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On May 16, Senator Warren (D-MA) released an April 23 letter from CFPB Director Kathy Kraninger outlining the Bureau’s efforts to oversee student loan servicers, which was sent in response to an inquiry by six democratic senators. As previously covered by InfoBytes, the senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF) and asking about the effect of the Department of Education’s (Department) December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies. In response, Kraninger noted that since December 2017, the Bureau has conducted “several exams” of student loan servicers, some that included questions regarding PSLF. However, and most notably, Kraninger stated that, “[s]ince December 2017, student loan servicers have declined to produce information requested by the Bureau for supervisory examinations related to Direct Loans and Federal Family Education Loan Program (FFELP)…based on the Department’s guidance.” The Bureau has pursued “options” to obtain the information necessary for these examinations, according to Kraninger. Additionally, Kraninger noted that creating a new Memorandum of Understanding with the Department is a priority for the Bureau, once a new Student Loan Ombudsman is hired.
Department of Defense updating data-sharing agreement with Department of Education to preserve servicemember benefit
On April 16, the Department of Defense (DoD) published a proposal in the Federal Register to amend its routine use policy to accommodate a new data-sharing agreement between DoD and the Department of Education (ED). The new agreement ensures that servicemembers with student loans under Part D, Title IV of the Higher Education Act of 1965 receive the “no interest accrual benefit” on eligible loans during the period in which they received imminent danger or hostile fire pay. Through the proposal and the new agreement, ED will be able to access information in the Defense Manpower Data Center Data Base to identify servicemembers eligible for “no interest accrual benefit.” The proposal will take effect after the comment period ends on May 16 “unless comments are received which result in a contrary determination.”
On April 3, six Democratic Senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF). In the letter, the Senators expressed concern that the Bureau’s leadership “has abandoned its supervision and enforcement activities related to federal student loan servicers.” The Senators noted that consumers owe more than $1.5 trillion in student loan debt in the U.S. and that loan servicing companies under contract with the U.S. Department of Education (the “Department”) are “covered persons” under Title X of the Dodd Frank Act, which allows the Bureau “broad oversight authority over their actions.” The Senators cited to a number of lawsuits brought by private citizens and state authorities challenging student loan servicing companies’ actions with regard to PSLF, and requested the Bureau respond to a series of questions regarding its activities overseeing student loan servicers’ handling of PSLF since December 2017. Among other things, the Senators requested information regarding (i) the Bureau’s examinations of student loan servicers’ PSLF administration; (ii) the effect of the Department’s December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies; (iii) the status of the CFPB’s alleged investigation into a specific student loan servicer’s actions; and (iv) the status of information sharing with the Department since August 2017.
On March 6, the U.S. Court of Appeals for the 4th Circuit held that Congress did not waive sovereign immunity for lawsuits under the FCRA, affirming the lower court’s dismissal of a consumer action. According to the opinion, a consumer filed a lawsuit against the U.S. Department of Education (the Department), a student loan company, and the three major credit reporting agencies, alleging numerous claims, including violations of the FCRA for failing to properly investigate disputes that federal student loans were fraudulently opened in his name. The Department filed a motion to dismiss to the FCRA claims against it arguing the court lacked subject matter jurisdiction based upon a claim of sovereign immunity. The lower court agreed, holding Congress had not affirmatively waived sovereign immunity for suits under the FCRA.
On appeal, the 4th Circuit agreed with the lower court. The appellate court noted that, although the FCRA includes a “government or governmental subdivision or agency” as part of the definition of “person” in the statute, there is a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” and that waivers of sovereign immunity need to be “unambiguous and unequivocal.” The appellate court noted that Congress waived immunity in other sections of the FCRA, which were not at issue in this case and, had Congress waived immunity for enforcement purposes under the FCRA, it would raise a new host of “befuddling” and “bizarre” issues, such as the prospect of the government bringing criminal charges against itself. Therefore, the appellate court concluded that the federal government may be a “person” under the substantive provisions, but that without a clear waiver from Congress, the federal government is still immune from lawsuits under the FCRA’s enforcement provisions.
On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.
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.
District Court denies preliminary injunction; Department of Education’s Borrower Defense Regulations take effect
On October 17, the U.S. District Court for the District of Columbia denied plaintiff California Association of Private Postsecondary Schools’ request for preliminary injunction to enjoin the implementation and enforcement of several provisions of the Department of Education’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”). The Borrower Defense Regulations—finalized in 2016 and originally set to take effect July 1, 2017—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. (See previous InfoBytes coverage here.) Under the regulations, the Department is required to create a “clear, fair, and transparent” process for handling borrowers’ loan discharge requests and to automatically forgive the loans of some students at schools that closed, without requiring borrowers to apply for that relief. However, according to the court, because the Department stayed the effective date of the majority of the regulations pending resolution of the case, the plaintiff’s motion was never fully briefed or decided. After hearing oral arguments, the court concluded that the plaintiff “failed to carry its burden of demonstrating that any one of its members is likely to suffer an irreparable injury in the absence of an injunction.” Moreover, the court stated that it was “not convinced that the [plaintiff] has shown a ‘substantial likelihood’ that it has standing to sue.”
Per the court’s decision, the Borrower Defense Regulations became effective immediately. As previously covered by InfoBytes, the court sided with a coalition of state Attorneys General last month, ruling that the Department’s decision to delay the regulations was procedurally invalid, but delayed implementation of the regulations pending a decision in the plaintiff’s lawsuit.
District Court holds Department of Education stay of student loan regulations is procedurally invalid
On September 12, the U.S. District Court for the District of Columbia granted a motion for summary judgment in favor of a consolidated action brought by a coalition of 19 state Attorneys General and the District of Columbia as well as two student borrowers (collectively, the plaintiffs), holding that the Department of Education’s (Department) decision to delay the enactment of Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”) was “procedurally invalid.” The Borrower Defense Regulations, published November 2016, afford students protections against misleading and predatory practices by postsecondary institutions (see previous InfoBytes coverage here), and were set to take effect July 1, 2017. However, the Department delayed the effective date pending the resolution of a lawsuit challenging certain portions of the regulations filed by the California Association of Private Postsecondary Schools; delayed the effective date further through an interim rule issued in October 2017; and last February, issued a final rule further delaying the effective date until July 1, 2019.
The Department argued it was entitled to a stay under Section 705 of the Administrative Procedure Act because the lawsuit “raised serious questions concerning the validity of certain provisions of the final regulations and ha[d] identified substantial injuries that could result if the final regulations [went] into effect before those questions [were] resolved.” The court disagreed with the Department’s argument, finding that in order to justify a Section 705 stay, “an agency must, in short, do more than simply assert—without elaboration—that the litigation raises unspecified ‘serious questions’ for resolution and that a stay will save regulated parties the cost of compliance.” Moreover, the court concluded that (i) plaintiffs have standing to challenge the Department’s delay actions; (ii) the Department’s 2017 interim final rule “is based on an unlawful construction of the Higher Education Act”; (iii) the February final rule is “procedurally invalid”; and (iv) the Section 705 stay is “judicially reviewable” and “arbitrary and capricious.”
District Court rules student loan servicer must turn over Department of Education borrower records to Bureau
On August 10, the U.S. District Court for the Middle District of Pennsylvania ordered a loan servicer hired by the Department of Education (Department) to service loans it owns to turn over certain Department-owned student loan borrower documents to the CFPB, which relate to the servicer’s collection and management of its federal student loan borrowers’ payments. During the course of the ongoing litigation (see previous InfoBytes coverage here), the servicer withheld the documents in discovery on the grounds that they belonged to the Department and were therefore protected from disclosure by the Privacy Act. Moreover, the servicer asserted that the dispute was really between the Bureau and the Department because, in order to turn over the documents, the servicer would first have to obtain permission from the Department.
However, according to the opinion issued by the court, turning over the documents would not violate the defendants’ agreement with the Department or violate federal privacy law. Specifically, the court stated that “there is no dispute that the borrower documents at issue are in the possession of [d]efendants, even if, as [d]efendants assert, they are owned by the Department,” and as such, under the Federal Rules of Civil Procedure, “requests can be made for production of documents, electronically stored information, and things in ‘the responding party’s possession, custody or control.’” Furthermore, the court stated that “the Privacy Act’s general prohibition on disclosure of records . . . does not create a qualified discovery privilege” and cannot be used as a means to “block the normal course of court proceedings, including court-ordered discovery.”
On July 25, the U.S. Department of Education (Department) issued a press release announcing a notice of proposed rulemaking that would apply to students who qualify for loan discharges in circumstances where a borrower was significantly misled or defrauded by the higher education institution they attended. Provisions under the proposed Institutional Accountability regulations include:
- instituting a “borrower defense to repayment adjudication process that is clear, consistent and fair to borrowers who were harmed by institutional misconduct”;
- replacing the existing state standard for adjudicating claims with a federal standard to provide a more expeditious review of student claims;
- encouraging students to seek remedies directly from institutions when misrepresentation has occurred;
- expanding the “closed school loan discharge” eligibility time period to 180 days from 120 days for students who have left an institution prior to its closure;
- ensuring that any mandatory arbitration requirements or class action lawsuits restrictions are explained in plain language to enable students to make informed enrollment decisions; and
- preventing guaranty agencies from charging borrowers a fee on defaulted loans if the loan goes into repayment within 60 days.
The Department also seeks public comment on whether borrower defense to repayment claims should be limited only to students in default instead of also allowing students to apply for forgiveness who remain in good financial standing. Additionally, the Department seeks comments on whether students should be held to a higher standard through the showing of “clear and convincing” evidence, rather than the lower legal “preponderance of the evidence” standard. The new plan would affect students who take out loans beginning July 1, 2019. Comments on the proposal are due 30 days after publication in the Federal Register.
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: The CFPB’s proposed debt collection rule
- Buckley Webcast: Trends in e-discovery technology and case law
- Brandy A. Hood to discuss "What the flood? Don’t get washed away by a flood of changes" at the American Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Mitigating the risks of banking high risk customers" at the American Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano, Kari K. Hall, Brandy A. Hood, and H Joshua Kotin to discuss "Regulations that matter in a deregulatory environment" at the American Bankers Association Regulatory Compliance Conference Power Hour
- Buckley Webcast: Data breach litigation and biometric legislation
- 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
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium