Supplemental Testimony
Government Reform Committee Subcommittee on Government Efficiency and Finanacial
Management
I. Introduction
Mr. Chairman and Members of the Subcommittee, thank you again for inviting
me to testify on June 17 regarding the Debt Collection Improvement Act. At that
time, I agreed to get back to the Committee about a few issues that I was unable
to address at the hearing.
II. Illegal Debt Collection Activity
Chairman Platts asked specifically about a case, Padilla v. Payco General
American Credits, 161 F. Supp. 2d 264 (S.D.N.Y. 2001) that I cited in my written
testimony. This case was brought by a student loan borrower against a private
debt collection agency collecting debts on behalf of the Department of Education.
In response to Chairman Platt’s question, the federal District Court
in this case found that the collection agency charged excessive collection fees.
The court granted the borrower’s motion for summary judgment on this issue,
finding that the agency attempted to collect over $2,000 in collection fees
above the statutory limit. The court ruled this was a violation of the federal
Fair Debt Collection Practices Act.
As further evidence of illegal behavior by debt collectors acting on behalf
of the Department, I point you to another case, Peter v. GC Services L.P., 310
F. 3d 344 (5th Cir. 2002). The Fifth Circuit in this case found that the envelope
in which the debt collection letter arrived, which contained the name and address
of the United States Department of Education, as well as a “penalty for
private use” message, violated the Fair Debt Collection Practices Act.
In response to the collection agency’s arguments that the violation was
benign, the court stated that the “Defendants’ impersonation of
the Department of Education is certainly not benign.” The court noted
that in enacting the FDCPA, Congress was especially concerned about agencies
“impersonating public officials.”
III. Limited Remedies for Borrowers
It is important to note that the borrowers in the cases cited above used the
federal FDCPA as a vehicle for private relief because courts have found that
there is no private right of action for borrowers to bring cases based on violations
of the Higher Education Act (HEA). These cases can be both complicated and time-consuming.
As a result, there are few reported cases in the area of student loan collections.
However, this does not mean that there are only a few problems. As I previously
testified, our office continues to receive frequent complaints from advocates
about abusive and illegal student loan collection behavior.
Borrowers that do not have the resources to bring a lawsuit may seek relief
instead by complaining to the Department. The Department has not provided sufficient
information regarding how it responds to these complaints. For example, Ms.
Shaw, Chief Operating Officer of the Department of Education’s Federal
Student Aid Division, testified that agencies that violate the FDCPA could lose
their contracts with the Department. However, she did not specify whether the
Department has ever exercised this power. To name just one example, at least
one of the agencies cited above that violated the federal FDCPA continues to
receive contracts from the Department.1
IV. Excessive Collection Fees
In response to questioning at the hearing, I also mentioned a case in which
a class of borrowers sued the Department of Education for assessing up to 43%
collection fees against certain student loan borrowers whose loans specified
25% collection fees. Gibbons v. Riley, Clearinghouse No. 50, 432 (E.D.N.Y. 1995).
In the settlement agreement, the Department acknowledged errors in assessing
collection fees and also admitted that it had no method for easily distinguishing
those with the 25% collection fees provision from other borrowers. We understand
that since about 2001, the Department has been working to resolve this problem
and has been sending out notices to borrowers who may have been overcharged.
I do not know if the Department has completed this process.
V. Data on Student Loan Complaints
Both Chairman Platts and Vice-Chair, Representative Blackburn asked me whether
I could provide additional information about problems with Department of Education
collection activity. In response to Representative Blackburn’s question
about whether there are more problems with the FFEL or Direct Loan programs,
I answered that I had not specifically tracked problems by type of loan.
I do not have this data available at this time. However, it is my intention
to organize and collect this data and submit it to both the Committee and to
Ms. Shaw and others at the Department as soon as possible. In addition, NCLC
submitted a Freedom of Information Act request on June 9, 2003 requesting information
about the Department’s evaluation of discharge applications as well as
information about collection hearings. We plan to follow up this FOIA request
with additional requests.
I would also like to point out that Ms. Shaw testified that the Department
of Education Ombudsman office regularly tracks this information. Overall, the
Department has much greater access to this information than we do and should
be much better equipped to organize the data and make it available to the Committee
and to the public.
Ms. Shaw indicated to me at the end of the hearing that she would like to
hear from me about these problems. Since the hearings, I have spoken with Department
staff about a couple of problems and have been impressed with their willingness
to work with me and with other advocates to resolve problems. I appreciate their
prompt response. I hope that the Department's increased responsiveness will
extend to increased openness about the complaints and problems they receive
about student loan collection.
Although the Department has greater access to information about collection
complaints, I again commit that our program will work to collect and organize
the information we receive and provide it to both the Committee and the Department
Thank you for the opportunity to provide this supplemental testimony.
and NCLC