Judge Finds Nothing Funny About National Collegiate Student Loan Trust Action

InsideARM just published a very interesting piece on National Collegiate Student Loan Trust and a recent court action.

It seems the judge was none too pleased by what was considered to be a bit of a trick to collect on this private student loan debt.

The article says, “On May 6, 2016, Eaton Group Attorneys, LLC (Eaton), as the representative of National Collegiate Student Loan Trust 2007-1, filed a petition against Dr. Brandon (Brandon) in the 24th Judicial District Court for the Parish of Jefferson. In its petition, the Student Loan Trust alleged that defendant had defaulted on a debt, and sought $41,115.13, plus accrued interest of $4,998.37, additional interest at the rate of 4% from the date of judgment, and costs.

On or around June 3, 2016, Brandon received a letter from concerning the lawsuit and her alleged debt. The subject line of the letter described it as a “REQUEST FOR PAYMENT ARRANGEMENTS.”

Judge Vance said:

“The Court finds that the letter plaintiff received was misleading because an unsuspecting debtor, seeking only to “explore a voluntary repayment plan,” could be fooled into executing the consent judgment without knowledge of the consequences. Specifically, an unsophisticated debtor may not know that the consent judgment will serve to waive potentially valid defenses and may facilitate a wage garnishment order.

Plaintiff alleges that defendant did not intend to use the consent judgment for a voluntary repayment plan, but rather to enforce involuntary repayment. If a repayment plan is “explore[d],” but no repayment plan is actually agreed to, the debtor is still bound by the acknowledgement and consent judgment. This follows because the letter could be read to mean the debtor is receiving only the right to “explore” an unspecified repayment plan by signing the acknowledgment and consent judgment. Under these circumstances, the debtor has to sign the consent judgment and acknowledge the debt before he even knows the terms of the payment plan to be “explore[d].” Unsophisticated consumers may be unaware that they will have no leverage to negotiate a payment plan because they will be bound by the acknowledgement and consent judgment even if the plan offered is never agreed to. Defendants’ argument that the letter expresses their purpose not to enforce the consent judgment if plaintiff adheres to an agreed payment plan is not supported by the language of the letter.”

I would agree that was kind of a shitty approach to potentially dupe a consumer into signing rights away.

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The court opinion also includes an interesting discussion on the efforts by collectors, such as in this case, to get an unsuspecting consumer to sign a repayment agreement on debt that was outside the statute of limitations or time barred.

“Those circuits both found that, because the offer to “settle” a time-barred debt could fool an unsuspecting debtor into reviving the barred debt—and thereby place the debtor in a worse position—letters containing such offers and no disclosure of the associated risk may be misleading. McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1021 (7th Cir. 2014) (letters could be misleading, in part, because “a gullible consumer who made a partial payment would inadvertently have reset the limitations period and made herself vulnerable to a suit on the full amount”); Buchanan v. Northland Grp., Inc., 776 F.3d 393, 399 (6th Cir. 2015) (partial payment “exposes a debtor to substantial new risk” and therefore “[w]ithout disclosure, a well-meaning debtor could inadvertently dig herself into an even deeper hole.”). Agreeing with these cases, the Fifth Circuit held that “a collection letter seeking payment on a time-barred debt (without disclosing its unenforceability) but offering a ‘settlement’ and inviting partial payment (without disclosing the possible pitfalls) could constitute a violation of the FDCPA.” Daugherty, 836 F.3d at 513.

Here, as in Daugherty, McMahon, and Buchanon, Eaton Group’s letter invites the consumer to “explore” a voluntary repayment plan, but because Eaton Group’s offer requires the consumer to “acknowledge” the debt and execute the attached consent judgment to even try to negotiate a voluntary repayment plan, a “well-meaning debtor” seeking to negotiate a payment plan “could inadvertently dig herself into an even deeper hole.” Daugherty, 836 F.3d at 513 (quoting Buchanan, 776 F.3d at 399). Specifically, the consumer could unknowingly waive potential defenses, and subject herself to wage garnishment, and this could occurred even if no repayment plan is ultimately agreed to. These are substantial “possible pitfalls,” id., and the letter evinces no attempt at disclosure. Accordingly, drawing all reasonable inferences in favor of Dr. Brandon, the Court cannot find that Eaton Group’s letter is neither misleading nor deceptive as a matter of law. Eaton Group’s portrayal of the letter as a settlement offer does not disturb this conclusion. See Goswami, 377 F.3d at 496 (“A collection agency may offer a settlement; however, it may not be deceitful in the presentation of that settlement offer . . . .”).”

It seems Judge Vance did not hold back in the opinion. “As noted, Eaton Group’s conduct could be deemed a deceptive attempt to fool an unsuspecting debtor seeking only to explore a voluntary payment plan into waiving valid defenses and subjecting herself to wage garnishments.”

You can read the opinion here.