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On February 8, the U.S. District Court for the Eastern District of Virginia granted final approval to a $2.5 million putative class action settlement resolving allegations that a student loan servicer violated the TCPA by using an autodialer to contact student borrowers’ credit references without first obtaining their prior express consent. The settlement terms also require the servicer to pay more than $850,000 in attorneys’ fees and expenses. According to the plaintiff’s memorandum in support of its motion for preliminary approval of the class action settlement (as referenced in the final approval order), the servicer allegedly used an autodialer to contact the plaintiff’s cellphone without her prior express consent, which the servicer subsequently denied. The servicer had moved for summary judgment on multiple grounds, arguing, among other things, that the plaintiff could not establish that the servicer used an autodialer to place calls to her and other credit references listed on the delinquent student loans. Citing to the D.C. Circuit’s decision in ACA International v. FCC, which set aside the FCC’s 2015 interpretation of an autodialer as “unreasonably expansive,” (covered by a Buckley Special Alert), the servicer had argued that the decision “governs analysis of the issue” and that the plaintiff could not succeed in demonstrating that the telephone system used falls within the statutory definition of an autodialer. However, prior to the court issuing a ruling on the servicer’s summary judgment motion, the parties reached the approved settlement through mediation.
On February 4, the FDIC and the Federal Reserve Board issued a joint advisory on Voluntary Private Education Loan Rehabilitation Programs to alert financial institutions of an amendment to section 623 of the Fair Credit Reporting Act (FCRA) contained within section 602 of the Economic, Growth, Regulatory Relief and Consumer Protection Act. The amendment provides a safe harbor from potential claims of inaccurate reporting under the FCRA, provided the financial institutions who choose to offer private education loan rehabilitation programs satisfy section 602’s statutory requirements before removing a reported default from a qualified borrower’s credit report.
On January 8, the U.S. Court of Appeals for the 4th Circuit affirmed a federal jury’s unanimous verdict clearing a Pennsylvania-based student loan servicing agency (defendant) accused of improper billing practices under the False Claims Act (FCA). As previously covered by InfoBytes, the plaintiff—a former Department of Education employee whistleblower—filed a qui tam suit in 2007, seeking treble damages and forfeitures under the FCA. 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. Over the course of several appeals, the case proceeded to trial against the student loan servicing agency after the 4th Circuit held that the entity was “an independent political subdivision, not an arm of the commonwealth,” and “therefore a ‘person’ subject to liability under the False Claims Act.” The plaintiff appealed the jury’s verdict, arguing the court erred by excluding evidence at trial and failed to give the jury several of his proposed instructions.
On appeal, the 4th Circuit disagreed with the plaintiff, finding that the court correctly excluded the state audit, which determined the student loan servicer “failed its mission” with lavish spending on unnecessary expenses. The appeal court noted the audit was irrelevant to the only issue in the case: “Did [the servicer] commit fraud and file a false claim?” The appeals court also rejected the plaintiff’s jury instruction arguments, concluding that the court’s instructions substantially covered the substance of the plaintiff’s proposal and “sufficiently explained that the jury had to consider whether [the servicer’s] claims were ‘false or fraudulent.’”
On January 3, an Illinois-based for-profit education company settled with 49 state attorneys general, agreeing to forgo collection of nearly $494 million in debts owed by almost 180,000 students nationally. According to the Illinois Attorney General’s announcement, after a seven-year investigation into the company’s practices, the participating states allege that, among other things, the company (i) deceived students about the total costs of enrollment; (ii) failed to adequately disclose that certain programs lacked programmatic accreditation, which would negatively affect a student’s ability to get a license or employment in that field; and (iii) misled prospective students about post-graduate job rates. Under the settlement, the company has agreed to forgo collection of debts owed by students who either attended a company institution that closed before Jan. 1, 2019, or whose final day of attendance at two participating online institutions occurred on or before Dec. 31, 2013. In addition to the debt relief, the settlement also requires the company to, among other things, reform its recruiting and enrollment practices, including providing students with a single page disclosure that covers the (i) anticipated total direct cost; (ii) median debt for completers; (iii) programmatic cohort default rate; (iv) program completion rate; (v) notice concerning transferability of credits; (vi) median earnings for completers; and (vii) the job placement rate.
On January 4, NYDFS and the New York Attorney General announced a joint $9 million settlement with a national student loan servicer to resolve allegations that the servicer, among other things, deceived student loan borrowers about their repayment options and steered them into higher-cost repayment plans. According to a press release issued by the Attorney General’s office, the servicer “steered distressed borrowers away from available income-based repayment plans towards other, more expensive options, thus costing them money and increasing their risk of default.” Additionally, the consent order alleges that the servicer misinformed borrowers—including servicemembers—about their repayment options, such as telling borrowers they were not eligible for Public Service Loan Forgiveness plans when they may have qualified after consolidating their loans. Furthermore, the servicer allegedly (i) improperly processed applications for income-based repayment; (ii) allocated underpayment for certain borrowers to maximize late fees; (iii) improperly processed payments; (iv) failed to accurately report information to credit reporting agencies; (v) failed to “properly recalculate monthly payments for servicemembers when adjusting their interest rates under the Servicemembers’ Civil Relief Act”; (vi) charged improper late fees; and (vii) did not provide borrowers notification of their eligibility for a co-signer release.
The servicer, while neither admitting nor denying the findings alleged by NYDFS and the Attorney General, has agreed to pay $8 million in restitution to New York borrowers and a $1 million fine. Moreover, the servicer has agreed to stop servicing private and federal loans—with the exception of Perkins Loans—over the next five years.
On December 20, the U.S. District Court for the District of New Jersey granted a student loan company’s motion for summary judgment, holding that the plaintiff failed to establish the company’s phone system qualified as an automated telephone dialing system (autodialer) under the TCPA. The plaintiff alleged the company violated the TCPA by using an autodialer to call his cell phone without his prior express consent. Each party filed cross-motions for summary judgment with the plaintiff arguing that the company’s system “had the present capacity without modification to place calls from a stored list without human intervention.” The company disagreed with the plaintiff’s assertions, arguing that it used separate systems for land lines and cell phones, and that the system which dialed the cell phone “contains no features that can be activated, deactivated, or added to the system to enable autodialing.” Citing to the opinion of the U.S. Court of Appeals for the 3rd Circuit in Dominguez v. Yahoo (previously covered by InfoByres here), which held that it would interpret the definition of an autodialer as it would prior to the FCC’s 2015 Declaratory Ruling, the court noted that the term “capacity” in the TCPA’s autodialer definition refers to the system’s current functions, not its potential capacity. Because the plaintiff failed to establish that the system used to dial his cell phone had the “present capacity” to initiate autodialed calls without modifications, the court concluded the claim failed as a matter of law.
On December 27, the OCC released Bulletin 2018-48, which announces an update to the “Student Lending” booklet of the Comptroller’s Handbook to include information about the rehabilitation programs for private education loans authorized under Section 602 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), signed into law in May 2018. Section 602 amends the Fair Credit Reporting Act to give student loan borrowers the option to request the removal of student loan default information from their credit report, if, among other things, (i) the lender offers a Section 602 rehabilitation program that has been approved by the bank’s appropriate federal regulator; (ii) the borrower meets the bank’s program criteria, including a demonstrated willingness and ability to repay the loan; and (iii) the borrower has not previously removed a default on the same loan. Although the Act does not require lenders to offer a Section 602 rehabilitation program, those that do are entitled to a safe harbor from claims of inaccurate reporting for removing a default.
The Bulletin also details the process for obtaining regulatory approval for a Section 602 rehabilitation program. The Bulletin notes that banks intending to establish a Section 602 program must seek written approval from their supervisory office concerning the proposed program, and that the office will review the program to ensure it is consistent with the Act’s minimum requirements, other applicable laws and regulations, and safe and sound banking principles. The OCC will provide feedback or notify the bank of its decision within 120 days of the request.
Department of Education forgives roughly $150 million in student loans eligible for automatic closed school discharge
On December 13, the Department of Education announced it will automatically discharge approximately $150 million in student loans for roughly 15,000 eligible borrowers as part of implementing the Department’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”), which took effect in October following a decision by the U.S. District Court for the District of Columbia that the Department’s move to delay the regulations—finalized in 2016 and originally set to take effect July 1, 2017—was procedurally invalid (see InfoBytes coverage on the ruling here.) The Borrower Defense Regulations are designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. Of the $150 million, approximately $80 million of the amount is attributable to loans taken out by students who attended now bankrupt, for-profit Corinthian schools. (See InfoBytes coverage on matters related to Corinthian schools here.) The announcement also provides information for loan holders, guaranty agencies in the Federal Family Education Loan program, and schools concerning new closed school discharge requirements.
Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers
On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.
The amendments take effect January 1, 2019.
On December 7, as part of Operation Game of Loans—a coordinated effort between the FTC and state law enforcement—the FTC announced settlements with operators of two student loan debt relief operations to resolve allegations that the defendants violated the FTC Act and the Telemarketing Sales Rule by, among others (i) charging consumers who purchased the debt relief services illegal upfront fees; and (ii) falsely promising to assist consumers in enrolling in government programs that would reduce or forgive their student loan debt.
Under the terms of the settlement, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Combined, the settlements total more than $36 million, though judgments have been partially suspended due to the defendants’ inability to pay.
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program