Consumer Financial Protection Bureau (CFPB) Director Richard Cordray has responded to the letter from the Department of Education (ED) terminating the Memoranda of Understanding (MOUs) between the agencies. ED’s August 31st letter—signed only by Kathleen Smith of the Office of Postsecondary Education and Dr. A. Wayne Johnson of Federal Student Aid—provided 30 days’ notice of the termination of two MOUs: a 2011 agreement providing collaboration to resolve student loan complaints and a 2014 agreement encouraging coordination of supervisory activities.

Director Cordray’s September 7th letter—addressed directly to Secretary Betsy DeVos—states that ED “appears to misunderstand” the scope of the CFPB’s authority.  In particular, Director Cordray asserts that the Higher Education Act does not supersede the federal consumer financial laws that the CFPB enforces under Title X of the Dodd-Frank Act (Dodd-Frank). In addition, Director Cordray emphasizes that Dodd-Frank required the Bureau to establish a consumer complaint unit and gave the Bureau authority with respect to institutions responsible for “servicing loans” and “collecting debt related to any consumer financial product or service.”

However, in advancing these arguments, Director Cordray seems to have conceded that even under his analysis some collecting and servicing of federal student loans could occur outside of the purview of the CFPB.  The discussion of servicing and collecting is circumscribed by the CFPB’s apparent admission that institutions collecting and servicing federal student loans are subject to its authority only insofar as they are covered by the “larger participant rules” for debt collectors and student loan servicers.  Moreover, Title IV of the Higher Education Act does supersede at least one federal consumer financial law, the Truth in Lending Act, which has no application to loans made, insured, or guaranteed under Title IV.

Cordray’s letter goes on to address other points made by ED.  As justification for the split, ED accused the CFPB of “violating the intent” of the agreements by failing to forward Title IV federal student loan complaints within ten days of receipt and handling complaints itself.  Director Cordray dismisses this concern by noting that ED had never expressed any concerns about the MOU or the handling of federal student loan complaints prior to its letter and that the CFPB shares its complaint information in “near real-time” by providing ED access through its Government Portal. Director Cordray also cites to Section 1035 of Dodd Frank, which provides that the CFPB student loan ombudsman is to establish an MOU with the ED student loan ombudsman to “ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or Federal student loans.”

It’s unlikely that ED will find these arguments persuasive.  Director Cordray does not articulate how the CFPB can require ED to constantly monitor the Government Portal as a substitute for the direct forwarding of complaints contemplated by the MOU. He also overlooks the fact that Section 1035 of Dodd Frank can be interpreted to require the CFPB to forward complaints about federal student loans to ED but to coordinate in the limited instance when a complaint addresses conduct affecting both private student loans handled by the CFPB ombudsman and federal student loans handled by the ED ombudsman.

With respect to enforcement coordination, Director Cordray rejects the accusation that the CFPB had overstepped its bounds. He states that “the Bureau has never knowingly taken any actions in conflict with the Department’s regulations or instructions to servicers” and that all of its actions were consistent with ED’s directives.  Director Cordray also defends the CFPB’s use of information requests before conducting on-site examinations and maintains that the CFPB took the necessary steps to preserve confidentiality with respect to actions involving student loan servicers.

Again, ED is unlikely to be convinced.  The letter makes no mention of any outreach efforts on the part of the CFPB to determine ED’s intentions.  More tellingly, the letter does not explain how the CFPB is able to serve as the arbiter of what ED’s regulations, instructions, and directives require.  The perfunctory statements about preserving confidentiality are no more compelling.

Director Cordray lauds the Bureau’s complaint handling as providing an “efficient means” to obtain consumer relief, but stops short of saying that ED is incapable of independently handling all federal student loan complaints. He also notes that the CFPB began accepting complaints “without any objections” in February 2016. However, he says nothing that would indicate that the CFPB discussed the expansion of the complaint portal with ED ahead of time.  He also fails to provide any insight as to why the Bureau started accepting federal student loan complaints more than four years after signing the MOU.

Ultimately, Director Cordray’s letter serves as an olive branch. The letter requests a “constructive conversation” about future cooperation and notes that the CFPB “stand[s] ready to meet with you or your colleagues, hear your concerns, and explore constructive solutions to help us all better serve students and borrowers.”  Director Cordray does not include any explicit incentives for ED’s cooperation and, perhaps as a concession, suggests that the CFPB is willing to negotiate cooperation on a smaller scale or under more restrictive terms. As he states in the letter, the CFPB “stand[s] ready to work toward new MOUs between the Bureau and the Department.”

The Department of Education (ED) recently delivered a letter to the Consumer Financial Protection Bureau (CFPB) providing notice of its intent to terminate the Memoranda of Understanding (MOUs) between the agencies. The letter is highly critical of the CFPB. The sharp rebuke proclaims ED’s “full oversight responsibility of federal loans” and does not explicitly salvage any part of the agencies’ former cooperation.

Signed by Acting Assistant Secretary of the Office of Postsecondary Education Kathleen Smith and Chief Operating Officer of Federal Student Aid (FSA) Dr. A. Wayne Johnson, the letter was addressed to Director Richard Cordray and dated August 31, 2017. The letter provides that the MOUs will terminate thirty-days after the date of the letter—on September 30th, 2017—as provided by the terms of the MOUs.

The letter references two specific MOUs: the “Memorandum of Understanding Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” (Sharing MOU), dated October 19, 2011; and the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau” (Supervisory MOU), dated January 9, 2014.

The Sharing MOU provided that the agencies would collaborate to resolve borrower complaints related to their private education or federal student loans. The Supervisory MOU encouraged additional information sharing with respect to the coordination of student financial services oversight and supervisory activities.

As we have noted, the CFPB began accepting federal student loan complaints in February of 2016. Previously, such complaints were directed to ED. Unlike the expansion of complaints regarding private student loan complaints or online marketplace lender complaints, the CFPB did not publish a press release announcing the new complaint solicitation. Instead, the CFPB referenced the expansion in its midyear update on student loan complaints in August 2016 and its monthly complaint reports from November 2016.

As justification for the split, ED accuses the CFPB of “violating the intent” of the agreements by failing to forward Title IV federal student loan complaints within ten days of receipt and handling complaints itself. The letter provides that the CFPB’s “intervention” caused “confusion to borrowers and servicers who now hear conflicting guidance” related to Title IV loans, and that the “unilateral” action of the CFPB allowed it to usurp ED’s data as a means to expand its jurisdiction—a “characteristic of an overreaching and unaccountable agency.”

The U.S. House of Representatives’ Committee on Education and the Workforce shared the letter as part of a press release. Chairwoman Rep. Virginia Foxx (R-NC) issued a statement praising ED for “taking its authority back from the CFPB,” which was “complicating and undermining” ED’s efforts to serve students. Rep. Foxx criticized the Obama administration for letting the CFPB “abuse its privilege” with respect to student loan oversight because “Congress bestowed the powers to oversee student loans and student loan servicing solely to the Department of Education.”

On the same day as the letter, ED announced a “stronger approach” to FSA oversight, including a broadening of scope, an increase in capacity, and a “more sophisticated strategy.” That strategy includes targeting “illegitimate debt relief organizations, schools defrauding students and institutions willfully ignoring their Clery Act responsibilities.” (The Clery Act requires disclosure of campus security policies and crime statistics.) ED intends to ensure parties understand their new compliance responsibilities and the consequences of non-compliance by “comprehensive” executive outreach. The release also noted FSA’s continued coordination with its “stakeholders”—including the Department of Justice and the Federal Trade Commission—but not the CFPB, which was conspicuously absent from the list.

The letter does not reference the agencies’ joint MOU with the Departments of Veterans Affairs and Defense “to prevent abuse and deceptive recruiting practices by schools serving servicemembers, veterans, spouses and other family members” under a 2012 Executive Order from President Obama. The letter also follows a previous decision to withdraw various memoranda issued by the Obama Administration ED Secretary and FSA that provided policy direction for a new student loan servicing scheme.

While the exact course the CFPB will take remains to be seen, ED has made its position clear that there is no room for CFPB involvement here, and by implication, no room for state regulators or state attorneys general either. In a statement obtained by Politico, CFPB spokesman David Mayorga said that the Bureau seeks further justification as to why ED is terminating the agreements. The Bureau noted that it will “continue to work with” ED towards its shared goals, but also signaled its intent to continue independent enforcement efforts under its “statutory responsibilities to protect student borrowers.”

Senate Bill 1351, known as the Illinois Student Loan Bill of Rights, was vetoed at the end of last week by the state’s Republican Governor.  The bill would have created a student loan ombudsman and implemented new requirements for student loan servicers, including a licensing requirement.

The bill was drafted by the office of Lisa Madigan, the Democratic Illinois Attorney General, and had Democratic support in the state’s House and Senate.  Ms. Madigan denounced the veto in a press release, which included statements from two Democratic state legislators who sponsored the bill that they intended to seek an override of the veto.  An override would require a three-fifths majority in the Illinois House and Senate.

While Governor Bruce Rauner is reported to have called the bill’s intent “laudable,” he is also reported to have concluded that the bill encroached on federal government responsibilities and would have added confusion to the student loan process.

The CFPB has released a new report, “Older consumers and student loan debt by state.”  The new report is intended to be a supplement to the CFPB’s January 2017 “Snapshot” report that contained statistics on the growing number of consumers age 60 and over (older consumers) who owe student loan debt and the growing amount of such debt.

The new report contains state-level data showing the changes between 2012 and 2017 in the number of older borrowers, the median amount owed, and the proportion and number of older borrowers in delinquency.  Findings highlighted by the CFPB as “particularly noteworthy” include:

  • The number of older borrowers increased by at least 20 percent in every state, including D.C. and Puerto Rico.
  • In more than three-quarters of states, the total outstanding student debt held by borrowers over age 60 increased by more than 50 percent.
  • In all but five states, the proportion of older borrowers in delinquency increased.

The CFPB has filed an amicus brief in support of the Department of Education’s appeal asking the U.S. Court of Appeals for the Federal Circuit to vacate a preliminary injunction entered by the Court of Federal Claims that bars the ED from assigning defaulted student loans to certain small business private collection agency contractors and other contractors.  The injunction was issued in a lawsuit filed by companies challenging ED decisions not to award or continue contracts with such companies to collect student loans.

In its brief, the CFPB states that “to the extent the trial court’s preliminary injunction precludes the [ED] from assigning or reassigning a debt collector to a borrower’s student-loan account, that injunction implicates the Bureau’s consumer-education mission.”

The CFPB asserts that the trial court was mistaken in suggesting that the October 2016 report issued by its Student Loan Ombudsman supports an injunction precluding the ED from assigning debt collectors to defaulted federal student loans.  According to the CFPB, while the report recommended reforms to the process for collecting and restructuring federal student loan debt, the process as currently structured makes debt collectors “the primary contact for borrowers seeking information about how to rehabilitate, consolidate, or otherwise manage their federal student-loan debt” and “the primary contact for borrowers seeking to make any payment toward defaulted federal student loan debt.”

The CFPB argues that by preventing the ED from assigning debt collectors to defaulted loans, the preliminary injunction impedes or prevents borrowers from managing their federal student loan debt.  As a result, according to the CFPB, the injunction “leaves some borrowers worse off—potentially interfering with access to important consumer protections and preventing some borrowers from making payments toward accruing interest charges—while doing nothing to advance the reforms proposed by the Ombudsman.”  The CFPB asserts that borrowers in default “will be better off if they have access to Education’s debt-collection contractors during the pendency of this litigation than if they do not.”

D.C. License Applications. The District of Columbia Department of Insurance, Securities and Banking recently started to accept applications and transition fillings for a Student Loan Servicer License on the National Mortgage Licensing System (NMLS).

The District of Columbia’s Student Loan Act, which became effective on February 18, 2017, provides that no person or entity, unless exempt, can service a “student education loan” of a “student loan borrower” in the District, directly or indirectly, without first obtaining a license.  The Act also created the position of a Student Loan Ombudsman within the Department whose duties include examining each servicer not less than once every three years, assisting the Commissioner with enforcing the Act’s licensing provisions, educating borrowers, reviewing borrower complaints, compiling and analyzing complaint data, and making recommendations to the Commissioner for resolving borrowers’ problems.

The Act directed the Commissioner to issue rules implementing the Act’s Ombudsman and licensing provisions within 180 days of the Act’s effective date.  Since the Department has not yet announced the appointment of an Ombudsman or the issuance of regulations implementing the Act, it is unclear whether the Department’s acceptance of applications on the NMLS indicates that the Department considers the Act’s licensing requirement to be currently effective.

CT Servicing Standards. Connecticut has adopted service standards for licensed student loan servicers.  The state’s licensing requirement for student loan servicers became effective on July 1, 2016.  The statute establishing the licensing requirement directed the state’s Banking Commissioner to set service standards for licensed servicers and post them on the Department’s website by July 1, 2017.

The Commissioner has indicated that the new standards are based on a review of various resources, including existing mortgage industry servicing standards, information provided by the CFPB concerning the student loan servicing industry, and the U.S. Department of Education’s Policy Direction on Federal Student Loan Servicing dated July 20, 2016.

The standards address the following ten areas:

  • Development and implementation of default aversion services
  • Notice of servicing transfer
  • Application of payments
  • Books and records
  • Providing periodic billing statements
  • Providing payoff statements upon request
  • Implementation of policies and procedures to respond to borrower inquiries
  • Maintenance of fee schedule and fee disclosure
  • Credit report information
  • Federal law compliance

The CFPB has issued two new reports concerning student loans.  The first report, “CFPB Data Point: Student Loan Repayment,” examines how the payment patterns of student loan borrowers have changed over the last 14 years.  The second report, “Innovation highlights: Emerging student loan repayment assistance programs,” discusses assistance programs offered by employers and other third parties and makes recommendations to student loan companies, student loan servicers, policy makers, and third-party assistance program providers and administrators for improving the operation of such programs.

Report on repayment data. The CFPB states that although researchers have started to document the share of borrowed amounts that are repaid within a few years of entering repayment and trends in outstanding balances, a “more dynamic analysis of repayment behavior over time is necessary.”  According to the CFPB, such analysis is needed “to understand how recent changes in the student loan market—including increased use of alternate repayment plans and increased student loan indebtedness among older consumers—are affecting the repayment behavior of student loan borrowers and their usage of and performance on other consumer credit products.”

To conduct its analysis, the CFPB looked at a subsample from its Consumer Credit Panel data of more than 1 million consumers consisting of all consumers with at least one student loan that first entered repayment between 2002 and 2014 and analyzed those consumers’ repayment experience through 2016.

The CFPB’s key findings include:

  • The percentage of borrowers owing $20,000 or more at the start of repayment more than doubled since 2002, from 20 percent to more than 40 percent. The slower repayment speed of large dollar borrowers has resulted in longer average repayment periods for the overall student loan portfolio over this time span.  (For example, borrowers with loan amounts of less than $5,000 are 2.5 to 4 times more likely than borrowers with loan amounts of $50,000 or more to fully repay their loans within 8 years of entering repayment.)
  • Since 2002, the percentage of borrowers who are age 35 or older has almost doubled.  However, there is little variation in repayment speed by consumer age and the repayment progress of recent older borrowers is not noticeably different from older borrowers in the early or mid-2000s.
  • The share of borrowers not making payments large enough to reduce their balances has increased, particularly among borrowers with loans less than $20,000.  23% of these small dollar borrowers entering repayment most recently are not making payments large enough to reduce their balances.  While some of this trend likely reflects the growth of income-driven repayment (IDR) repayment plans, more than half of this group consists of borrowers who are delinquent or in default on their student loans.

The CFPB’s third finding above was also the focus of a CFPB blog post, “Too many student loan borrowers struggling, not enough benefiting from affordable repayment plans.”  In the blog post, the CFPB states that because IDR plans were first made widely available in 2009, it expected to see, over the period it analyzed, growth in the share of borrowers who were not making progress toward repaying their debt five years into repayment but still remained in good standing.  According to the CFPB, it found the opposite, thus suggesting “that borrowers with higher balances—including many of the most sophisticated borrowers—may be better-able to invoke their rights to these protections.”  The CFPB comments that “IDR should be a financial lifeline accessible to borrowers, regardless of the amount of debt they owe or level of education they attain.”

Report on repayment assistance programs. The CFPB observes that to help borrowers manage student loan debt, private-sector employees, state and local governments, financial institutions, and colleges and universities (“providers”) have launched various programs.  For example, an increasing number of employers are offering such programs designed for recruitment or retention, including programs under which the employer makes a monthly fixed payment towards an employee’s student loans.  The CFPB notes that fintech companies have been involved in the development of software platforms that enable employers to contribute to their employees’ student loan repayment via a customizable online platform.

The CFPB reviews common approaches to providing student loan repayment assistance through third-party programs and feedback from borrowers, providers, and program administrators, such as difficulties they have encountered in establishing relationships between providers and student loan servicers and transmitting payments to servicers.  The report also includes a section on policy considerations in which the CFPB makes recommendations to student loan companies and servicers and policymakers regarding steps to improve the processing of third-party payments and to providers and program administrators regarding steps to maximize borrowers’ ability to access and benefit from such programs.

The Minnesota Supreme Court recently ruled that two for-profit postsecondary education schools had charged usurious interest rates on student loans and could not charge rates greater than 8% without obtaining a lending license.

Minnesota’s general usury law caps interest rates at 8% for written contracts but allows a lender to charge up to 18% on a “consumer credit sale pursuant to an open end credit plan.”  In State of Minnesota v. Minnesota School of Business, et al., the Minnesota Attorney General sought to enjoin the schools from making private student loans that typically had interest rates between 12% and 18%, alleging that the loans were subject to the 8% cap.  The schools did not pay out money to the student and instead credited the loan amount against the student’s outstanding tuition balance.  The credit was not available to the student for any other purpose.  The student repaid the loan through monthly payments pursuant to a schedule that had a fixed date by which the entire loan and accrued interest had to be paid in full, and no additional funds were available if the student paid off the loan early.

At issue was whether the loans qualified as a “consumer credit sale pursuant to an open end credit plan” on which Minnesota allowed up to 18 percent interest to be charged.  (The decision states that the parties agreed that the loans “were consumer credit sales.”)   Although the Supreme Court found that the definition of “open end credit plan” under Minnesota law only incorporated the Truth in Lending Act and Regulation Z definition of “open-end credit plan” in effect in 1971 and not as subsequently amended to expressly require revolving credit, it found that revolving credit was nevertheless an essential part of the 1971 definition.

Reversing the Minnesota Court of Appeals, the Supreme Court concluded that the loans were not made pursuant to an open-end plan.   It found that the repayment schedule on the schools’ loans, which provided for a fixed end date, was consistent with a closed-end plan and also observed that the schools had required students to sign a form containing an acknowledgment that a loan was not an “extension of credit under an open-end consumer credit plan.”  According to the Supreme Court, the schools had “structured their loans to give themselves the benefit of open-end credit plans, charging interest in excess of 8 percent-without providing their students the benefit of revolving credit.”

Having found that the schools had charged usurious interest rates, the Supreme Court concluded that to charge rates higher than 8 percent on loans that were not made pursuant to an open-end credit plan, the schools needed to obtain a Minnesota lending license.

The opinion states that the schools did not contest “that they were [engaged] in the business of making loans” for purposes of the lending license statute.  Thus, it appears that the schools did not attempt to argue that, in extending credit to students to finance tuition, they were not acting as lenders making “loans” subject to Minnesota’s general usury law but instead were acting as sellers of goods or services extending credit to buyers to which the time-price doctrine applies.  Sellers making closed-end credit sales should consult with counsel as to how they can avoid the 8 percent rate cap by taking advantage of the time-price doctrine under Minnesota law.

 

 

 

As we’ve discussed before, the CFPB sued Navient over its student loan servicing practices in the Middle District of Pennsylvania.  In doing so, the CFPB followed its strategy of announcing new legal standards by enforcement action and then applying them retroactively. The chief allegation in the complaint is that Navient wrongly “steered” consumers into using loan forbearance rather than income-based repayment plans to cure or avoid defaults on their student loans.

On March 24, 2017, Navient moved to dismiss the complaint on a number of grounds.  Although the district court, in a decision issued on August 4, declined to dismiss the case, the motion raised several arguments that a court of appeals should not be so quick to gloss over.  We focus here on two of them: fair notice and the constitutionality of the CFPB’s structure.

Fair Notice

Navient argued in its briefs that the CFPB was pursuing them for alleged conduct when Navient was not given fair notice that the conduct, if it occurred, violated the law.  The court used a technicality to decline to consider Navient’s fair notice argument at all.  The court stated that: “[Under the relevant authorities,] Navient’s fair notice argument fails if it was reasonably foreseeable to Navient that a court could construe their alleged conduct as unfair, deceptive, or abusive under the CFP Act.  Navient, however, has only advanced arguments as to why it did not have fair notice of the Bureau’s interpretation of the CFP Act (emphasis added).”  Thus, the court found that it need not consider the fair notice argument.

In doing so, the court ignored authorities Navient cited that held that, as Navient paraphrased, “[a]n agency cannot base an enforcement action on law created or changed after the conduct occurred.”  The court also ignored the obvious and clearly-implied corollary to Navient’s argument: the only way for Navient to be liable for the claims alleged in the complaint would be for a court, namely, the Middle District of Pennsylvania, to adopt the Bureau’s position.  Thus, with all due respect for the court, Navient’s fair notice argument was fairly before it and should not have been so lightly cast aside.

This is especially so given how well-founded the argument seems to have been.  How could Navient have known that the CFP Act required it to provide over-the-phone individualized financial counseling to borrowers as a result of a statement on its website indicating that “Our representatives can help you by identifying options and solutions, so you can make the right decision for your situation (emphasis added).”  The statement was both conditional, and placed the duty for making the right decision squarely on consumers. The court completely ignored the fact that the CFP Act’s prohibition on unfair, deceptive, or abusive conduct would not have alerted anyone that the CFPB or a court would make the inferential leap between that statement and the duty that the CFPB says Navient undertook by making it.

Constitutionality of CFPB Structure

The court also rejected the argument that the CFPB’s structure was unconstitutional.  We’ve discussed before why we believe that such a view is incorrect and even dangerous to our constitution.  But a few of those arguments bear repeating in light of the Navient court’s ruling.  The first problem with the Navient court’s holding is that it applies Humphrey’s Executor in a way that ignores the fundamental holding of the case.  In Humphrey’s Executor, the Supreme Court held that for-cause removal, staggered terms, and a combination of enforcement and law-making powers was acceptable in a multi-member commission.  Its rationale: because of the commission structure, the FTC would operate as a quasi-legislative and quasi-judicial body, not a quasi-executive one.  Not to state the obvious, but the CFPB is not a multi-member commission; its unitary director is like the President, a unitary executive.  Thus, the Supreme Court’s indulgence of these accountability-limiting features in Humphrey’s Executor does not apply to the CFPB.

Second, the retort to this argument, that the CFPB Director is somehow more accountable to the President, is a legal fiction at best. If the President has no power to remove the Director without cause, the Director is not accountable to him. Period. The President can approach the Director, ask him to implement a certain policy, and the Director can ignore the President with impunity. That is not accountability, however one may measure it. It is true that the five FTC Commissioners, the entire board of the Federal Reserve, or the SEC Commissioners could do the same. But, those interactions are more like the ones the President faces in dealing with Congress or the Judiciary, interactions that the Constitution contemplated and intended. With the CFPB Director, the President stands powerless before the unitary executive of a federal agency whose will can stand in direct contrast to his own. If that is not an affront to the Constitution’s notion of the President as a unitary executive, what is?

Third, the Supreme Court also indulged accountability-limiting features in Morrison v. Olsen, because, among other reasons, the inferior officer at issue in the case “lack[ed] policymaking or significant administrative authority.” Such is not the case with the CFPB Director.  The Director is not an inferior officer. More importantly, he has substantial policymaking authority.  The Director has the authority to approve and enforce regulations relating to any consumer financial product or service, companies and individuals involved in providing such services, and service-providers to those companies and individuals.  The CFPB has interpreted its authority to extend not just to banks, lenders, and debt collectors, but to mobile phone companies, homebuilders, payment processors, and law firms. The court in this case ignored these substantial differences between the CFPB Director and the inferior officer approved in Morrison v. Olsen.

Finally, the court ignored the implications of its ruling.  Before long, if the CFPB structure is replicated elsewhere in government, we’ll have a government where Congress, the President, and even the courts are relegated to the sidelines while powerful bureaucrats make law, interpret the law, and enforce it with virtually no political oversight.

* * *

As the case progresses, Navient will continue to defend itself. We will keep a close eye on the case and, as always, keep you posted.

The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has written to the Department of Education urging the ED to issue preemption guidance.

In its letter, NCHER urges the ED “to issue regulatory guidance that clearly states that federal student loan servicers and guaranty agencies are governed by the Department’s rules and requirements and those of other federal agencies, and preempt state and local laws and actions that purport to regulate the activities of participants in the federal student loan programs, including federal contractors.”  Earlier this month, the Education Finance Council, another national trade group representing higher education finance organizations, wrote to the ED requesting similar guidance.

In its letter, NCHER discusses the broad coverage of recently-enacted state laws requiring servicers of student loans to be licensed and the need for covered entities, which can include guaranty agencies, to comply with varying state-specific requirements that, in some cases, are contrary to the Higher Education Act (HEA).  NCHER also discusses the resulting compliance costs of such requirements and their potential to create borrower confusion.

In addition, NCHER observes that a number of state attorneys general have begun to take action against student loan servicers for activities governed by the HEA, federal regulatory requirements, and the terms of federal contracts.  It urges the ED to take “a leadership role” with regard to federal contractors, which could include intervening with an AG’s office on behalf of an agency or working with both parties to achieve a resolution.  According to NCHER, state AGs “should not be permitted to make an end run around the Department by intimidating its contracted loan servicers.”  Also discussed in NCHER’s letter is an attempt by Connecticut to apply its registration requirement for collection agencies to guaranty agencies that have agreements with the ED.