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Debt Collectors Lose Lawsuits Against Education Department
Apr 15, 2015 | Huffington Post
By Shahien Nasiripour
A federal judge on Tuesday dismissed lawsuits against the U.S. Department of Education brought by four of its contracted student loan debt collectors after the department decided not to award them additional business. -
Debt Collector Suit Fails
Apr 15, 2015 | Inside Higher Ed
By Michael Stratford
A federal judge on Tuesday dismissed a lawsuit against the U.S. Department of Education by four student loan debt collection companies that claim the department arbitrarily cut ties with them earlier this year. -
Judge Tosses Lawsuit Over Education Dept.’s Firing of Debt Collectors
Apr 15, 2015 | Chronicle of Higher Education
By Kelly Field
A federal judge has thrown out a lawsuit brought by a group of student-loan debt collectors that the U.S. Department of Education fired in March.
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Debt Collectors Lose Lawsuits Against Education Department
Apr 15, 2015 | Huffington Post
By Shahien Nasiripour
A federal judge on Tuesday dismissed lawsuits against the U.S. Department of Education brought by four of its contracted student loan debt collectors after the department decided not to award them additional business.
Judge Francis Allegra of the U.S. Court of Federal Claims tossed the lawsuits in a sealed order, court filings show. Most of the documents in the case are either secret or heavily redacted. The Huffington Post was unable to obtain a copy of the court order on Tuesday.
Coast Professional, Enterprise Recovery Systems, National Recoveries, and Pioneer Credit Recovery sued in March after the Education Department said it wouldn’t send them any more accounts under their current contracts. The Education Departmentsaid Feb. 27 that the four firms and West Asset Management had misled distressed borrowers “at unacceptably high rates.”
The Education Department contract is one of the more lucrative in the debt collection industry. Some 7 million Americans collectively owe more than $100 billion on their defaulted federal student loans. The department pays debt collectors to recoup soured debt from borrowers who are at least a year behind on their payments.
The debt collection program has been a magnet for criticism. Borrower advocates have alleged for years that the department's debt collectors routinely violate the law by misleading troubled borrowers. The department's in-house auditor, the Government Accountability Office and the Consumer Financial Protection Bureau all have separately slammed the department in recent years for either its lackluster oversight or alleged wrongdoing by its contracted debt collectors.
The four firms that sued -- one of which, Pioneer, is owned by Navient Corp., the student loan giant formerly known as Sallie Mae -- argued in court filings that they broke no laws and followed Education Department guidance.
Some of them also accused the department of selective enforcement. According to court filings, the department privately told all of its nearly two dozen debt collectors that it had determined they had broken federal consumer protection laws after officials discovered that the debt collectors had misled borrowers about the benefits to their credit reports and certain collection fees if they tried to get out of default.
All four debt collectors who sued the Education Department further alleged that the department itself violated the law when it determined it wouldn’t send them any future business. They claimed that the government effectively rewarded its other debt collectors with new contracts without offering interested firms the opportunity to bid.
"We are very disappointed in the court's decision. We believe these were new contracts that the Department of Education awarded in an unfair and arbitrary process that did not allow all bidders to compete on a level playing field,” said Brian Davis, chief executive of Coast Professional.
Sean Neary, an outside spokesman who represents Enterprise Recovery, said the firm intends to appeal Allegra’s ruling. “We remain hopeful that we can find a path forward working through the legal process to help reaffirm our position that the Department of Education erred in its review process, resulting in an unfair decision.”
Patricia Christel, a Navient spokeswoman, didn’t respond to a request for comment.
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Apr 15, 2015 | Inside Higher Ed
By Michael Stratford
A federal judge on Tuesday dismissed a lawsuit against the U.S. Department of Education by four student loan debt collection companies that claim the department arbitrarily cut ties with them earlier this year.
The decision by U.S. Court of Federal Claims Judge Francis Allegra is a victory for the Education Department, which effectively fired the debt collection companies in Februaryafter accusing them of misleading struggling borrowers.
Four of those five companies -- Coast Professional, National Recoveries, Enterprise Recovery Systems, and Pioneer Credit Recovery, which is owned by Navient -- were part of the consolidated lawsuit that was dismissed Tuesday.
Judge Allegra’s decision in the case was sealed. But it comes after he heard arguments only about whether the companies had made the type of complaint he was empowered to decide in the first place.
The debt collectors had argued that the department’s decision to cut ties with them amounted to the government purchasing new services (from their competitors) without a giving them a fair shot in the bidding process. The Education Department, however, appears to have argued successfully that it was not making a new procurement decision but rather merely exercising its discretion under an existing contract when it decided to stop doing business with the companies.
After hearing from both sides about that preliminary matter last week, the judge canceled a second hearing to discuss the merits of the companies’ complaints.
Collecting the more than $42 billion in defaulted federal direct student loan debt is big business, and the contracts are often worth tens of millions of dollars.
Brian Davis, the chief executive officer of Coast Professional, said in a statement that the company was disappointed in the decision. “We believe these were new contracts that the Department of Education awarded in an unfair and arbitrary process that did not allow all bidders to compete on a level playing field,” he said.
A spokesperson for Enterprise Recover Systems said in an email that the company planned to appeal the court’s decision.
“We remain hopeful that we can find a path forward working through the legal process to help reaffirm our position that the Department of Education erred in its review process, resulting in an unfair decision,” he said.
A spokesperson for Pioneer Credit Recovery declined to comment on the court decision, saying only that the company was focused on helping student loan borrowers. Pioneer, she said, continually makes changes to its processes based on its own reviews and ongoing conversations with its regulators.
The department’s decision in February to wind down the contracts of the five debt collection companies won praise from consumer advocates and some Senate Democrats. They had previously criticized the department for having lax oversight over the companies.
Two of the companies – Coast Professional and National Recoveries – could still potentially continue to collect defaulted loans on the department’s behalf under a different contract. The department has said it won’t make a decision on that newer contract until this summer.
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Judge Tosses Lawsuit Over Education Dept.’s Firing of Debt Collectors
Apr 15, 2015 | Chronicle of Higher Education
By Kelly Field
A federal judge has thrown out a lawsuit brought by a group of student-loan debt collectors that the U.S. Department of Education fired in March.
The ruling, which dismissed the collectors’ request for a stay of the agency’s decision, came just over a month after the department abruptly canceled its contracts with the companies — Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management — which it said had provided inaccurate information to borrowers.
The decision, by Judge Francis M. Allegra of the U.S. Court of Federal Claims, was sealed, so Judge Allegra’s reasoning was not revealed. However, it appears that the suit was dismissed on technical grounds, since the judge ended last week’s hearing on the case before the parties argued the merits of the case.
The debt collectors, some of which had been among the top performers in the department’s rating system, have said they were shocked by the agency’s decision. In the lawsuit they accused the department of acting arbitrarily and ignoring their contracts’ conditions for renewal.
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