The Second Circuit Court of Appeals must be thinking it’s Groundhog Day with the number of times it has shot down plaintiffs’ counsels’ attempt to squeeze every last drop out of the interest disclosure and debt itemization claims. The Second Circuit has already issued decisions in Taylor, DeRosa, Kolbasyuk—all on the almost-identical interest disclosure issue—and now it can add two more cases to this list. 

In this newest iteration of the interest disclosure line of cases, the claims have revolved around the debt itemization that the New York Department of Financial Services (NYDFS) regulations require. Third-party debt collectors must include an itemization for charged off accounts that lists post-charge off interest, fees, charges, and payments, regardless of whether any of these are applicable to the account in question. NYDFS released an FAQ to clarify that a debt collector may list “0” or “N/A” in the itemization if the specific line item is not applicable to the account. 

True to form, none of this stopped a flood of lawsuits against debt collectors arguing that including “0” or “N/A” misleads consumers because it can be allegedly read to mean two things: that interest is accruing or interest is not accruing. The good news is that the Second Circuit shut both of these arguments down and found that neither “$0.00” nor “N/A” in the debt itemization—without an interest disclosure in the letter—implies that interest, fees, or charges will accrue on the account. 

Let’s dig into the details of the two cases.

Gissendanner v. Enhanced Recovery Co., No. 18-3842 (2d. Cir. Nov. 4, 2019): In this case, the consumer alleged that a debt itemization that included “N/A” could have two meanings: either the creditor forgave the previously-accrued interest, fees, and charges (which would be false) or that the creditor has not added interest, fees, and charges since placing the account in collections (which would be true). 

To say the Second Circuit was unamused by this argument is an understatement. Not only did the court find this potential confusion “immaterial”—thus not an FDCPA violation—the court also stated it already reviewed this scenario in Taylor:

[W]e expressly considered the plaintiff’s argument that the debt collection notices were misleading because the least sophisticated consumer could have interpreted the absence of any information regarding interest in the notices to mean either that interest on the debts was or was not accruing. We recognized that plaintiffs were effectively arguing “that a debt collector commits a per se violation of Section 1692e whenever it fails to disclose whether interest or fees are accruing on a debt.” Taylor rejected that argument because the only harm arising from the consumer’s reasonably mistaken belief that interest was accruing on a static debt was not sufficiently serious to be actionable. 

Dow v. Frontline Asset Strategies, LLC, No. 18-3107 (2d. Cir. Nov 4, 2019): In this case, the consumer alleged that a collection letter which stated “as of the date of this letter, you owe $[amount]” and includes “$0.00” in the debt itemization could erroneously mislead a consumer that the debt was dynamic rather than static. 

Similar to the above, the Second Circuit relied on its prior decision in Taylor to shut this argument down:

Dow attempts to distinguish Taylor on the basis that the notice here includes separate line items for the interest and charges or fees accrued on the balance. We do not find the notice to be misleading here given that these lines reflect $0 in interest or fees and charges had accrued. Nor does language such as “as of this date, you owe $___” change our calculus. This stock language is present in a number of collection notices, including those considered not misleading in Taylor. Because there is no other information relating to interest, fees, or charges in the notice—a fact alleged in Dow’s complaint—we cannot say that the least sophisticated consumer would read the collection notice here as suggesting their debt is dynamic.

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insideARM Perspective

After years of litigation, the Second Circuit is saying that using the NYDFS FAQ guidance is fine. It’s unfortunate that these decisions, which are based on minute modifications to allegations, are funded by debt collectors due to the one-sided nature of the FDCPA’s attorney fee provision. This is despite the fact that the courts have repeatedly ruled that the debt collector’s practices are not violations. Considering this, is it any wonder that the TransUnion/Aite Group report that insideARM wrote about yesterday found that debt collector’s second-largest expense behind payroll is legal defense and settlements? 

The real question is this: does this type of litigation practice—flooding debt collectors with lawsuits despite district and circuit courts repeatedly finding that the practices in question are not violations—benefit or harm consumers? From here, it sure looks like an effort to strong-arm settlements out of debt collectors who cannot afford to defend each and every lawsuit that comes through their door since they will never recover their defense fees, as some courts have found.

Let’s do some quick math. Per the TransUnion/Aite Group report, a whopping 10% of a debt collector’s expenses is devoted to legal defense and settlements. Debt collectors can’t afford to defend every single lawsuit, so a large chunk of this 10% is likely in settlements. Consumer recovery is limited to $1,000 under the FDCPA for an individual claim—although it is believed consumers receive much less than this in settlements. So, in the end, who actually benefits from this litigation practice? That’s a rhetorical question because I think we all know the answer.

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Want to keep track of how courts are ruling on hot-button claims like this one? The iA Case Law Tracker can help you keep up and conduct incisive and quick legal research in less time than it takes to pour your morning cup of coffee.

GENESEO, N.Y. — Coast Professional, Inc. (Coast) is in the process of renovating and opening an office in East Aurora, NY located at 300 Gleed Avenue. This location will be Coast’s fifth office nationwide and is expected to be fully operational by January 2020. In order to fill this 24,000 square foot location, Coast will be hiring 100+ new positions, including customer service/consumer care representatives, managers, and support staff. The Gleed Avenue location will be Coast’s third office to open in the last 12 months. 

Available positions include call center and customer service based careers that vary from entry-level to upper management. As a federal government contractor, Coast’s benefits include Service Contract Act (SCA) wages, high-quality healthcare options, tuition assistance, flex scheduling, paid time off, and onsite training. Most positions require a high school diploma (or equivalent) and a willingness to help consumers overcome their financial difficulties. Please see www.bonuscheck.net for more details regarding our job openings. 

“This is another incredible achievement for Coast that will further solidify our expectations and trajectory of growth in the future,” said Coast COO, Jonathan Prince. “Our success over the past year is a direct result of our employees and their dedication to performance, compliance, and ethics. We are excited to be able to bring more job opportunities to the Western New York area and to add more employees to the Coast team.” 

About Coast Professional, Inc.

Coast Professional, Inc. is an accounts receivable management company, dedicated to the respectful and ethical collection of higher education and government debt. Coast provides professional collection services to over 200 campus-based colleges, universities, and government clients. Coast is a six-time honoree on the Inc. 5000 list for American’s Fastest-Growing Private Companies provided by Inc. Magazine and in 2019, was recognized for the fourth time as one of the “Best Places to Work In Collections” by insideARM.com and Best Companies Group. Since 1976, Coast has worked closely with clients to increase recoveries by assisting consumers in resolving their financial obligations. Coast’s success is exemplified by exceptional recoveries, superior service, and dedication to the highest levels of compliance. More information about Coast can be found at www.coastprofessional.com

Today, TransUnion and the Aite Group released a report titled The State of Collections 2019, noting that the debt collection industry is at a crossroads but has a bright future ahead. The report—which covered a cross-section of the industry representing collectors of all sizes who collect many different types of debts—benchmarks what collectors are doing today, dives into the challenges faced by increased costs of payroll and decreased consumer contacts, and lays the groundwork for what the future holds for debt collectors willing to embrace technology.

insideARM spoke with Peter Ghiselli, Vice President of Third-Party Collections at Transunion, to discuss the report and dig into some of its findings. Below are some of the highlights.

Debt Collection Margins are Tighter Than Ever

It seems that the perfect storm has hit the debt collection industry: due to a variety of factors, margins for third-party collection have been steadily shrinking. Some of these factors include the cost of payroll, increasing legal and regulatory demands, reduced commission rates from creditors, and the high cost of postage and telephony—which are still the primary communication channels used by debt collectors.

Payroll is, by far, the largest expense at collection agencies, accounting for up to 41% of the company’s budget. On average, only 55% of full-time employees at companies are directly engaged in collection work. As legal and regulatory requirements for collectors have grown, compliance departments have seen a boom. Additionally, bringing on new collection agents is a challenge in today’s low-unemployment environment. [Editor’s Note: insideARM previously published an article about recruiting and retention in a time of low unemployment.] Postage and telephony also represent a significant portion of collection expenses.

At the same time, commission rates for debts collected have fallen over the years, tightening margins even further amid the rising costs referenced above. The report notes:

One interviewee notes that 20 years ago, companies had returns of 18% to 20%, while a 10% rate of return is pretty good now. Another concurs, citing dramatically shrinking margins resulting from commission rates reduced by half.

Difficulty Reaching Consumers

Debt collectors have seen an increased difficulty in reaching consumers using the widely-accepted communication methods of mail and telephone calls. Consumers’ phones are plagued with illegal spam calls, making it difficult for consumers to differentiate between a legitimate call from a debt collector and an illegal robocall. 

The report also mentions the delicate scorpion dance debt collectors and consumers must endure once a consumer answers the phone:

The “catch-22” of having to ask that consumer for information before revealing details of why the collector is calling is a high hurdle. As one industry leader aptly notes, “right-party contact has fallen off a cliff.”

The Result: Fewer Collection Agencies

Due to the tightening margins and increasing compliance demands, the number of collection agencies available that can shoulder this new environment has fallen. Some agencies fold, others get acquired by larger agencies that want to diversify their business. The overall result, however, means there are fewer choices in the market and the barrier to entry is much higher.

Specialized debt collection companies that collect only one type of debt or one stage of the debt lifecycle (e.g., post-charge off) are going the way of the dodo. More and more companies are choosing to diversify the type of debt they collect in order to survive in this new environment. 

Despite All of This, The Future is Bright

While the above-stated statistics may seem grim, the future of the debt collection industry is bright. Ghiselli states that as collection agencies move toward modern, digital communication channels—for which the Consumer Financial Protection Bureau laid the groundwork with its Notice of Proposed Rulemaking for debt collection—things will improve. 

In fact, the report notes that more and more debt collectors are considering new channels of communication, such as email, SMS messages, and social media, in the future. 

Modern channels of communication will increase the right-party contact rate and decrease the costs of operations for debt collectors, which would make up for some of the challenges faced by debt collectors today.

Final Thoughts from Peter Ghiselli

Ghiselli shares three themes he believes will guide the future of the industry:

1. Diversification is critical for success.
2. The willingness and desire to embrace technology has permeated to everybody that participates in the industry, and this desire needs to remain high as we await the CFPB’s final rules.
3. The CFPB’s rulemaking is going to be extremely favorable to the industry as it will provide clarity on the rules of the road of employing technology for collections.

Ghiselli sees traditional call centers turning to “omnichannel centers,” where you have groups of agents focused on not only calls, but webchat, emails, text messages, and so forth. 

The future is bright. When asked what message he has for debt collectors in light of this report, Ghiselli references the crossroad that the industry is facing and optimistically notes:

This is the most exciting time in our entire careers, and we are privileged to be a part of it. It is the obligation of industry participants to take advantage of this opportunity and lift the third-party collection industry as a whole into the modern age.

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Editor’s Note: This article was originally published on October 31, 2019.

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Who doesn’t love a good scary story for Halloween?

As has long been my tradition, I pause each day on All Hallow’s Eve to reflect on just how truly *horrifying* TCPA litigation can be. So what are the *scariest* TCPA stories of 2019 thus far?

First, although TCPA filings in federal court are down this year–second year in a row for this trend– arbitration filings are spiking, with many consumer lawyers telling more than half of their suits are filed in arbitration these days. That means *phantom* TCPA suits that do not show up in statistics may now make up the majority of TCPA filings. That also means that the total number of TCPA suits is likely substantially higher than the last two years; the actions are just being pursued in arbitration.

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Even scarier– TCPA suits continue to drive a huge volume of class litigation. Other consumer protection statutes–like FCRA and FDCPA– are filed primarily as individual suits with only 5-15% of those cases filed as class actions. On the other hand, 35-50% of TCPA suits in federal court are filed as class actions. And recognizing that such actions can yield billions in potential exposure–and hundreds in millions in judgments— the huge volume of such suits is enough to keep anyone up at night.

But then the real *horror* begins. TCPA class litigation follows its own rules, with courts commonly (but improperly) imposing affirmative evidentiary burdens on the Defendant to disprove certain elements of certifiability–even though the Plaintiff has that burden in any other area of law. This lead to more than one TCPA suit being certified in the most unlikely of circumstances. *Gasp.*

We can dive deeper into this bone-chilling crypt. Do you dare?

Consider– individual officers and agents can be held personally liable for damages in TCPA suits, even for actions taken solely in their corporate capacities. This is a unique rule spinning out of the strange language of the TCPA’s private right of action and can lead to millions of dollars in personal exposure for regular old people who may not have even known the actions their company were taking violated the TCPA. And that personal exposure might not even be dischargable in bankruptcy. *Insert blood-curdling scream here.*

And how can they know that the TCPA is being violated? One court has suggested that a fully manual process is, nonetheless, the use of an ATDS because integrates with a dialer  system in the cloud.  Another court has suggested that manual calls made using a workflow tool that can serve as a dialer are also subject to the TCPA.  Indeed, courts still cannot even agree what the TCPA applies to— yet at least one Court has held the TCPA is not void for vagueness even though the statute inhibits free speech in uncertain and shifting ways. That is simply bone-chilling.

Need more in this Witch’s Brew? A court recently found that wait queue messages qualify as pre-recorded messages under the TCPA–so a mere request that a called party “hold to be connected to an agent” automatically triggers TCPA coverage. Aww, that’s better than eye of newt. Now, consider that scrubbing for cell phones in your call data can no longer be done with confidence since Neustar’s product was found to be non-dispositive on the issue by the First Circuit Court of Appeal! And we’re still months away from any relief on recycled numbers as the FCC’s reassigned number database–and its limited safe-harbor– meaning that you might be strictly liable for unavoidable calls to wrong numbers in the meantime.

Having heart palpations just yet?

And now, the final, terrifying fact:  Rather than reigning in the TCPA, Congress plans to double down by making the TCPA the crown jewel of the federal response to robocalls and possibly the most widely enforced federal statute in our nation’s history! 

*Sound of thunder crashing, dishes breaking, light bulbs swaying eerily from ceilings on worn cables, cats hissing, and all manner of additional auditory horror movie tropes*

Plus: the CCPA is just a few months away. 

Enjoy that cold sweat TCPAWorld.

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Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP—and all insideARM articles—are protected by copyright. All rights are reserved. 

Editor’s Note: This article is published on insideARM with permission from the author.

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As we all know, there is a significant shift in today’s consumers’ preferred method of communication. Most consumers would rather avoid the direct dialogue with a live agent call, and the idea of any mail that is not email seems ancient. As collection firms and agencies develop strategies to accommodate this shift, the benefit of these preferences should not be overlooked. 

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Moving from scripted agent calls to an automated platform not only reduces the cost to serve clients by reducing staffing needs but—more importantly—reduces the risk imposed by employees that go “off script.” Ultimately, shifting to an automated platform can lead to additional revenue. A great example of a new, automated strategy available to debt collectors today is online debt negotiation.

An online debt negotiation option is offered by way of an online platform where consumers can negotiate and pay their past-due accounts via their computer, tablet, or smartphone. The automated process moderates the dialogue between the two parties, negotiates on behalf of your company, and facilitates payment processing. It is calibrated based on each collection agency’s individual standards and guidelines. 

From the instructions provided, the platform creates a systematic, automated solution that doesn’t deviate from what it’s suppose to do—the same cannot be said about all collection agents who are on the phone negotiating with consumers daily. This reduces the liability of the agency because it takes out the variable of an untrained or overly exuberant human who might:

1. Go off-script;
2. Use aggressive methods that push too hard;
3. Not define the payment plan in a clear and concise manner; or
4. Treat two consumers with the same profile differently.

To excite those that may not find as much joy in the idea of improving compliance as I do, online debt negotiation has also been shown to add revenue to an agency’s bottom line. For example, it eases the communication bridge for consumers who are intimidated or embarrassed by the idea of “asking” a live agent for a reduction; or who want—or need—to negotiate after business hours due to work or personal schedules.

While some agencies might be hesitant to add more technology to their collection process, there are clear benefits with an online debt negotiation tool that should be considered, especially since it eliminates the costly risk imposed by the live agents. The added revenue potential should ease this decision as well.  

GENESEO, N.Y. — Coast Professional, Inc. (Coast) hosted its second annual First Responder’s Day across three of its locations on Monday, October 28, 2019. From 11:00 a.m. to 2:00 p.m., Coast employees from Geneseo, NY, Elma, NY, and West Monroe, LA treated hundreds of first responders to hamburgers, hotdogs, chips, and drinks. This event is part of Coast’s volunteer committee aptly titled “Coast Cares,” which positively impacts communities through volunteer efforts and charitable donations. 

“This has turned into one of our favorite events of the year,” said Jonathan Prince, Coast COO. “It’s important for us to be active in our communities and to show appreciation for our first responders for their bravery and commitment. For the second time, we came together to help recognize the hard work and dedication these individuals display daily. This is one way we can thank the women and men who risk their lives for us on National First Responders Day.” 

Local first responders, which included police officers, firefighters, and emergency medical workers, attended the cookout. According to Geneseo, NY Fire Chief Andrew Chanler, hosting an event like this is a positive way to bring community members together while also honoring first responders and their sacrifices. 

“Coast has been at the forefront of recognizing what the members of law enforcement, fire service, and emergency medical services do every day to keep our communities safe,” said Andrew. “On behalf of all first responders, we appreciate the kindness and gratitude the Coast staff continues to show.” 

Now a permanent Coast tradition, First Responder’s Day is quickly becoming a favorite among employees and first responders. 

“We feel it is a privilege serving the residents of Ouachita Parish,” said Sheriff Jay Russell. “We appreciate Coast Professional for their recognizing of not only OPSO, but all local first responders. We truly thank them for their ongoing support.” 

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About Coast Professional, Inc.

Coast Professional, Inc. is an accounts receivable management company, dedicated to the respectful and ethical collection of higher education and government debt. Coast provides professional collection services to over 200 campus based colleges, universities, and government clients. Coast is a six-time honoree on the Inc. 5000 list for American’s Fastest-Growing Private Companies provided by Inc. Magazine and in 2019, was recognized for the fourth time as one of the “Best Places to Work In Collections” by insideARM.com and Best Companies Group. Since 1976, Coast has worked closely with clients to increase recoveries by assisting consumers in resolving their financial obligations. Coast’s success is exemplified by exceptional recoveries, superior service, and dedication to the highest levels of compliance. More information about Coast can be found at www.coastprofessional.com.

If there’s a constant in this industry, it is that debt collectors will see some of the oddest, craftiest claims from consumers alleging violations of the Fair Debt Collection Practices Act (FDCPA). Just when you think you’ve seen it all, something new pops up—like a recent claim brought in the Middle District of Florida.

In Hunstein v. Preferred Collection & Mgmt. Servs., No. 8:19-cv-983 (M.D. Fla. Oct. 29, 2019), plaintiff alleged that a debt collection agency’s action of sending debt information to its mail vendor—so that the mail vendor could prepare and mail the collection letter received by plaintiff—was unauthorized third-party disclosure of the existence of a debt. 

Plaintiff cast his fishing line, but the court didn’t bite. Instead, the court granted the debt collector’s motion to dismiss the claim based on whether or not the communication was “in connection with the collection of a debt.” In order to meet this criterion, the communication would need to include an express or implied demand for payment, according to precedent set by the Eleventh Circuit Court of Appeals and other decisions in this jurisdiction.

The court found that plaintiff conflated two different communications: the transmission of information to the mail vendor and the actual debt collection letter sent to plaintiff. While the latter was clearly a communication in connection with the collection of a debt, the former was not. The court stated:

After careful review, the Court finds that Hunstein does not and cannot allege that Preferred attempted to collect Hunstein’s debt from CompuMail. . .The fact that the debt collection letter that CompuMail generated and sent would be considered a “communication in connection with the collection of a debt” does not make the transfer of information to CompuMail a communication in connection with the collection of a debt. 

(Internal citation omitted.)

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insideARM Perspective

There are so many larger issues associated with third-party disclosure in debt collection, especially as communication channels continue to evolve. Not only is call labeling a very real thing right now—where the debt collector itself has little to no influence on how its calls are labeled—enhanced caller ID is also a wave hitting mobile communications. It seems a little silly that amid these significant third-party disclosure hurdles, plaintiffs are taking potshots at a debt collector’s use of a mail vendor to send collection letter. 

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Want to keep track of how courts are ruling on odd cases like this? The iA’s Case Law Tracker can help you keep up and conduct incisive and quick legal research in less time than it takes to pour your morning cup of coffee.

On October 7, 2019, California’s Governor signed into law Senate Bill No. 187, which amends California’s Rosenthal Debt Collection Practices Act. Currently, the Rosenthal Act excludes attorneys or counselors at law from the definition of “debt collector.” The new law will change this. 

Below is the current definition of “debt collector” in the Rosenthal Act, redlined to show the change:

(c) The term “debt collector” means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or  that person or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection, but does not include an attorney or counselor at law. collection.

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This new change goes into effect on January 1, 2020.

One of the most common tactics of TCPA consumer lawyers these days is to convince a would-be client—sometimes a consumer on the verge of BK—to respond to a debt collector’s phone calls by requesting that calls stop using unclear language and then to hang up before the collector can inquire further. Many times this occurs without the debtor informing the collector that an attorney has been retained. And when calls continue the debtor turns around and sues the collector claiming revocation under the TCPA.

While this tactic is problematic enough standing alone, it becomes downright terrible when the collector holds multiple accounts for the same debtor and is asked to cease calls during an interaction involving only one of several accounts. Indeed, sometimes the collector is asked to stop calls regarding one account and is only later assigned a wholly different debt to service, yet the consumer still sues contending that the purported revocation was effectuated before the debt being called about was ever assigned to the collector. Wild stuff.

Last year’s Central District of California ruling in Jara v. Gc Servs., Case No 2:17-cv-04598-ODW-RAO, 2018 U.S. Dist. LEXIS 83522 (C.D. Cal. May 17, 2018) only added fuel to the fire when the Court held that an instruction by a consumer to cease calls on “my accounts”—plural—was sufficient to raise a jury question on the issue of revocation in TCPA suits involving the multi-account scenario. What a nightmare.

But that same Court just issued a ruling that dials back the scope of Jara and demonstrates that common sense may ultimately prevail in these suits.

In Henry Mendoza v. Allied Interstate LLC, et al., Case No. SACV 17-885 JVS, Doc. No. 64 (C.D. Cal. Oct. 22, 2019) the Court held definitively that a request for calls to cease during a discussion of one account serviced by a collector did not require the collector to cease calls on a wholly unrelated account that was not discussed during the call. 

The facts of Mendoza are fairly common, but with a twist. Plaintiff owed credit card debt on cards branded with several major retailers but issued by a single card issuer. All of the accounts went delinquent and were assigned to the same collector to service. Before the accounts were assigned for collection, however, the Plaintiff called the card issuer to dispute a debt. During that call, the card issuer was allegedly asked not to call again. Subsequently, the card issuer sent the remaining accounts—but not the account the debtor had called about—to a collector. The collector called the debtor regarding the balanced owed on the remaining cards.

Plaintiff sued the collector contending that it never had consent to call her. The Plaintiff’s theory was that the request to the card issuer to cease calls was a monolithic instruction that applied regardless of the account about which the call was being placed. Hence, the Plaintiff argued, when the card issuer transferred the remaining debts to the collector to service any consent that had previously been given by the card issuer had been revoked.

The Court disagreed, relying on the evidence.  The recordings submitted to the Court established that the Plaintiff called the card issuer to discuss the balance on only one of her accounts. It was on that call that Plaintiff asked for calls to stop and Plaintiff’s other credit card accounts were never mentioned. The Court found that fact dispositive, concluding that the failure to mention the other accounts necessarily limited the revocation to only the single account Plaintiff called into discuss.

Interestingly, the Court ruled in favor of the collector even though the credit card issuer’s notes indicated that a revocation took place and that the debtor should only be called manually under the credit issuer’s policies and procedures. The Court found this issue irrelevant, however, as the key evidence was the request not to be called and—as noted above—that request took place on a call during which only one account was ever discussed.

Best of all, the Court distinguished Jara as a case involving a debtor who has used “specific language to revoke her consent, and mentioned all of her accounts…” That’s a pretty solid ruling for the collection industry—not only is summary judgment granted in favor of the collector, the Court narrowly reads Jara as only applying where a Plaintiff mentions multiple accounts.

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Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP—and all insideARM articles—are protected by copyright. All rights are reserved. 

On Monday, a group of twenty-three senators sent a letter to the Consumer Financial Protection Bureau’s (CFPB) Director Kathleen Kraninger demanding that the agency investigates Pennsylvania Higher Education Assistance Agency, better known as FedLoan and PHEAA, a student loan servicer. Specifically, the senators demand that the CFPB look into PHEAA’s alleged mismanagement of the Public Student Loan Forgiveness (PSLF) program. 

The letter cites two reports which found that PHEAA failed to properly administer the PSLF program due to its inability to properly manage payments. One report was issued by the CFPB’s own Student Loan Ombudsman in 2017, which found that PHEAA’s “flawed payment processing, botched paperwork and inaccurate information” led to the denial of loan forgiveness to qualified public service workers. The second report was a 2018 Government Accountability Office report, which similarly found that PHEAA failed to properly account qualifying payments and, as a result, denied loan forgiveness to qualified borrowers.

The letter cites shocking statistics about the low approval rate of loan forgiveness applications. The letter states:

According to a GAO report released last month, only 661 out of 53,523 applications were approved for loan forgiveness under the expanded PSLF program. In total, only 1,216 out of 102,051 PSLF applications have been approved for loan forgiveness.

With some quick math, that equals roughly a 1.2% approval rate of applications.

The senators call on the CFPB to take action and rebuke the CFPB for not doing something earlier. According to the letter, “the time has passed for the CFPB to examine PHEAA’s servicing practices for potential violations of law,” so now it asks that the CFPB prevent future harm. The senators “ask the CFPB to do its job and immediately open an enforcement investigation into PHEAA’s service practices, management of the PSLF program, and other potential violations of federal consumer financial laws.”

The senators who joined the letter can be found listed at the bottom of the letter. 

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insideARM Perspective

This is a sticky situation. Senators call on the CFPB to investigate student loan services, but the CFPB argues that the Department of Education (ED) is blocking its efforts from doing so. ED itself took the position in February 2018 that only it has the power to regulate student loan servicers and terminated the Memorandum of Understanding with the Bureau. The senators’ letter requests a response by November 11, so we will keep our eyes peeled for what happens next.