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Financial Services Law Insights and Observations


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  • 7th Circuit affirms dismissal of FDCPA case


    On August 11, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s decision to grant defendants’ motion to dismiss, ruling that the plaintiff lacked standing. Plaintiff defaulted on a credit card debt that was purchased by one of the defendants and hired another defendant to collect said debt. The debt collector defendant sued plaintiff for the outstanding debt along with "statutory attorney fees,” but also appended an affidavit to the complaint asserting that no additional amounts were being pursued beyond the charge-off date, including attorney's fees. Plaintiff sued under the Fair Debt Collection Practices Act (FDCPA) in federal district court, claiming that the two declarations were in conflict and amounted to false, misleading, and deceptive communications.

    The U.S. District Court for the Northern District of Illinois held that plaintiff did not show concrete harm for Article III standing, adding that plaintiff did not raise an FDCPA claim in the amended complaint regarding the underlying debt, and that plaintiff made conflicting statements. The court granted defendants’ motions to dismiss for failure to state a claim.

    On appeal, the 7th Circuit affirmed the district court ruling, holding that plaintiff did not demonstrate harm to establish Article III standing, and that the complaint was properly dismissed for lack of subject matter jurisdiction in the district court. In doing so, the 7th Circuit noted that plaintiff’s decision to hire an attorney was insufficient to establish standing and that plaintiff made contradictory statements when he denied owing the debt during discovery, but on appeal contended he would have paid the debt but for defendants’ contradictory statements. 

    Courts Seventh Circuit FDCPA Appellate Debt Cancellation Debt Buying

  • Republicans seek to overturn student loan relief program

    Federal Issues

    On March 27, Republican lawmakers Representative Bob Good (R-VA) and Senator Bill Cassidy (R-LA) introduced a joint resolution of disapproval under the Congressional Review Act to overturn the Department of Education’s (DOE) student loan debt relief program, which has yet to take effect. As previously covered by InfoBytes, the three-part debt relief plan was announced last August to provide, among other things, up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE, and up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples.

    Opponents of the debt relief program immediately filed legal challenges after the plan was introduced last August. On December 1, the U.S. Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibited the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (covered by InfoBytes here). In a brief unsigned order, the Supreme Court deferred the Biden administration’s application to vacate, pending oral argument. Shortly after, the Supreme Court also granted a petition for certiorari in a challenge currently pending before the U.S. Court of Appeals for the Fifth Circuit, announcing it will consider whether the respondents (individuals whose loans are ineligible for debt forgiveness under the plan) have Article III standing to bring the challenge, as well as whether the DOE’s debt relief plan is “statutorily authorized” and was “adopted in a procedurally proper manner” (covered by InfoBytes here). The Supreme Court heard oral arguments in both cases at the end of February.

    Good noted in his announcement that more than 120 members of the House signed an amicus brief expressing concerns about the constitutionality of the debt relief program. And last month, the Government Accountability Office issued a letter of opinion stating that the final waivers and modification rules submitted by the DOE last October to streamline and improve targeted debt relief programs (covered by InfoBytes here) constitute rules under the CRA and shall have no force or affect.

    Federal Issues Student Lending Debt Cancellation Congressional Review Act Congress Debt Relief GAO

  • Iowa establishes refund requirements for voluntary debt cancellation coverage

    State Issues

    On March 22, the Iowa governor signed HF 133 relating to refund payments made in connection with motor vehicle debt cancellation coverage.  The act provides that if a creditor is a financial institution, as defined in the Iowa consumer credit code or the Gramm-Leach-Bliley Act, and purchases a retail installment contract with voluntary debt cancellation coverage, “the only obligation of the creditor upon prepayment in full shall be to notify the motor vehicle dealer within thirty days of the prepayment.” It is the motor vehicle dealer’s responsibility to promptly determine whether a consumer is eligible to receive a refund of any voluntary debt cancellation coverage. Any refunds must be issued directly to the consumer within 60 days of the dealer receiving notice of prepayment from the creditor. The act is effective July 1.

    State Issues State Legislation Iowa Auto Finance Debt Cancellation Consumer Finance

  • District Court grants summary judgment in FCRA and FDCPA suit


    On September 30, the District Court for the Northern District of New York granted a defendant’s motion for summary judgment in an FCRA and FDCPA suit. According to the order, the plaintiff allegedly discovered that the defendant communicated incorrect information regarding a debt to credit reporting agencies (CRAs) and subsequently began disputing the debt. The defendant confirmed that the tradeline was accurate and that the account had been paid in full. The plaintiff then sent letters to the different CRAs, the original creditor, and the defendant, claiming that the information being communicated was inaccurate. The plaintiff continued to receive responses indicating that the information being reported was accurate and that the account had been paid in full. The plaintiff then received a letter from a bank rejecting his application for a credit card on the basis that they had received negative information about the plaintiff’s credit from a credit reporting agency. The plaintiff claimed that the defendant violated the FCRA by failing to conduct a reasonable investigation, failing to review information provided by the CRAs, and failing to modify or delete information it could not verify as accurate. The court disagreed, finding that the defendant’s investigations were “reasonable under the circumstances,” given that the plaintiff’s disputes contained “various misleading descriptions that indicated” the debt was not the plaintiff’s, when he had admitted in other circumstances it was. Regarding the FDCPA claim, the court noted that “even if this information was false or inaccurate, there is no evidence whatsoever that it was communicated in connection with the collection of a debt.”

    Courts Debt Cancellation FCRA FDCPA Consumer Finance Credit Reporting Agency

  • Democrats want PLUS loans in relief plan

    Federal Issues

    On September 12, eight Senate Democrats sent a letter to President Biden, urging him to extend student-loan debt relief to roughly 3.6 million borrowers under the Parent Loan for Undergraduate Student (PLUS) loan program. Biden’s debt relief plan instructed the Department of Education (DOE) to, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; and (iii) propose a new income-driven repayment (IDR) plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income. Additionally, for IDR plans, Biden’s August announcement instructed the DOE to propose a rule to, among other things, reduce the amount that borrowers have to pay each month for undergraduate loans from 10 percent to 5 percent. The Senators expressed their concern that Biden’s recent actions do not appropriately cover Parent PLUS borrowers and urged his administration and the DOE to “to incorporate Parent PLUS borrowers in any administrative improvements to federal student loan programs, including the Public Service Loan Forgiveness and Income-Driven Repayment programs, extensions or creation of waivers, and in the implementation of executive actions to provide student debt relief.”

    Federal Issues U.S. Senate Student Lending Biden Debt Cancellation Consumer Finance Income-Driven Repayment Department of Education PLUS Loans

  • Biden announces student debt cancellation

    Federal Issues

    On August 24, President Biden announced a three-part plan for student loan relief. According to the Fact Sheet, the cumulative federal student loan debt is around $1.6 trillion and rising for more than 45 million borrowers. The President announced that the Department of Education (DOE) will, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; (iii) propose a new income-driven repayment plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income; and (iv) “propos[e] a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” For income-driven repayment, Biden announced that the DOE is proposing a rule to, among other things: (i) reduce to 5 percent from 10 percent the amount that borrowers have to pay each month for undergraduate loans; (ii) guarantee that borrowers making less than 225 percent of the federal minimum wage are not required to make payments on their federal undergraduate loans; (iii) forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less; and (iv) cover the borrower’s unpaid monthly interest so that no borrower’s loan balance will grow when making monthly payments, “even when that monthly payment is $0 because their income is low.” The Fact Sheet also noted that if all borrowers claim the relief to which they are entitled under this plan, these actions “will [p]rovide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” will benefit primarily low- and -middle income borrowers, assist borrowers of all ages, and help narrow the racial wealth gap and promote equity by targeting those with the highest economic need.

    The same day, the DOE announced a final extension of the pause on student loan repayment, interest, and collections through December 31. As previously covered by InfoBytes, in April, Biden extended the moratorium on collecting student loans through August 31, about which the DOE stated will allow “all borrowers with the paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”

    Earlier this week, the DOE announced that it will provide over $10 billion in debt relief for over 175,000 borrowers in 10 months through the Public Service Loan Forgiveness (PSLF) program. The recent announcement follows changes the DOE announced in October 2021 (covered by InfoBytes here) that, among other things, gave qualifying borrowers a time-limited PSLF waiver that allowed all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. The recently announced changes provide that student borrowers receive credit for payments made on loans from FFEL, Perkins Loan Program, and other federal student loans. To qualify for the program under the temporary changes, such borrowers must apply to consolidate their loans into a Direct Consolidation Loan by October 31. Additionally, the DOE announced that “under the temporary changes, past periods of repayment count whether or not borrowers were on a qualifying repayment plan or whether or not borrowers made payments.” To date, $32 billion in student loan relief has been approved for over 1.6 million borrowers.

    Federal Issues Department of Education Student Lending Biden Agency Rule-Making & Guidance Income-Driven Repayment Debt Cancellation Consumer Finance

  • Education Dept. rolls out new plan for IDRs

    Agency Rule-Making & Guidance

    On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:

    • To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
    • Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
    • FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
    • Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
    • FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.

    In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”

    Agency Rule-Making & Guidance Department of Education CFPB Student Lending Consumer Finance Debt Cancellation Forbearance Student Loan Servicer Income-Driven Repayment

  • State student loan ombudspersons push for automatic student loan discharges for disabled civilian borrowers

    State Issues

    On March 3, student loan ombudspersons from seven states and the District of Columbia sent a joint letter to U.S. Department of Education (Department) Secretary Betsy DeVos and Social Security Administration (SSA) Commissioner Andrew Saul advocating for the automatic discharge of student loans for eligible borrowers under the Total and Permanent Disability (TPD) loan discharge program. Describing the current TPD program’s application process as “onerous,” the letter cites to the Department’s implementation of a presidential directive in 2019 that granted automatic student loan discharges to disabled veterans (covered by InfoBytes here), as an example of how to provide relief to borrowers “without further burdening them with a cumbersome application process.”

    As asserted by the ombudspersons, the Higher Education Act of 1965 makes clear that a qualifying borrower’s loans shall be discharged if the borrower is (i) “permanently and totally disabled,” or (ii) “is ‘unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months, or can be expected to last for a continuous period of not less than 60 months.” The ombudspersons claim that the current TPD program’s application process is difficult for disabled borrowers to complete, and the difficulties posed by the annual documentation submission requirement during the post-discharge three-year monitoring period poses a risk of “having the[] discharged loans reinstated.” The student loan ombudspersons urged the Department and the SSA to work together to allow the Secretary to accept information shared by the SSA that the borrower is permanently disabled for the purpose of granting the discharge of student loan debt, and to minimize or eliminate the need for borrowers to proactively participate in the post-discharge monitoring process.

    State Issues Student Lending Department of Education Debt Cancellation Higher Education Act

  • CA Attorney General secures $67 million in debt relief for former students of defunct for-profit school

    State Issues

    On June 13, the Superior Court of the State of California ordered a California-based student loan provider to halt all debt collection efforts and forgive the balances on over 30,000 private student loans, which were used for programs at a now defunct for-profit college. According to the announcement by the California Attorney General, Xavier Becerra, the debt relief totals $67 million for the former students. The complaint, filed on the same day as the order, alleges the company engaged in unlawful debt collection practices, including sending borrowers notices threatening legal action, to collect on the student loans at issue. In addition to the debt forgiveness, the order requires the company to (i) refund all payments made on the student loans by California-residents after August 1, 2017; (ii) refund payments made prior to August 1, 2017 by borrowers who received allegedly unlawful debt collection notices; and (iii) delete negative credit reporting associated with the student loans for all of the for-profit students around the country.

    As previously covered by InfoBytes, in a class action filed by former students, the Department of Education was recently barred by a preliminary injunction from continuing collection efforts on student loans used for the same defunct for-profit college.

    State Issues State Attorney General Student Lending Debt Cancellation Debt Collection Consumer Finance Lending Courts

  • CFPB fines installment lender $5 million for improper collection and credit reporting practices

    Federal Issues

    On June 13, the CFPB ordered a South Carolina-based installment lender and its subsidiaries to pay $5 million in civil money penalties for allegedly making improper in-person and telephonic collection attempts in violation of the Consumer Financial Protection Act (CFPA) and inaccurately furnishing information to credit reporting agencies in violation of the Fair Credit Reporting Act (FCRA). According to the consent order, between 2011 and 2016, the company and its subsidiaries (i) initiated collection attempts at consumers’ homes and places of employment; (ii) routinely called consumers at work to collect debts, sometimes after being told they were not allowed to receive calls; and (iii) contacted third parties and disclosed or were at risk of disclosing the existence of the consumer’s debt. The CFPB also alleges that the company and its subsidiaries failed to implement reasonable credit reporting procedures and failed to correct inaccurate information furnished to credit reporting agencies. In addition to the $5 million civil money penalty, the company and its subsidiaries must (i) cease improper collection practices; (ii) correct the credit reporting errors; and (iii) develop a comprehensive compliance plan.

    Federal Issues CFPB CFPA UDAAP FCPA Enforcement Debt Cancellation


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