PRIVATE STUDENT LOAN GUARANTEE AGENCY IS SUBJECT TO THE FAIR DEBT COLLECTION PRACTICES ACT

Many of the clients of LUDR are behind in their payments involving student loans. The U.S. Department of Education usually contracts with a third party to collect on these guaranteed student loans.

The U.S. Ninth Circuit Court of Appeals ruled in August 1996 that the third party collectors for the U.S. Department of Education are covered by the Fair Debt Collection Practices Act.

The facts of the case are as follows:

Brannan executed a promissory note for a loan under the former Guaranteed Student Loan (GSL) program. USA Funds, a private guarantee agency under contract with the U.S. Department of Education, guaranteed the loan. The Department insured USA Funds. After the lender's assignee declared Brannan in default and filed a default claim with USA Funds, the Agency paid the loan and began collection efforts.

Brannan sued USA Funds, alleging violation of the Fair Debt Collection Practices Act by (1) threatening to cause her to lose her job, (2) communicating with third parties about the debt, and (3) refusing to communicate about the debt through her attorney. The trial court granted defendant summary judgment, holding that it was exempt from the FDCPA under §1692 (a)(6)(c) which exempts "any officer employee of the United States or any state to the extent that the collecting or attempting to collect any debt is in the performance of his official duties"

The Ninth Circuit reversed. It rejected USA's argument that Congress did not intend for the FDCPA to apply to government student loan guarantee agencies. The ad proscribes abusive collection practices, by "any person who regularly collects or attempts to collect" debts. The Circuit Court noted that FDCPA does not provide an exemption for guaranty agencies that acquire a student loan after default in order to pursue its collection. Moreover, the court said, Department of Education regulations explicitly provide that GSL third party collectors and their collection activities-are subject to the Fair Debt Collection Practices Act.

The Court said that the exemption referred to in the FDCPA applies "only to individual government officials or employees who collect debts as part of their official duties". In this case, the agency is a private, not for profit organization with a government contract. It is not a government agency and, thus is not exempt.

ANY LUDR CLIENT THAT IS BEING HARASSED BY COLLECTION AGENCY ATTEMPTING TO COLLECT A GUARANTEED STUDENT LOAN SHOULD CONTACT OUR OFFICE IMMEDIATELY SO THAT WE CAN PURSUE THE MATTER.