Family And Consumer Law-- The Blog: So all he had to do was ASK ...

Student loan litigation can be a bewildering forest of principles, with a meandering path through them that leads down byways of confusion... I'm getting a little lost in the analogy here, so I'll get right to the problem, which is: Are student loan collectors bound by state and federal law governing debt collection practices?

And the answer, as every good lawyer knows, is "Pay me my fees and I'll look it up for you."

Ha! Just kidding.? The actual correct legal answer is Maybe.?

Student loan collectors have been held liable in some courts for violating federal laws -- Patzka v. Viterbo was a well-written (if you ask me, as I am relying on it in another case) case by Judge Crabb from the Western District of Wisconsin, finding that a college could be held indirectly liable for illegal activities engaged in by its collection agent -- but in other courts have been let off the hook, even when it seems they're really skirting the legality of their actions.

Consider Fischer v. UNIPAC, a 1994 case out of Iowa.? Fischer was a med student who graduated owing $150,000 in debt.? (Is that all? Amateur.)? He had to do a residency, though, and so he applied for a one-year deferment, filling out the application and submitting a letter that said he needed 1 year of postgraduate residency.?

A year later, Fischer was still in his residency, and he submitted an application for a second year of deferment.?

Unfortunately, federal law allowed for only one year when Fischer submitted his new application.

Fortunately, federal law was changed shortly thereafter to let Fischer get a second year of deferment!

Unfortunately, Fischer's servicer, UNIPAC, didn't want to give Fischer a second year of deferment.

Fortunately, Fischer got himself a lawyer to handle this!

Unfortunately,? that didn't work.

Here's what happened: Fischer hired himself a lawyer, who wrote repeatedly to UNIPAC to insist that UNIPAC (a) give Fischer the deferment, as now allowed by federal law, and (b) quit calling Fischer, and go only through the lawyer.

UNIPAC's position was (a) no and (b) don't tell US what to do.? (I'm paraphrasing.)? They kept contacting Fischer (apparently they were the only servicer who didn't give him that second year of deferment to which federal law now entitled him) and demanding payment and declared him in default and eventually Fischer sued, alleging that state and federal laws governing debt collection had been violated and that UNIPAC had violated the Higher Education Act, which required it to give him a deferment.

And, as you know, he lost.? (See, supra, "that didn't work.")

Fischer lost on the whole "But federal law requires that you give me a deferment" because, as it turns out he never actually correctly applied for the second year of deferment that he was entitled to.

Wait, what?

Here's what the Supreme Court of Iowa said, after reviewing the record:

This case presents a classic example of miscommunication. Although we find it regrettable the parties could not uncross their wires during ten months of written and oral communications, we conclude Fischer simply failed to establish that he was entitled to the additional year of deferment. During his deposition Fischer testified that he understood UNIPAC's position with respect to the denial of his request. When asked what evidence he submitted to support his eligibility under the degree or certificate provision, Fischer mentioned the July 7 deferment form and also stated he "had Don Carr correspond with them and tell them." Fischer added that the December, February, and May letters to UNIPAC clearly referenced the two-year internship provision and even pointed out that federal regulations had changed.

????????Even assuming the correspondence on Fischer's behalf adequately identified the specific type of deferment Fischer sought, we find no evidence that Fischer provided UNIPAC with the requisite statement from an authorized hospital official certifying that he was serving in a qualifying program leading to a degree or certificate in family practice. See 34 C.F.R. ? 682.210(n)(1). The only documents UNIPAC possessed to support Fischer's claim related to the provision which was the basis for his first-year deferral. Further, the correspondence merely contained general assertions that Fischer was entitled to a second year of deferment because he remained in an internship program.

So he never properly applied for one.

It seems kind of unfair that the lender never said "Well, just submit a new form and we'll consider it," doesn't it?? But before you conclude that UNIPAC was being unfair, remember that we have set up a system in which seemingly every incentive for servicers is geared to not deferring strenuous collection efforts.? So UNIPAC wasn't just being a jerk, maybe -- they were responding to incentives that encourage them to default rather than defer.?

What about those debt collection practices?? The Supremes in Iowa said Iowa state law was pre-empted by the Higher Education Act and its attendant regs, based on a 1990 Secretary interpretation and on the regs themselves.? Those regs read:

Preemption. The provisions of this section?
(1) Preempt any State law, including State statutes, regulations, or rules, that would conflict with or hinder satisfaction of the requirements or frustrate the purposes of this section; and

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(2) Do not preempt provisions of the Fair Credit Reporting Act that provide relief to a borrower while the lender determines the legal enforceability of a loan when the lender receives a valid identity theft report or notification from a credit bureau that information furnished is a result of an alleged identity theft as defined in ? 682.402(e)(14).

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The Court didn't explain how requiring debt collectors to do things like "communicate with attorneys rather than debtors" would frustrate or hinder collection.? The power of the Courts comes from their ability to reason and convince:? saying something is so because we said it is what parents do, and everyone knows parents are arbitrary and unconvincing.? But that's the ruling as it stood in Iowa:? Requiring UNIPAC to follow Iowa law governing debt collectors would hinder debt collectors.? Which as I read it sounds true, I suppose, so let's finish up by noting that the Iowa court got it right when it said that the FDCPA, meanwhile, didn't apply to UNIPAC because they weren't a debt collector -- the debt wasn't in default when UNIPAC took over the servicing.

Good job, Supreme Court of Iowa!? Just don't mess it up... oh, and the Court also held that Congress didn't intend to make people like student loan servicers subject to the FDCPA. Without bothering to explain that unnecessary ruling:

Further, we believe that collection efforts by holders of federally insured student loans or their servicing companies are simply not the kind of activity Congress intended to regulate. See Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985), modified on other grounds, 761 F.2d 237 (mortgage servicing company is not a debt collector under the FDCPA). The legislative history of section 1692a(6) provides: "The committee intends the term 'debt collector' ... to cover all third persons who regularly collect debts for others. The primary persons intended to be covered are independent debt collectors." S.Rep. No. 95-382, 95th Cong., 1st Sess. (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1697-98; see also Perry, 756 F.2d at 1208; Games v. Cavazos, 737 F.Supp. 1368, 1389 (D.Del.1990); Kimber v. Federal Fin. Corp., 668 F.Supp. 1480, 1485-86 (M.D.Ala.1987). ????????

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We conclude UNIPAC is not an independent debt collector subject to the provisions of the FDCPA.?

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Having dished out some unnecessary rulings, the Court went on to hold that Fischer's intentional interference with contract and defamation claims failed because UNIPAC had the right and the duty to report the status of the loans correctly.??

So no matter how you stack the cards, they were stacked against Fischer on this one, and he lost.

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