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NYDFS, New York Attorney General reach $9 million settlement with student loan servicer
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.
District Court concludes company’s dialing system is not an autodialer under TCPA
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.
OCC issues statement on student loan rehabilitation programs
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.
FTC reaches settlements with two student loan debt relief operators
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.
Court certifies class in FDCPA action against student loan debt collector
On December 3, the U.S. District Court for the District of New Jersey granted class certification to a group of borrowers alleging that a debt collection company misrepresented late charges accruing on student loan debt after default, in violation of the FDCPA section 1692e, among other sections. The lead plaintiff brought the action against the debt collector after receiving a letter regarding her defaulted federal Perkins student loans, which stated “[d]ue to interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater” even though the plaintiff later learned that Perkins loans cannot accrue late charges after default. After the FDCPA’s 1692e claim survived summary judgment, the plaintiff moved to certify the class, while the debt collector opposed the certification and separately moved to dismiss the class claim for lack of standing. In denying the motion to dismiss and granting certification, the court held the borrower had standing as she met the requirement of showing a concrete and particularized injury, stating “when a debt collector violates Section 1692e by providing false or misleading information, the informational injury that results—i.e., receipt of that false or misleading information—constitutes a concrete harm under Spokeo.” The court found that the borrower met the requirements for class certification, including the numerosity requirement as evidenced by the almost 3,000 letters sent by the debt collection company to New Jersey loan holders. Moreover, the court found that the class claims would predominate over individual ones since there exist common questions of law or fact insofar as class members received the same or substantially similar letters from the collector.
FTC settles with one student loan debt relief operation; seeks separate permanent injunction against another
On November 20, the FTC announced a settlement with operators of a student loan debt relief operation to resolve allegations that the defendants defrauded consumers through programs offering mortgage assistance and student debt relief. Regarding the student debt operations, the FTC alleged that the defendants falsely offered student borrowers reduced monthly payments or loan forgiveness by falsely claiming to be affiliated with the Department of Education. In a 2017 complaint, the FTC alleged that the defendants also falsely promised foreclosure prevention and mortgage relief to distressed homeowners, but instead collected advance fees in violation of the Telemarketing Sales Rule (TSR) and the Mortgage Assistance Relief Services Rule. Among other things, the settlement includes a judgment of more than $9 million—which will be partially suspended once the defendants turn over all assets worth approximately $305,000 because of their inability to pay—and bans the defendants from participating in debt relief and telemarketing activities in the future.
The same day, the FTC also announced it was charging a separate student loan debt relief operation with violations of the FTC Act and the TSR for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, the operators of the scheme—which include a recidivist scammer previously banned from participating in debt relief activities—allegedly “promoted a 96 percent success rate in reducing consumers’ student loan payments.” However, the FTC stated that consumers who purchased the debt relief services and often paid illegal upfront fees “often did not receive any debt relief and lost hundreds of dollars.” On November 13, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
FTC settles with online student loan refinance lender for allegedly deceptive marketing
On October 29, the FTC announced a settlement with an online student loan refinance lender resolving allegations the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. The complaint alleges that the lender inflated the average savings consumers have achieved refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. The complaint also alleges that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” Although the lender did not admit or deny any of the allegations, it agreed to a consent order that requires it to cease the alleged misrepresentations and agree to certain compliance monitoring and recordkeeping requirements.
Notably, Commissioner Rohit Chopra issued a concurring statement in this matter suggesting that in instances where the FTC is unable to obtain monetary remedies, it should seek to partner with other enforcement agencies that have the additional legal authority to obtain monetary settlements from the targets of the FTC enforcement action.
New York City Department of Consumer Affairs sues for-profit college for deceptive and predatory lending practices
On October 19, New York City Department of Consumer Affairs (DCA) announced that it filed suit in New York County Supreme Court against a for-profit college alleging deceptive and predatory lending practices that violate NYC Consumer Protection Law and local debt collection rules. The DCA alleges that college recruiters engaged in deceptive practices such as (i) masquerading federal loan applications as scholarships; (ii) steering students towards college loans and referring to them as “payment plans”; and (iii) deceiving students about institutional grants by failing to disclose that they require students to obtain the maximum amount of federal loans available before a grant can be awarded. DCA also alleges that the for-profit college violated debt collection laws by concealing its identity on invoices when collecting debt, and seeking payments from graduates for debts not owed.