that the Department of Education continuing to pay claims even after becoming aware of the loan servicer’s billing practices did not, in fact, change the definition of materiality under the FCA, and therefore, did not “merit reconsideration of this court’s ruling that plaintiff stated a plausible claim.”

    The case then went to jury trial in November, leading to the jury’s verdict in favor of the defendant. 

    Courts False Claims Act / FIRREA Student Lending Appellate

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  • CFPB Fines Large Bank for Alleged Student Loan Servicing Issues

    Lending

    On November 21, the CFPB announced it had entered into a consent order with a large national bank over allegations that the bank engaged in unfair and deceptive practices in violation of the Consumer Financial Protection Act of 2010 (CFPA) related to its student loan servicing activities. The order, which the bank consented to without admitting or denying the findings, asserts that for the student loan accounts it was servicing, the bank (i) misrepresented information to borrowers about tax benefits; (ii) failed to refund interest and fees inaccurately charged; (iii) misstated minimum monthly payment amounts in bills; and (iv) failed to provide required information when denying co-signer release requests. In addition to imposing a civil money penalty, the CFPB’s order requires the bank to pay restitution to certain consumers and implement certain policies.

    Lending Student Lending CFPB Enforcement UDAAP CFPA

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  • CFPB Releases 50-State Snapshots of Student Debt, Servicemember Complaints

    Consumer Finance

    On October 27, the CFPB published a blog post highlighting the Bureau’s October 20 “50-state snapshot of student debt,” which illustrates how the “more than $1.4 trillion in student loan debt” is spread across the country. The snapshot also provides data on the more than 50,000 student loan complaints and 10,000 debt collection complaints received by the CFPB through September 2017 (over the course of 5 years). Specifically, for each state, the snapshot provides (i) the “total outstanding student loan debt balance as of 2016”; (ii) the “total student loan complaints handled”; (iii) the “change in volume of student loan complaints handled”; (iv) the “total debt collection complaints handled related to student loans”; and (v) the “change in volume of debt collection complaints handled related to student loans.” The blog post also provides tips and tools intended to assist student loan borrowers navigate problems with their loans.

    On October 31, the CFPB published a blog post releasing the Bureau’s “50 state snapshot of servicemember complaints,” which provides state-specific data on the over 91,000 complaints received from servicemembers, veterans, and their families since 2011 (which the CFPB collectively defines as, “servicemember”). Specifically, for each state, the snapshot provides (i) the total number of servicemember complaints handled since 2011, (ii) distribution of complaints by product for both servicemembers and non-servicemembers; (iiI) distribution of complaints by branch of service; and (iv) a visual representation of complaints by zip code.

    Consumer Finance Lending Student Lending Debt Collection Consumer Complaints CFPB Servicemembers

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  • District of Columbia Adopts Student Loan Borrower Bill of Rights

    Lending

    On October 11, the District of Columbia (DC) released a student loan borrower bill of rights (Bill) pursuant to the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016. The Bill sets out basic principles and protections for student loan borrowers, covering:

    • Pricing and Terms. Lenders to comply with TILA; specifically, to focus on clear and plain-English disclosures of the APR and other key pricing terms.
    • Loan Products. Lenders should avoid extending abusive loan products to borrowers; including, not extending new credit to borrowers who are unable to repay existing loans.
    • Underwriting. Lenders should exercise fair and responsible underwriting; including offering loans that are affordable and meet the borrower’s needs. It also encourages lenders to engage in responsible credit reporting.
    • Collection Activities. Lenders and servicers to abide by the spirit of the Fair Debt Collection Practices Act, as well as, maintain accurate and complete information about borrowers’ loans.
    • Customer Service. Servicers should have responsible complaint management, be easily accessible, and avoid discrimination of any protected borrower classification.

    The Bill became effective on September 8.

    Lending Student Lending TILA Regulation Z FDCPA

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  • Freddie Mac Announces Guide Bulletin 2017-23 Concerning Debt Payment-to-Income Calculations and Appraisals

    Lending

    On October 18, Freddie Mac announced the issuance of Guide Bulletin 2017-23 (Bulletin), which changes selling requirements related to, among other things, student loan monthly debt payment-to-income (DTI) ratio calculations and appraisals. Specifically, for student loans in repayment, sellers must use the greater of the following in calculating DTI ratios, as listed on a borrower’s credit report: (i) the monthly payment amount, or (ii) 0.5 percent of the original loan balance or outstanding balance (one percent for loans in deferment or forbearance). The revisions also remove the requirement that a seller must “obtain documentation if a monthly payment amount is not reported on the credit report.” Further, the Bulletin stipulates certain DTI ratio exclusions, which include specific contingent liabilities.

    Revisions to appraisal requirements include: (i) no longer requiring a “new appraisal when the settlement date is more than 120 days after the note date,” and (ii) accepting appraisal updates “performed by an unlicensed or trainee (or similar classification) appraiser if a supervisory appraiser signs the appraisal update.” While the revisions are applicable for mortgages with settlement dates on or after January 18, 2018, Freddie Mac also permits immediate implementation.

    Lending Freddie Mac Appraisal Student Lending

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  • CFPB Issues Report: Student Loan Complaints Initiated Actions Bringing Relief to Borrowers

    Lending

    On October 16, the CFPB published its annual report analyzing consumer complaints submitted between September 1, 2016 and August 31, 2017. The report, titled “Annual Report of the CFPB Student Loan Ombudsman,” is based on more than 22,000 complaints, which related to federal student loan servicing, debt collection, private student loans servicing, and debt relief services. The press release announcing the report noted that this represented a 120 percent increase in student loan complaints compared to last year, but also that this can partly be attributed to the fact that the Bureau updated its student loan complaint form in late February 2016 to accept complaints about federal student loan servicing issues. The report also noted that student loan complaints from July 2011 through August 2017 have led to actions resulting in more than $750 million in relief to student loan borrowers and improved the loan repayment process for millions of additional borrowers.

    The CFPB estimates that federal and private student loan debt combined has reached $1.4 trillion, mostly from federal loans, with more than 8 million student loan borrowers in default due to not making a required monthly payment for at least nine months. The report makes additional observations, including the following:

    • Military student loan borrowers continue to complain about difficulties in accessing protections guaranteed under federal law, such as interest rate caps under the Servicemembers Civil Relief Act, automatic recertification of income-driven repayment (IDR) plans, zero percent interest rate reductions while serving in areas of hostility, and discharging loans for veterans due to Total and Permanently Disability (TPD).
    • Consumers continue to report challenges concerning repayment roadblocks, such as difficulty in applying for or recertifying IDR plans, obtaining TPD discharge, and accessing advertised loan benefits for private loans.
    • Harassing and aggressive debt collection tactics, including the possibility for suspension or revocation of professional licenses in some states following a default, reportedly are creating additional challenges for consumers.

    Lending Student Lending CFPB Servicemembers SCRA Debt Collection

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  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State AG Student Lending Debt Settlement Enforcement Debt Relief

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  • AG Coalition Urges Department of Education to Reconsider Termination of MOUs With CFPB

    Lending

    On September 26, Pennsylvania Attorney General Josh Shapiro, along with 18 other state attorneys general (state AGs) and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (Department) Secretary Betsy DeVos in reaction to the Department’s August 31 letter to the CFPB, which terminated two Memoranda of Understanding (MOUs) that previously permitted the sharing of information in connection with the oversight of federal student loans. (See previous InfoBytes coverage regarding the MOUs here.) The letter to Secretary DeVos urges the Department to reconsider the termination of the MOUs and offers support for the work the CFPB has done—often in partnership with the Department and state AGs—to protect the millions of students and families that are repaying student loans. The State AGs contend the Department “falsely asserted it has exclusive jurisdiction over companies that service federal student loans when, in fact, student loan servicers are under the jurisdiction of the CFPB, [FTC], [DOJ], [state AGs] and other law enforcement agencies.” The state AGs further claim that the termination of the MOUs removes “critical protections” that were in place to “streamline the supervision of student loan servicers” and assist borrowers trying to resolve complaints related to their student loans. The letter cites several actions initiated by state AGs against the Department for allegedly abandoning its responsibility to protect student loan borrowers over the past seven months, including the Department’s decision to delay the Borrower Defense Rule and roll back the Borrower Defense and Gainful Employment Rules.

    Lending Student Lending State AG Department of Education CFPB

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  • CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits

    Consumer Finance

    On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.

    According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.

    A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.

    Consumer Finance CFPB Student Lending Debt Collection Enforcement

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