588 F.Supp.3d 7
D.D.C.2022Background
- The Federal Family Education Loan (FFEL) Program used guaranty agencies to insure private lenders; guarantors purchase defaulted loans and must undertake specified collection efforts.
- A loan is in default after 270 days; guaranty agencies must send an initial notice and allow at least 60 days for borrowers to seek review, enter repayment, or enter rehabilitation before certain coercive collection steps may begin.
- Statute requires defaulting borrowers to pay “reasonable collection costs,” and separately authorizes up to a 16% charge on loans sold after successful rehabilitation to defray collection costs.
- The Department issued guidance in 2015 taking the view that agencies could not charge collection costs if a borrower timely rehabilitated; after negotiated rulemaking and notice-and-comment, the Department adopted a 2019 Final Rule prohibiting guaranty agencies from charging collection costs when a borrower enters and honors a repayment or rehabilitation agreement within 60 days.
- Ascendium (a guaranty agency) sued, arguing the Rule conflicts with the statute (including the 16% rehabilitation fee) and is arbitrary and capricious; the government moved to dismiss and Ascendium moved for summary judgment.
- The district court granted in part and denied in part both motions: it found Ascendium lacked standing to challenge the provision as to repayment agreements, but held the Rule unlawful insofar as it bars recovery of reasonable collection costs incurred during the initial 60-day period because “collection activities/costs” encompass non‑coercive acts like the initial notice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge Rule as to repayment agreements | Ascendium: Rule’s bar on fees injures it as an object of agency action; one rule should be attacked in whole | Gov: Ascendium does not and would not charge fees for repayment agreements, so no concrete injury | No standing—Ascendium lacks Article III injury regarding repayment-agreement portion; may only challenge parts causing injury (rehabilitation portion) |
| Whether Rule conflicts with statute requiring borrowers to pay "reasonable collection costs" | Ascendium: Rule conditions recovery on timing (60 days) rather than reasonableness, contradicting statutory requirement | Gov: If no reasonable collection costs exist for timely agreements, the Rule merely reflects which costs are recoverable | Court: Whether Rule conflicts with statute hinges on the definition of "collection costs"; timing‑based bar impermissible if such costs can be reasonable and incurred within 60 days |
| Definition/scope of "collection activities" and "collection costs" | Ascendium: Broad—includes non‑coercive acts (initial notice, phone, mail, servicing); thus costs incurred within 60 days are recoverable | Gov: Narrow—"collection" means coercive actions (garnishment, litigation); costs before 60 days are not "collection costs" | Court: Rejected narrow coercive definition; "collection activities" and thus "collection costs" include non‑coercive efforts (e.g., initial notice, servicing), so the Rule unlawfully bars recovery of reasonable costs incurred within 60 days |
| Statutory rehabilitation-fee (16%) — scope of entitlement | Ascendium: The 16% provision is an unconditional authorization to charge/retain fee (prefatory clause does not limit operative grant) | Gov: The phrase "in order to defray collection costs" limits the 16% to instances where collection costs are incurred | Court: Even under Gov’s reading, because agencies incur collection costs before 60 days, the Rule improperly prohibits fees to which agencies are entitled; court did not adopt a definitive interpretation of the 16% clause beyond that result |
Key Cases Cited
- Chevron U.S.A. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (agency deference framework)
- Kisor v. Wilkie, 139 S. Ct. 2400 (limits and conditions on Auer deference)
- Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Ins. Co., 463 U.S. 29 (arbitrary and capricious standard)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requires concrete, particularized injury)
- Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir. interpretation of guaranty‑agency collection rules)
- Cath. Soc. Serv. v. Shalala, 12 F.3d 1123 (partial vacatur limits on setting aside rule provisions)
- Skidmore v. Swift & Co., 323 U.S. 134 (weight of agency interpretations as persuasive authority)
- Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077 (standard of review in APA cases)