*1 rules were as essential to ordered these
liberty the rule that criminal defendants as beyond a reasonable
must be convicted
doubt. said, recognize
All that I that the Su- found a new
preme Court has never rule of procedure Teague
criminal to meet
standard, judgment so I concur hope Supreme
here. However I that the retroactivity jurispru- find in its
Court will space pedestal
dence on the Gideon rules, im- particularly
other new those so justice
portant system to our criminal
the reasonable-doubt standard.
Bryana BIBLE, Individually and on Class, Proposed
Behalf
Plaintiff-Appellant,
v. FUNDS,
UNITED STUDENT AID
INC., Defendant-Appellee.
No. 14-1806. Appeals,
United States Court of
Seventh Circuit.
Argued 2014. Oct. Aug.
Decided 2015. *5 Promissory Master
Federal Stafford Loan (MPN). ap- has been This form Note of Edu- by Department proved U.S. in connection with cation and is used country. loans across the many student Edu- incorporates Higher The MPN regulations. cation Act and its associated provides MPN pertinent part, In fees pay must “reasonable collection Bible costs, attorney plus court costs her loan. As we fees” if she defaults on see, collection fees and will “reasonable issued by regulations are defined costs” Education under the by Secretary Drake, Anna P. Attorney, E. Michelle conferred authority expressly Raster, Prakash, Attorney, Nichols provided Act. The MPN Higher Education P.L.L.P., MN, for Plaintiff- Minneapolis, would owe those collection that Bible Appellant. Higher permitted costs that are regulations. Attorney, Mor- Education Act and its Bradley Fagg, Arnold Bockius, L.L.P., Washington, Lewis & gan, (defen- guaranty agency sued the Martin, DC, Attorney, Amanda Bonnie L. Inc.) Funds, al- Aid dant United Student Deakins, Couture, Attorney, Ogletree, leging breach of contract and a violation Nash, Stewart, P.C., Indianapo- & Smoak Corrupt the Racketeer Influenced and Or- lis, IN, Defendant-Appellee. (RICO), Act 18 U.S.C. ganizations seq. et theory breach of contract Her Mizer, Benjamin Principal Deputy C. regula- federal incorporated that the MPN General, Attorney Michael S. Assistant prohibit guaranty tions that Lee, Raab, Attorney, and Jeffrica Jenkins against her assessing from collection costs Justice, Attorney, Department of Civ- U.S. *6 timely into an alterna- because she entered il Division. complied repayment agreement tive and MANION, FLAUM, Before claim with that Her RICO HAMILTON, Judges. Circuit in alleges guaranty agency, that the associ- a loan ation with a debt collector and HAMILTON, Judge. Circuit mail fraud in provider, service committed Bryana obtained a stu- Plaintiff and wire violation of 18 U.S.C. Family loan under the Federal Edu- dent 1343when fraud violation of 18 U.S.C. Program. cation Loan She defaulted more than it assessed collection costs of into a promptly agreed 2012 but to enter $4,500 representa- despite her its her required' that her “current collection cost bal- tions monthly pay- a to make series of reduced charges” were ance” and “current other timely pay- all of the ments. She made and that costs would be “re- zero these of her under this required ments that were completed once she the rehabilita- duced” remains current on agreement, she process. tion Although Bible com- payments. her granted guaranty court The district obligations repay- with her under the plied motion to dismiss Bible’s first agency’s guaranty agency as- agreement, ment (we complaint call amended class action $4,500 sessed over in collection costs complaint”) under Fed- this the “amended against her. 12(b)(6) Procedure eral Rule of Civil a claim for relief. The gov- failure to state The terms of Bible’s loan were claims were district court held both as a erned a form document known “preempted” by Higher Education Act. into complied with an alternative re- depend It reasoned that both claims payment agreement. Nor is Bible’s RICO alleged violations of the Act and preempted. should not claim RICO is a federal stat- permitted because the Act does not ute preempted by and thus is not another provide right statute, private action. The federal and we see no conflict be- district court held the alternative that tween RICO and Higher Education complaint the amended failed to merits, state a Act. On the both the breach of claim that plausible on its face. It con contract and satisfy plau- RICO claims 12(b)(6). cluded that the breach of contract claim sibility standard under Rule failed because both the MPN I. Factual and Background Procedural
Higher Education Act expressly permit imposing collection costs against borrow We review de novo district ers who default on their loans. The dis grant court’s decision to a motion to dis trict court also concluded that the RICO 12(b)(6). miss under Rule E.g., CEnergy- claim failed because Bible’s amended com 1, Glehmore Wind Farm No. LLC v. Town plaint “has not participation shown in a Glenmore, (7th 485, 769 F.3d Cir. defraud; scheme to commission of an act 2014). accept We as true all factual alle defraud; with intent to or the use of mails gations in the amended complaint and or interstate wires in furtherance of a all permissible draw inferences in Bible’s fraudulent scheme.” Bible v. United Stu E.g., favor. Fortres Corp. Grand v. War Funds, Inc., dent Aid No. 1:13-CV-00575 Inc., ner Bros. Entertainment 763 F.3d TWP-TAB, 1048807, 2014 WL at *10 (7th 696, Cir.2014). To avoid dismissal (S.D.Ind. 2014). 14, Mar. 12(b)(6), under Rule Bible’s amended com plaint “must contain sufficient factual mat reverse. Neither of
We
Bible’s claims is
ter,
true,
accepted as
to ‘state a claim to
preempted by
Higher
Education Act.
”
plausible
relief that is
on its face.’ Ash
Bible’s state law breach of contract claim
662, 678,
v. Iqbal, 556 U.S.
129 S.Ct.
preempted
is not
because it does
croft
not con-
1937,
(2009),
into one for 10(c). Corp., 593 attached the follow- terms.” Chae v. SLM favorable R.Civ.P. (footnote complaint: (9th Cir.2010) her amended 936, ing documents 938-39 F.3d (2) MPN, (1) an note or promissory omitted). Education ad- Secretary 12, Bible from General 2012 letter to April regu- FFELP and has issued ministers the (GRC), which we call Corp. Revenue carry program. out the lations to (3) letter,” for loan application “default regulates FFELP three general, In 27, April GRC on rehabilitation sent (1) loan transactions: layers of student “rehabilitation 2012, call the which we (2) borrowers, be- lenders between (4) copy payment a of Bible’s agreement,” guaranty agencies, borrowers and tween guaranty agen- history the defendant with (3) and the guaranty agencies (5) between Funds, Inc., Aid cy Student United Chae, See 593 Department of Education. Funds between USA copy of a contract program, lenders at 939. Under the Corp.1 Mae F.3d Sallie to stu- to make loans use their own funds Act and Higher A. The Education attending postsecondary institutions. dents Background Regulatory by guaranty guaranteed These loans are Higher Education Congress enacted the gov- reinsured the federal agencies and (HEA Act), now codified 1078(a)-(c). Act of 1965 See 20 U.S.C. ernment. “to seq., § 1001 et as amended at 20 U.S.C. commitment, the reinsurance Because of college open door to all students keep the as the ulti- government serves the federal ability, regardless of socioeconomic on each loan. guarantor mate v. Educational Credit background.” Rowe primarily deals with the This lawsuit 1028, 1030 Management Corp., 559 F.3d relation- layer second of transactions —the (9th Cir.2009) (citation quota- and internal who has ship a student borrower between omitted); also 20 U.S.C. tion marks see guar- her defaulted for the first time and 1070(a) (identifying purpose of the stat- defaults anty agency. When ute). Act created Among things, other the lender is unable to on a loan and Family Loan Pro- the Federal Education diligence, despite the amount due (FFELP), recover system guaran- “a of loan gram guaranty agency to loan the lender notifies encourage meant to lenders tees n toelaborate See, upon in a the facts brief. attached to her amended com- 1. Bible also Police, Secretary e.g., v. State 251 F.3d plaint legal by the Illinois brief filed Chavez 612, (7th Cir.2001) (court reviewing dis- Mgmt. Corp. 650 Educational Credit Education in 12(b)(6) Barnes, (S.D.Ind.); will new missal under Rule consider No. NA v. 00-0241-C-B/S appeal provided they allegations interrogatory responses in Bible v. factual GRC’s complaint); In- Corp., with American No. 12-CV-01236 are consistent General Revenue 26, (D.Minn.), ter-Fidelity Exchange Re-Insur- newspaper v. American and a June Cir.1994) Co., (7th Higher F.3d Edu- ance article from The Chronicle of (plaintiff may point facts consistent concerning USA cation a contract between prevail); Early complaint ability v. to show and Sallie Mae. The brief was included Funds Co., Casualty F.2d authority legal question. Bankers & persuasive on a Life *8 evidence, Cir.1992) (7th (plaintiff may allege additional are not of These two exhibits evidentiary support oppose to party opposing a facts without course. When offered motion, however, dismiss). 12(b)(6) reason she motion to There is no and without Rule non-evidentiary summary may add even mate- converting not also the motion to one articles) (such newspaper illustrate may as to judgment, be used to rials such documents light plans prove, especially in party prepared to what she to facts the would be illustrate post-Iqbal uncertainty about the federal appropriate stage proceed- prove at of the "plausibility.” pleading standard of ings. party opposing a motion is free A such
641 guaranty agency pur- default and the to this lawsuit.2 regula- We describe these below, chases the loan from the lender. See tions in detail and we ultimately Chae, F.3d at 939. Once the lender agree 593 with the interpretation of the Secre- guaranty Education, the debt to the tary has transferred which is consistent with may its losses agency, agency short, recover § Bible’s. In 34 C.F.R. 682.405pro- Department from the of Education. See guaranty agencies vides must create 1078(c)(1)(A),(E); § 20 U.S.C. 34 C.F.R. loan rehabilitation programs for all bor- 682.406(a). § guaranty agency The must rowers who promissory have enforceable steps then take numerous to collect the notes, § and 34 C.F.R. 682.410 establishes regulations defaulted student loan. The at fiscal, administrative, and enforcement re- stage pro- issue here relate to this quirements that a guaranty agency must cess. satisfy participate to in the FFELP. One requirement is that guaranty agency regulations,
To understand these some give must a borrower who has mid-1980s, defaulted background In helpful. opportunity notice and the to enter into a Congress grew concerned that federal tax repayment agreement before it payers effectively footing were the bill for assesses collection collecting reports the costs of defaulted student costs or the default ato loans. In Congress reporting agency. amended the consumer 34 C.F.R. 682.410(b)(5)(ii)(D). HEA require guaranty agencies § to as guaranty The agen- sess collection costs borrowers to cy permitted charge is not prevent being passed these costs from (1) costs to the borrower if this is the first taxpayers. to federal See Black v. Edu (2) defaulted, time the borrower has she 796, Mgmt. Corp., cational Credit 459 F.3d enters into a repayment agreement within (7th Cir.2006). statutory The relevant days of receiving guar- notice that the provision provides simply that “a borrower anty claim, paid has the default who has defaulted on a loan ... shall be (3) she complies required to ... pay reasonable collection Imposing collection costs on a borrower 1091a(b)(l). costs.” 20 U.S.C. Con under these would “un- circumstances gress meaning chose not to define the meaning reasonable” within the of 20 “reasonable collection costs” the statute 1091a(b)(l). U.S.C. up Secretary
and instead “left it
to the
[of
Loan, Default,
B. Bible’s
and Decision
interpret
through
that term
Education]
to Enter
into the Rehabilitation
Black,
799;
regulations.”
lection costs.” Two are central dant United Student Aid Funds App. hereby incorporated 2. MPN.” The FFELP have been revised into this 2006, signed complaint speci- times since when Bible 122. The amended does not several provides any fy place. the MPN. Her MPN amend- when disbursements took regula- any dispute, ment to the HEA and its associated In the absence of and because 2012, "governs any apply regula- tions the terms of loans dis- Bible defaulted in we July date tions that were in effect between bursed on or after the effective of such amendment, and such amended terms are and June 2014. *9 added.) law “governing The Funds) “Guarantor, (Emphasis Program, “The terms of incorpo- provides: notices” term expressly MPN and Lender.” The Act and its in accor- interpreted Education Higher this MPN will rates into the terms regulations statutes applicable associated federal dance with disbursed under contract: “Loans poli- guarantor’s and the regulations, and aggre- subject the annual and are law, MPN except as state Applicable cies. Higher in the specified limits gate loan law, may provide for by federal preempted amended, 1965, as Act of Education remedies, and de- rights, certain borrower 1070, applicable seq., et U.S.C. [§ ] in this in addition to those stated fenses of Education Department U.S. MPN.” ‘Act’).” to as the (collectivelyreferred 2012, that Bible In determined Citibank “late covering term contract the debt to and transferred was default collection costs” states: charges and Funds, default paid which Citi-bank’s USA un- comply obligations -with its claim. To (i) from me: may collect The lender regula- its associated der the HEA and late installment charge for each late Funds, tions, through agent its Gen- USA any of a part if I fail to make payment (GRC), Bible a Corp. Revenue mailed eral payment within 15 required installment 12, April saying form letter dated (ii) due, any days after it becomes identifying that her loan was default permit- and fees that áre charges other debt, resolving her in- options for several my the collection ted the Act for for loan rehabilita- cluding opportunity loans, any I will loans. If I default a table costs, tion. This default letter included fees and pay reasonable collection attorney following information: costs and fees. plus court a form rehabilitation current total GRC faxed Bible The letter noted $18,062.60. promptly signed Bible agreement. was amount due April and returned it fax on agreement April April Between 30, 2012. attorney on the spoke and her to GRC included reha- The rehabilitation phone negotiate three times to a loan table, the one dis- another identical to bilitation Bible and GRC except for the played in the default letter agreed plan requiring on a rehabilitation column: current interest monthly payments April On $50. *10 (Her
The also said that cur- ed the process. rehabilitation $18,112.85. rent total amount due was Ac- had yet been to an eligible sold lend- er.) cumulating interest accounted for She remains current on her loan un- increase in Bible’s total balance. $50.25 der the terms of the rehabilitation agree- figures The for her “current collection cost ment.
balance” and “current other charges” re-
mained at all times C. History Procedural $0. paragraphs
Five above the signature Bible filed a complaint individually and line, toward the end of the rehabilitation on behalf of a proposed class of other agreement, the following language ap- borrowers who had entered into loan pears: agreements defaulted, under the HEA but complete,
Once rehabilitation is collec- later entered similar rehabilitation into tion costs that have been added will agreements, be and were assessed collection unpaid reduced to 18.5% of the principal costs. certify She moved to the class and outstanding and accrued interest at the then filed an complaint alleging amended time of Loan Rehabilitation. Collection breach of contract under Indiana law and a may 1962(c). capitalized RICO, at the time of violation of 18 U.S.C. the Loan by your Rehabilitation new USA Funds moved to dismiss. The dis- lender, along with outstanding accrued trict granted court the motion to dismiss interest, to form one new principal a final judgment entered dismissing amount. prejudice. both claims with It also denied as moot Bible’s motion for class certifica- paragraph immediately sig- above the appeals tion. Bible the district court’s de- below, “By signing nature line states: I cision regarding both claims. After oral agree understand and that the may lender argument, we Secretary invited the of Ed- capitalize collection costs of 18.5% the ucation to file an amicus brief addressing outstanding principal and accrued interest interpretation his statutory the relevant loan(s).” upon my rehabilitation of framework and regulations. federal He signing After agree- so, parties did and the responded have ment, Bible nine payments made on-time those views. Although fully complied she $50. her obligations agreement, under this USA Analysis II. Funds assessed collection costs her $4,547.44." (A) in the applied amount of It her We conclude that Bible has stated a monthly payments toward the collection viable breach of contract claim under (B) law; costs rather than principal. pre- When Bi- Indiana federal law does not lawsuit, complet- ble filed this she had not pursuing clude Bible from this state-law *11 that the MPN (C) agree with Bible' a viable We claim; Bible has stated and law, though it the HEA and its associated incorporated federal claim under RICO sup- writings, she can or matters regulations. whether “Other remains to be seen therein, evidence of fraudulent to in that claim with which are referred port contained as may regarded intent. contract be a written part the reference as incorporated Claim A. Breach Contract and, therefore, may properly the contract law, the elements Indiana “Under in the construction of be considered contract action are the of a breach of Coatings, Inc. contract.” Protective I.C.C. contract, the defendant’s of a Co., 1030, existence Staley Mfg. A.E. 695 N.E.2d v. thereof, damages.” and U.S. breach also, e.g., see Jones (Ind.App.1998); 1036 (7th 811, Valves, Dray, 190 F.3d 814 Inc. v. 1138, 436 N.E.2d City Logansport, v. Cir.1999), citing Campbell, Fowler v. (contract incorporated (Ind.App.1982) (Ind.App.1993). par The N.E.2d safety reg and health occupational federal that the MPN is a valid contract agree ties ulations). that page The of the contract governs it the terms of Bible’s and that refers to the sets out the terms of the loan loan, consequences of her including the regulations HEA its no fewer than 16 however, They disagree, about default. times, enough. In though once would complaint has ade whether the amended general governing to the more law addition a breach of the MPN and quately pled provides that the terms of provision, which damages.3 resulting interpreted in accor the contract “will be applicable federal statutes dance with the
1. Breach specific term cover regulations,” Incorporation by a. ing charges “late and collection costs” Reference may that lender collect from “[t]he states alleges that Funds USA any charges me ... other and fees that by assessing breached the MPN permitted by are the Act.” And the con though timely she entered into costs even Act” the HEA “and tract defines “the complied with repayment agreement applicable Department U.S. of Education obligations agreement. her under that regulations.” argues incorporated the MPN She prohibit guaranty federal in USA Funds relies on a sentence
agencies imposing from collection costs granting right impose the MPN it the promptly first-time defaulters who costs, plus “reasonable collection fees and agree repay days their loans within 60 attorney court fees.” USA costs and receiving guaranty notice from the language Funds reads this isolation paid that it has the lender’s default impose collection costs at complied have that mean that can claim and who with any after the borrower has defaulted. agreement. She relies on 34 C.F.R. time language interpretation give weight §§ in This fails to 682.405 and 682.410 and sentence, limits the guaranty preceding the effect that the which the MPN to impose only those power from the lender’s agency can collect “that are permitted by charges permitted fees that are and fees “charges and of contract law Basic,-principles the Act.” the Act.” breach of argues not reach this issue because Bible's 3. USA Funds MPN, alleges claim a breach of the is not a valid contract because it contract supported by We do not the rehabilitation was not consideration. to consider a contract’s i. require Statutory Regulatory a court Requirements together way and in a that har- provisions E.g., monizes them. Hinc v. Lime-O-Sol Beginning interpretation without (7th Cir.2004) Co., 382 F.3d agency, deference to the Bible acknowl- (Indiana law). If Bi- charged USA Funds edges guaranty agencies required are HEA ble collection costs violation of the to impose collection costs on borrowers regulations, and its then it breached the who have defaulted certain circum- *12 contract. stances. Both the HEA itself and the
implementing regulations make this clear.
1091a(b)(l) (“[A]
§
20
See U.S.C.
Requirements
Imposing
b.
who has defaulted on a loan ...
Collection Costs
shall be
required to
...
pay
reasonable collection
plausibly alleged
Bible has
costs.”);
1078-6(a)(l)(D)(i)(II)(aa)
§
id.
by
of the MPN
alleging
breach
that USA
(upon
rehabilitation,
successful
a guaranty
Funds assessed collection costs that were
agency -may, in
defray
order to
collection
by
Higher
not authorized
Education
costs, “charge to the borrower an amount
regulations.
Act and its
This conclusion is
percent
not to exceed 18.5
of the outstand-
supported by
independent
two
grounds.
ing principal and interest at the time of the
opinion agrees
The author of this
with the
sale”);
682.410(b)(2)
§
34 C.F.R.
Secretary of Education and Bible that un
(“[T]he guaranty agency shall charge a
interpretation
der the best
of the statutes
borrower an amount equal to reasonable
regulations,
the collection costs as
costs incurred
collecting a
prohibited.
sessed here were
Perez
Cf.
v.
loan.”).4
however,
argues,
that the
Ass’n,
---,-
Mortgage Bankers
575 U.S.
regulations prohibit USA
im-
Funds from
1199,
4,
135 S.Ct.
1208 n.
Second, this author and
Flaum
Judge
imposing collection costs in these circum-
if
agree that even
this were not the best
stances is “unreasonable” under 20 U.S.C.
interpretation of the statutes and accom-
1091a(b)(l).
§
panying regulations,
it is at least a rea-
one,
sonable
and we defer to that inter-
key regulations
phrase
Two
define the
pretation because it reflects the reasoned
“reasonable
costs”
position
Education,
Secretary
1091a(b)(l).
§
regulation,
The first
administering
who is tasked with
pro-
682.405,
§
requires guaranty agen-
C.F.R.
Chevron, U.S.A.,
gram. See
Inc. v. Natu-
cies to create loan
programs
Council, Inc.,
ral Resources
467 for all borrowers that have enforceable
Defense
837, 843,
2778,
U.S.
104 S.Ct.
81 L.Ed.2d
promissory
programs
notes. These
are
(1984);
Robbins,
452,
Auer v.
designed
give eligible
op-
519 U.S.
an
borrowers
(1997). portunity
117 S.Ct.
that, upon successful of— the lesser equal lenders by eligible may purchased be loans (i) from default status. removed The amount the same borrower 682.405(a).5 col- charged be for the cost of C.F.R. would C.F.R; under the lection formula rehabilitated A. loan is considered 30.60; or [§ ] (1) met: requirements two are after (ii) The amount same borrower of ten timely made nine out borrower has charged for the cost of col- would monthly repay- required under a payments if the loan the U.S. lection was held (2) has been the loan agreement, ment Department of Education. eligible lender. 34 C.F.R. sold to 682.410(b)(2). paragraph This 34 C.F.R. (b) 682.405(a)(2)(i)-(ii). Subsection guaranty agencies makes clear that must specific then re- regulation establishes charge a borrower reasonable collection must be includ- for terms that quirements costs, the maxi- cap establishes a agreement. For ed in the rehabilitation *13 charged by mum amount can be guaranty agency pro- must example, (b)(2), agency. how- guaranty Paragraph with a written statement vide borrower ever, specify the circumstances does confirming the “reasonable and borrower’s these may under which costs be assessed. “in- payment amount” and affordable portions is other That issue addressed forming] the of the amount of borrower 682.410, procedural §of which safe- create collection to added to the costs be guards for student borrowers. principal at time of the sale.” unpaid First, Guaranty agencies some context. 682.405(b)(l)(vi). § 34 C.F.R. ways primary pushing have two student- regulation, The second 34 C.F.R. repay to loans: borrowers their defaulted 682.410, specific. § is even It estab- more (1) delinquent account to a reporting fiscal, administrative, enforce- lishes and (which reporting agency consumer lowers requirements guaranty agency ment that a (2) rating) the borrower’s credit as- satisfy to in participate must the FFELP. sessing against collection the borrow- costs (b)(2) Paragraph addresses collection Department er. Because of Education costs: graduates was concerned about recent fac- charges. pro- Collection or not Whether these adverse without ing consequences in the promissory being given vided for borrower’s cure opportunity first to defaults, subject limitation on the it any protections note to their created 682.410(b)(5)(h). note, guar- of those in that provides amount costs It guaranty agency anty agencies a borrow- must actions charge shall take certain as- equal reporting er an amount costs before either the default or to reasonable sessing collection collecting incurred a costs: agency paid loan on which has a agency guaranty agency, pays after it bankruptcy default or claim. These default claim oh a loan but before to, may include, costs but are not limited reports the consumer re- to a default attorney’s fees, all collection porting agency or assesses collection borrower, charges, [Subject shall, court costs. within here], exceptions specified paragraph certain not relevant the timeframe loans, 682.405(a)(1). judg- exemptions 5. Some such which a as loans for None of these obtained, already exempt- ment has been are relevant here. provision. ed from this See 34 C.F.R. (b)(6)(ii) section, sure, provide of this the bor- To subparagraph (b)(5)(iv)(B) with— rower mentions the opportunity to request administrative review of the loan (A) notice that Written meets re- obligation, not the opportunity to enter (b)(5)(vi) quirements paragraph into a agreement with the regarding proposed this section agency. But problem is not a for actions; Bible. point Her is that subparagraph (B) An opportunity inspect (b)(5)(h) requires the guaranty agency to copy agency pertaining records to the provide the borrower with all four things obligation; reporting before the debt to a consumer (C) opportunity An for an administra- reporting agency assessing or legal enforceability tive review of the costs, (administra things and one of those past-due status of the loan obli- review) triggers tive a waiting period of at gation; and days. least 60 The regulations do not (D) opportunity An to enter into a force the choose between re repayment agreement on terms satis- questing administrative review and enter factory agency. ing into a repayment program. The bor C.F.R,. 682.410(b)(5)(ii) (emphasis rower a right request has administrative added). review and then to decide whether to enter into a repayment agreement. According provision specify partic- This does not ly, the borrower has at days least 60 actions, ular timeframe these but it *14 enter into an repayment agree alternative includes two cross-references that do. request ment. That Bible did not adminis (b)(6)(ii) First, subparagraph requires the obligation trative review of her loan in this guaranty agency to send the written notice point; case is beside the she had at least (b)(5)(ii) in days mentioned within 45 days so, to do and before that ran time date it pays the lender’s default claim. out, she entered into the rehabilitation (b)(5)(iv)(B) Second, subparagraph re- quires agency give the to the borrower at days least 60 from the date of the initial understanding by This is confirmed request notice to administrative review of 682.410(b)(6)(h), § requires which the the loan. guaranty agency to inform the borrower if “that he or she not make repay- does (b)(5)(ii) Subparagraph effectively cre- ment arrangements acceptable to the a ates safe harbor for borrowers who find agency, agency promptly will initiate in themselves default for the first time. procedures debt,” to collect the such as When a borrower is first notified that a suit, garnishing wages, filing her a civil or guaranty agency paid a claim has default taking her income tax refunds. 34 C.F.R. loan, on her she a 60-day has window to 682.410(b)(6)(h). § What would be the request administrative review of the debt point warning of declin- or to repayment agreement enter into a ing to make repayment arrangements agency. with the If she does not take trigger costly would debt collection activi- action, either the guaranty agency can if guaranty agency ties could initiate her, then take against collection actions procedures these and assess those costs report her default reporting to consumer regardless agrees of whether to repay? she agency, against assess costs specified by regulations her amount That the create this sort of 682.410(b)(2). § surprising. safe harbor is not Under USA by promptly agreeing repay to regulations, quences of interpretation
Funds’ voluntarily. assess collection debt agency could guaranty though it a borrower even this safe The intent to create har procedures to “initiate forced was never statutory is further shown a related bor allow debt.” This would collect the dealing reporting. credit provision costly ac- charge guaranty agency HEA, Congress expressly pro Under take, such might never need to tions that it the default to a reporting vided before filing a civil suit. as or wage garnishment reporting agency, guaranty consumer USA Funds point. illustrates the This case provide must the borrower with agency $4,500 in collection costs over assessed reported notice that loan will as letter, merely one sent though it sent even enters default “unless the borrower into fax, to Bible and spoke and received one 1080a(c)(4)(em § repayment.” U.S.C. times, attorney phone on the several her added). phasis the borrower has not “[I]f monthly checks. and cashed Bible’s into entered within reason time,” subparagraph guaranty harbor period The safe able then (b)(5)(ii) report creates an incentive for first- must the default. Id. The also 1080a(c)(4) implication their loans is that if time defaulters rehabilitate clear into timely repay If de- the borrower enters voluntary repayment. first-time ment, guaranty agency may then the face collec- they faulters knew would report the loan in default. regardless they tion costs of whether they agree repay, would have less incen- Secretary issued of Education into the repayment program tive to enter here, disputed regulation 34 C.F.R. These are de- voluntarily. 682.410(b)(5), implement statuto- signed cooperation. to reward 1080a(c)(4). ry requirement found Mahaffie, Lynn Letter from B. Dep’t See of providing This a borrower concept Education, Colleague Letter Dear Gen- an opportunity with notice and to resolve 15-14, (July 10, 2015), citing at 57 Fed. being subject before to adverse the default (Dec. 18, 1992). Reg. 60355-56 such as consequences, reporting credit *15 (b)(5)(ii) Subparagraph discusses credit re- costs, is the collection not new. When . porting and the assessment collection concept first Department incorporated this in way: costs the exact “but it same before regulations FFELP it into the was reports the default to consumer report- actually borrowing requirement from a ing agency or collection assesses costs imposed agen- that had guaranty been ” against a Funds borrower.... USA has in 1986 tax cies back under the federal given persuasive us no reason to treat one program. pro- offset that refund Under consequences of the stated adverse of de- gram, agencies to guaranty required were (a differently fault bad credit report) from provide pro- with the borrowers notice of (collection costs). Yet the other that is posed offset and an to avoid opportunity precisely interpretation what of the its by entering satisfactory that offset into a statutory regula- and related framework agreement. from repayment See Letter tions would do. Mahaffie, Education, Lynn Dep’t B. Gen-15-14, Colleague Dear Letter at 2-3 the text of This conclusion is based on 2015). (July regulations The disputed applicable statutory provisions, regula- the tions, here are based on that same model: the the MPN itself. USA Funds given op- squarely defaulted borrower must be an the textual does not address basis portunity responds to avoid the adverse conse- of claim with but three First, argues the arguments. phrase satisfactory it “on terms to the 682.410(b)(2) impose agency.” § allows it to collec- theory, Under her USA Funds costs, do not tion and the ex- retained the discretion to set the terms of plicitly imposition all, the of collection prohibit repayment agreement. the After has against costs a borrower who defaulted transmitted form to document repayment promptly but entered into a agreement. became the rehabilitation argument persua- This not higher monthly It could have insisted on (b)(2) Paragraph merely sive. establishes payments, example. Funds had USA guaranty rule that background power to set initial terms of its agency collection must assess “reasonable reject any offer and to proposed counterof- costs” the borrower and estab- It power, though, fer. did not have the to cap lishes the on the maximum amount of impose collection costs contravention of charged. say does not 682.410(b)(5)(ii). costs that can be It anything under about circumstances Third, points USA Funds another imposed. which these costs can be As default, “If I provision the MPN: parts regulation explained, other of the guarantor may purchase my and cap- loans (b)(5)(ii) impose such subparagraph italize all then-outstanding interest into a specific requirements more the cir- about balance, principal new and collection fees may which cumstances in immediately payable.” will become due and be assessed. however, provision, This displace does not
Second, Funds that Bi- USA contends guaranty agency’s obligations under 34 682.410(b)(5)(ii)(D) §of interpretation ble’s C.F.R. 682.410. collection fees be- ignores agree- that the repayment the fact “immediately payable” only come due and satisfactory ment “on terms must be guaranty agency provid- after the first has agency.” It appears argue under (1) ed written notice guaranty this language agency retains requirements spelled that meets the out in the discretion to assess collection costs (2) (b)(5)(vi), subparagraph opportunity an interpretation But whenever it wants. copy inspect agency per- records introductory para- is inconsistent with the (3) taining obligation, oppor- an loan graph regulation, of the which makes clear tunity for administrative review the en- provide must the borrower forceability past-due status opportunity an to enter into a (4) obligation, opportunity enter - collection costs are as- before repayment agreement. into a See 34 Guaranty agencies sessed. do have 682.410(b)(5)(ii)(A)-(D). C.F.R. Inter- impose unfettered discretion to whatever provision sug- Funds preting the as USA *16 they want, they collection costs whenever 682.410(b)(5)(h). § gests would contradict want, argument suggests.6 as the Recall, moreover, Funds USA had Contrary to Bi- told Bible that she owed zero collection arguments, USA Funds’ It meaning still to when first defaulted. was interpretation gives ble’s she not type agreement thorizing 6. A one to borrow- "rehabilitation” is of rehabilitation refers accord, agreement.” "repayment authorized See 34 making repayments”); er “scheduled 682.405(a)(2) (a § “rehabilitat- Mahaffie, C.F.R. loan is Dep’t Lynn Letter B. of Edu- from voluntarily ed” after the borrower has “made Gen-15-14, cation, Colleague at 5 Dear Letter agency guaranty nine of the has received 10, (“Thus, 2015) agree- (July a rehabilitation monthly payments required the ten a under specific a simply ment form satisfacto- is of added); ”) repayment agreement (emphasis see ry repayment agreement.”). 1078-6(a)(4) § (provision also 20 U.S.C. au- 650 2166, (2012), 2156, L.Ed.2d signed the S.Ct. 183 153
until
she
after
Robbins,
452,
citing
519 U.S.
461-
finally
about
Auer v.
that she
learned
agreement
(1997)
62,
905,
117
Bible’s state law
a court
need to inter
possibility
forms:
would
express
take on three different
establish
pret
regulation
a
does not itself
and conflict
preemption,
preemption,
field
Transportation,
CSX
Liquid
preemption.
See
Sable
Products
preemption.” Aux
(7th
Easterwood,
658, 664,
1028,
113
Inc. v.
507 U.S.
1033
Cir.
Murphy,
v.
526 F.3d
(1993) (“To
2008).
1732, 123 L.Ed.2d
pre-
relies on conflict
S.Ct.
387
USA Funds
regulations
prevail
that the
of
on the claim
emption.
argues
It
breach
also
effect,
must
pre-emptive
petitioner
more
have
nothing
claim
than a “dis-
contract
is
they
upon’
of
than that
‘touch
Higher
claim”
a violation
establish more
guised
for
matter....”),
subject
“preempted”
Act
is thus
or ‘relate to’
Education
Airlines,
theory
citing
has
v. Trans
the HEA. Neither
merit. Fed-
Morales
World
Inc.,
374,
2031,
383-84,
or
112 S.Ct.
preempt
eral law does not
otherwise
504 U.S.
(1992); English
of
claim. 119
157
v. Gener
displace Bible’s breach
contract
L.Ed.2d
Co.,
72, 87,
al
496 U.S.
110 S.Ct.
Electric
Preemption
1.
(1990)
2270,
(“Ordinarily,
65
Conflict
110 L.Ed.2d
a
regulatory
existence of
federal
mere
can
preemption
Conflict
occur
scheme,
or
one as de
enforcement
even
(1)
situations:
“it is impossible
two
when
Energy Reorganiza
tailed as
[of
comply
private party
for a
with both
1974],
imply
tion
does
Act of
itself
(2)
requirements,”
state
federal
remedies.”);
of state
Hillsbor
pre-emption
an
when “state law stands as
obstacle to
ough
Labo
County v. Automated Medical
accomplishment and
execution of
ratories, Inc.,
707, 717,
471 U.S.
105 S.Ct.
purposes
objectives Congress.”
full
(1985) (“To
2371,
L.Ed.2d 714
infer
280,
Freightliner Corp. Myrick,
v.
U.S.
preemption
agency
whenever
deals
(1995)
1483, 131
115 S.Ct.
L.Ed.2d 385
virtually
problem comprehensively
is
(citations
quotation
and internal
marks
saying that
a fed
tantamount to
whenever
omitted). USA
does
Funds
not contend
field,
eral
its
step
decides
into
impossible,
that it would be
without violat
exclusive.”);
regulations will be
Keams v.
law,
it
ing
comply
federal
with the
Inc.,
Institute,
Tempe
39 F.3d
Technical
duty
impose.
state law
suit seeks
(9th Cir.1994)
(holding that
226-27
Instead,
the second species
invokes
regulatory
detailed
scheme under
conflict
preemption known
“obstacle”
HEA
imply preemption
did not
of state
argues
Funds
preemption. USA
that en
accreditors).
tort
That is
remedies
tertaining
claim
Bible’s breach
contract
682.410(b)(8),
very point
of 34 C.F.R.
Congress’s goal
would frustrate
of “unifor
(b)(2), (5),
which
provides
paragraphs
mity”
require many
because it would
state
(6)
here—
provisions at
issue
interpret
regu
and federal courts to
HEA
—the
preempt only “State law ...
that would
potentially
ways.
lations in
inconsistent
with or hinder
reject this contention.
We
conflict
satisfaction
(Em
provisions.”
requirements of these
proves
This argument
far
too
added.)
phasis
theory,
much. Under
preemp
conflict
any
tion would occur
time a court
question
would be
real
whether entertain-
required
regulation
actual-
interpret
ing
to decide
Bible’s breach of contract claim
arising
ly
a case
HEA
under the common law or
conflicts with the
and its associat-
independent
regulations.
begin
other sources
It does
of law
of the.
ed
not. We
N.A.,
Bank,
regulation itself. But courts
fed with
v.
interpret
Wigod
Fargo
Wells
(7th Cir.2012),
we
trig-
eral
all the time without
where
F.3d
*19
(the HEA)
in
nearly
dealt with a
identical issue
in their bargained-for private
context of the federal Home Affordable
arrangement.
contractual
Both express-
(HAMP).
Mortgage Program
Wigod,
In
ly agreed to comply with the HEA. In
plaintiff brought
state law claims
context,
that
argument
[defendants’]
mortgage
provider,
her
service
in-
that enforcement of the Agreement’s
cluding a breach of contract claim alleging
terms
preempted by
is
HEA
boils
the defendant
breached
written
down to a contention that it was free to
incorporated
the HAMP
enter into a contract that invoked a fed-
requirements. Like
in
USA Funds
this
eral standard as the indicator
compli-
case,
in Wigod, argued
the defendant
ance,
proceed
then to
to breach its
preempted by
state law claims were
duties thereunder
and to shield its
guidelines
principles
federal
under
by
breach
pleading preemption.
In this
rejected
conflict preemption. We
the ar-
least,
case at
supremacy
federal
does not
gument.
The Fourth Circuit reached the same
lenges
country,
across the
with state law
regarding
College
conclusion
the HEA in
may
impede
standards that
differ and
uni-
Corp.
Loan
v.
Corp.,
SLM
This rather to alter it their home state.” Id. obvious rela- [plaintiffs] They asking impose tion to contract were the court to claim. As parties to Agreement, parties] higher compliance standard of than [the was voluntarily included federal standards required federal law. Such claims are law, Chae, reasoning remedy no under federal state but that vides held
preempted,
may
Wig-
in its
law
afford one
stead.”
here.
apply
does not
(citation omitted).
od,
¶ 95. Enterprise
1. be distinguished cases have “enter Our RICO defines the term individual, situations: a run-of-the-mill broadly “any to include tween two prise” its at least half of reha- relationship entity- each committed to sell where commercial to Sallie Mae. Under this capacity pursue its bilitated loans individual acts in its not self-interest, arrangement, paid Funds truly joint versus a USA individual manage portfolio its entity directly Mae each individual Sallie where enterprise indirectly compensated also Sallie Mae a but pursue others acts in concert by using affiliates and subsidiaries for See Food & its interest. United common Workers, by agreeing to at 855 debt collection and sell F.3d Commercial interaction, (“This however, loans to large chunk of rehabilitated Sallie shows type of had commercial Mae. the defendants only that they joined to relationship, not had Second, alleges that the entities do gether entity pur create a distinct separate operate completely entities filling prescriptions.”); ... poses improperly pro- the loan rehabilitation managing Co., v. Ins. hton Golden Rule Cric that: alleges For she example, cess. (7th Cir.2009) (distin 392, 400 576 F.3d printout top agree- of the rehabilitation “garden-variety marketing ar guishing ment indicates that it was sent from a comprised distinct entities rangement” machine; Mae Sallie fax answers to *22 enterprise). This is from distinction RICO lawsuit, interrogatories in another GRC it, “every conspiracy important. Without officials who identified five Sallie Mae had requires
to fraud that more than commit into approved provided input and is a organiza to commit RICO person one wording correspon- of GRC’s collection consequently every fraud that tion and dence, including correspondence at is- person than one commit requires more to case; Mae sue in Sallie assumes re- v. a RICO violation.” Stachon United sponsibility compliance for with some of Club, Inc., 229 Consumers F.3d 676 duties, statutory including USA Funds’ (7th Bear, Cir.2000), quoting. Bachman v. borrowers; delivery of privacy policies to (7th Co., 178 F.3d Steams & marketing Mae agreed plan Sallie has to a (footnote .Cir.1999) and quotation internal promote under which Mae will Sallie USA omitted). marks guaranty agency; Funds as a Sallie Mae distinction, agreed guaranty Mindful of this we conclude has not to use another unless, more than pled despite that Bible has a run-of-the- Sallie Mae’s best efforts, insists; relationship. alleg- mill commercial school or lender associ- recently permitting ap- es of facts the rea- ate counsel at Sallie Mae a number that, at respect peared sonable inference to a settlement conference in a before, managing during, accounts and af- Fair Debt Practices Act Collection lawsuit process, purporting ter the loan rehabilitation USA GRC have settle- GRC; Funds, GRC, authority and Sallie as a ment on behalf of in Mae work lawsuit, enterprise. negotiated another GRC single FDCPA a settlement release that covered Sallie First, alleges degree she unusual to” Mae and other entities “related Sallie interdependence among economic the enti- Mae, Funds, despite including USA According complaint, ties. amended nor fact that neither Sallie Mae USA place agreed Funds all defaulted USA Funds were named as defendants in the portfolio manage- loans with Sallie Mae case. Mae was then ment. Sallie authorized to distinguish of the These large allegations refer a number defaulted loans this case or from cases Food & Commer- its “affiliates” debt collec- like United subsidiary Workers, addition, (noting In F.3d at 854-55 tors such as GRC. USA Funds cial complaint allege failed to “that offi- the individual must have participated in company operation cials from either management involved them- of the en- itself.”). other”), terprise selves in the affairs of the But principle does Crichton, help not at USA Funds. If we (noting apply 576 F.3d were to here, it might mean that GRC did plaintiffs “begins claim and ends” with the not participate the operation manage- or allegedly fraud committed individual ment of the enterprise’s affairs since GRC entity, enterprise). together, Taken was hired USA perform Funds to allegations indicate a pur- common debt collection activities. But the same pose, relationships among the three enti- Funds, cannot be said for USA which ties associated with the enterprise, and GRC, hired directed it impose the col- longevity sufficient to permit these associ- issue, lection costs at “intimately and was to pursue enterprise’s ates purposes. involved” in GRC’s debt collection activi- See, e.g., Sykes v. Mel Hams & Associ- ties generally. more Bible’s amended ates, LLC, F.Supp.2d 413, 426-27 complaint pleads permit- factual content (S.D.N.Y.2010) (complaint plausibly al- ting the reasonable inference that USA leged enterprise RICO comprised of debt- Funds, conjunction Mae, with Sallie ac- buying company, agency, debt collection tually directed enterprise’s debt collec- others). process company, service tion activities even though GRC was the USA Funds contends that even if there entity that dealt with the borrower most enterprise, is an alleged USA Funds’ own directly. She plausibly alleged has actions could not amount participation USA Funds participated conducted or operation in the management enterprise’s affairs. enterprise’s affairs because USA Funds *23 operate manage did not the collection 2. Racketeering Activity and efforts related to Bible’s defaulted loans. Fraudulent Intent disagree. We alleges Bible that USA USA argues Funds next that Funds “directed to unlawfully GRC Bible has not plausibly alleged racketeer fraudulently impose collection costs [on] ing activity. “Racketeering activity” is de ¶ borrowers,” 88, Compl. Am. and that 1961(1)(B) fined in 18 U.S.C. to include Id., “GRC carried out these instructions.” mail fraud in violation of 18 U.S.C. ¶ alleges 89. She also that GRC secured a and wire fraud in violation of 18 U.S.C. release for USA Funds and Sallie Mae in § 1343. “The elements of mail fraud ... the FDCPA case mentioned above because ‘(1) are: the defendant’s in participation “both [USA Funds] and Sallie Mae were (2) defraud; scheme to defendant’s com intimately involved in GRC’s debt collec- defraud; mission of the act with intent to ¶ tion activities.” Id. 105. (3) use of the mails in furtherance of ” points USA Funds out merely per- that the fraudulent scheme.’ Williams v. Az forming a service for entity another is not 294, tar Indiana Gaming Corp., 351 F.3d sufficient to establish this element. That (7th Cir.2003), 298-99 quoting United goes. is correct as far as it See v. Walker, (7th Goren 1245, v. States 9 F.3d Int’l, Inc., 721, New Cir.1993). Vision 156 F.3d The elements of wire fraud are (7th Cir.1998) (“Indeed, simply performing except the same requires use of enterprise, services for an even with interstate wires rather than mail in fur knowledge enterprise’s nature, illicit therance of the E.g., scheme. United (7th is enough subject Green, not to individual to v. States 648 F.3d 577-78 1962(c); .2011). liability instead, RICO under Cir she had by guaranty agency mail fraud. before alleges both and wire
Bible process. completed the rehabilitation subject Federal allegations are Her 9(b), re- which of Civil Procedure Rule has not argues Funds that Bible USA particulari- fraud with plead her to quires the collec- plausibly alleged fraud because Int’l Athletic E.g., Slaney v. Amateur ty. by regu- federal permitted tion costs were (7th Federation, Cir. 244 F.3d allege lations and she has failed because 2001). result, “must, mini- at a As Bible intended to deceive her. that USA Funds mum, predicate acts the two describe un- argument justify Neither can dismissal 12(b)(6). specificity and state fraud with some Rule Whether Bible can der false time, alleged eventually content of the forward evidence of place, and come dis- question is a for the by the method which'the fraudulent intent representations, communicated, trict court on remand. were misrepresentations parties to those the identities of above, the collection costs As discussed Id. misrepresentations.” by permitted regulations, federal were Secretary interpreted at least allegations are based on Bible’s fraud addition, In if the costs Education. even form default letter and rehabilitation regulations, permitted had been According the amended alleges Bible that USA Funds misled her Funds, through agent its complaint, USA leading agree- in to her correspondence its GRC, Bi- telling mailed the default letter rec- ing repayment program. We her was ble that default. correspondence ognize “current cost letter said that her collection could be as- signaled that were charges” and “current other balance” Yet corre- sessed the future. that same letter, Like the rehabili- zero. the default spondence said that she owed no collection faxed, agreement, tation which said was costs, under- reasonably which could her collection cost balance” “current implying stood as there would be charges” zero. and “current other were nothing to in the A add future. Rule alleges form that USA Funds uses She 12(b)(6) dismiss not a motion to suitable substantially the de- documents similar to determining procedure that these doc- fault letter mis- possibly uments could not have been *24 dealings of other bor- its with thousands or other leading Bible borrowers like who defaulted their loans. rowers have her. theory of fraud is that the state- question intent The of USA Funds’ also in the letter ments default and rehabilita- cannot be on the At pleadings. decided agreement tion that her “current collection stage litigation, plau- this Bible has charges” cost balance” and “current other sibly alleged that USA Funds intended to false, misleading, zero or con- 9(b) (fraud- were were her. deceive See Fed.R.Civ.P. implied They tained material omissions. “may alleged generally”). ulent intent be collection be assessed that costs would not alleges saying that it sent her a form She to en- promptly agreed her if she that her costs zero that collection were program. According into a repayment intending ter representation it made this complaint, state- pro- to the amended these into a repayment induce her to enter into designed by ments- were deceive her she forced to gram hiding that would be by $4,500 into if entering program pay the rehabilitation over in collection costs she dol- concealing representations fact that thousands of could be did. These imposed literally they false. if could lars collection costs would be deemed Even
659 sent falsity, omission or conceal- when it the default letter or avoid literal rehabili- can ment material information be suffi- tation al- plausibly of has See mail or wire fraud. leged cient to constitute the statements in default Morris, 1151, v. 80 F.3d United States letter and the agreement Cir.1996) (“We (7th reiterated, more- 1161 designed were to induce her to enter into over, apply only statutes repayment agreement concealing while but fraudulent representations, false or $4,500 that she would be over assessed omission concealment of also to the or allega- if did so. collection costs she Her information, even where no stat- material racketeering activity tions of should sur- imposes duty of disclo- regulation ute or 12(b)(6) vive Rule motion to dismiss.8 sure.”); Fi- Emery v. American General Inc., (7th
nance, 1343, 71 Cir. F.3d 1348 3. Pattern 1995); Biesiadecki, 933 States v. United We turn next to Funds’ USA (7th Cir.1991); 539, F.2d United 543 States argument allege that Bible has failed to (7th 678, Cir. Keplinger, v. 776 F.2d 697 pattern racketeering activity. pat of “A 1985). consists, activity tern at racketeering of Bi- The rehabilitation warned least, very predicate of two acts of capital- ble that collection costs could be racketeering ten-year committed within a ized at the time of rehabilitation period.” Jennings Auto v. Meter Prod (“Collection See App. new lender. 139 ucts, Inc., (7th 466, Cir.2007), F.3d may capitalized at the time of the Loan 1961(5). citing prove U.S.C. To lender, along your Rehabilitation new pattern, Bible will “con satisfy need interest, outstanding accrued to form test, tinuity plus relationship” which re amount.”); (“By principal one new id. quires predicate that the acts be related to below, signing agree I understand (the relationship prong) one another may capitalize lender collection costs they pose crimi a threat continued ac- outstanding principal 18.5% of the (the activity continuity nal Id. at prong). my upon crued interest rehabilitation of 473, Co. v. quoting Grinding Midwest loan(s).”). straightforward reading One Cir.1992). (7th F.2d Spitz, 976 is that new language it authorized the “if relationship prong is satisfied agency capi- the guaranty lender —not —to criminal acts ‘have the same or similar costs, im- existing talize not to victims, results, or purposes, participants, ones, pose and then after new rehabil- commission, are methods otherwise (i.e., complete guaranty itation is after the by distinguishing characteris interrelated ” private sold to a has the loan lend- are not DeG tics and isolated events.’ er). (7th Camilli, uelle 664 F.3d v. Cir.2011), quoting we Inc. v. preliminary pleading stage, At this H.J. Northwest *25 Co., 229, 240, Telephone mind ern 492 U.S. do not know USA Funds’ state of Bell claims, Chicago, repeats 8. Nat’l Bank & Trust Co. On the RICO USA Funds American of 384, (7th Cir.1984) argument (holding it same made on Bible's breach that 747 398 F.2d claim, contending that she has failed contract plaintiffs' allegations of excessive interest reasons, allege injury. we For the same alleged resulting charges defendants' from reject alleged injury this contention. Bible’s prime rate scheme to overstate the fraudulent monthly payments made is that for costs she injury requirement), aff'd, 473 satisfied owe, she did not which constitutes a financial 606, 3291, 87 437 105 S.Ct. L.Ed.2d U.S. Nothing required plead an loss. more is (1985). Harneo, 1962(c). injury See v. under Inc. 660 (1989). of a cause of action under 2893, leged preclusion 195 106 L.Ed.2d
109 S.Ct. by show continuity provisions is satisfied federal statute prong one behavior, al that criminal federal statute is another issue ing either another ended, so durable and though it has was v. entirely. POM LLC See Wonderful implicit it with it an repetitive Co., that “carries -, 134 S.Ct. U.S. Coca-Cola activity in the threat of continued criminal (2014). 2236, 189 2228, L.Ed.2d Co., future,” F.2d Grinding Midwest “by 1023, conduct its past
at or that the Realizing the HEA does not that with a projects into the future nature claim, ar the RICO Funds preempt USA Inc., at 492 U.S. repetition,” threat of H.J. private- instead that the absence of a gues 241, 109 S.Ct. 2893. precludes action HEA right of under the claim RICO Bible’s RICO because Bible’s plead or not needed to
Whether
Bible
of the HEA.
theory alleges
a violation
Runnion
pattern theory,
of her
cf.
details
relies
on McCul
principally
Funds
Scouts,
USA
528,
at
Bible’s
v.
F.3d
Girl
Inc.,
1217,
Bank
loch v. PNC
298 F.3d
satisfy
relationship-plus-
allegations
(11th Cir.2002)
curiam), and
(per
that
1226-27
continuity
alleges
test. She
USA
Funds,
unlawfully
through
enterprise,
its
Food &
Un
United
Commercial Workers
collection
thousands of
imposed
Employers
costs on
Bene
ions &
Midwest Health
manner it
Co.,
204,
default in the same
borrowers
Walgreen
Fund v.
No. 12 C
fits
that
Funds
alleges
did to her. She
USA
3061859,
(N.D.Ill.
July
*4
2012 WL
at
form
that became
has sent the
document
2012),
other grounds,
It is based 4. Preemption deception the default letter and the agreement. regu- rehabilitation Even if the have loose end to tie We one last permitted lations to assess the USA Funds Bi up: the district court determined that costs, alleges USA “preempted” ble’s RICO claim was by concealing Funds committed fraud Higher Education Act. Bible v. United See imposed these collection costs would be Funds, Inc., 2014 Student Aid WL and the when sent default letter 1048807, at *10. It well settled that Thus, federal law does not a federal law preempt necessarily require claim does *26 RICO alleging a claim violation of another federal Preemption prove her to USA Funds violated statute. is limited conflicts regulations, proof al- if between federal and state law. The HEA or its even such might strengthen is, her claims.9 Even if we Bible—that that the text regula- of the agreed with McCulloch and the district tions unambiguously supports Bible’s in- court in United Food & Commercial terpretation statutory of the regulato- and issue, on this neither Workers decision Instead, ry scheme. I regulatory find the theory considered this alternative Bible is landscape sufficiently complex to merit McCulloch, pursuing. See 298 F.3d at deference to agency’s reasonable inter- (lenders’ 1226-27 comply failure to with pretation. HEA obligations disclosure was not action- In bring order to Bible’s rehabilitation RICO); able under United Food & Com- agreement within purview of 34 Workers, mercial *4 WL at 682.410(b)(5)(ii)’s § C.F.R. prohibition on (noting that plaintiffs depend- RICO claim imposition costs, of collection we are ed on regulatory violation of statutes refer- necessarily required to infer that Bible’s in complaint). enced The absence of a agreement qualifies rehabilitation as a
private right of action under HEA “repayment agreement on terms satisfac- preclude itself does not Bible’s RICO tory [guaranty] agency.” And claim. Judge while Hamilton assumes from the outset that “rehabilitation agreement” and Conclusion “repayment agreement” overlapping are Neither of preempted Bible’s claims is view, in concepts, my this is no small in- displaced by law, or otherwise federal and leap. ferential plausibly she has alleged all of the ele- judgment ments both claims. The Manion, dissent, Judge in his makes a the district court is REVERSED and the strong case for the proposition that case is REMANDED for proceed- further distinct, two concepts separate are ings. thus, repayment agreement that the provi- 682.410(b)(5)(ii) sions of do not apply to FLAUM, Judge, concurring Circuit program the loan rehabilitation described part concurring judgment. in the Indeed, in 34 C.F.R. 682.405. the De- join Judge I in full analysis partment Hamilton’s of Education’s website lists preemption argument USA Funds’ Repayment” “Loan and “Loan Rehabilita- respect Bible’s RICO claim. Bi- independent options With tion” as for “getting claim, ble’s breach of contract I agree your loan out of default.” Fed. Student Aid, Educ., portion analysis Dep’t Getting defers to U.S. out of Secretary interpreta- Default, of Education’s https://studentaid.ed.gov/sa/repay- (last tion of corresponding reg- the statute and loans/default/get-out Aug. visited 2015). However, Moreover, join ulations. I am unable to there is no cross-refer- subsection Judge II.A.l.b.i of Hamilton’s ence or reg- other textual indication opinion, ground which offers an alternative suggesting ulations that the rehabilitation holding prohibit- agreements USA Funds was described 682.405 consti- ed assessing from collection costs repayment agreements tute “on terms sat- Suppose discovery 9. employee regulatory protect or a former on the framework to them. showed that point purposes, though, USA Funds included certain lan- for our is that a guage in the default letter violation of the HEA and its is not or. to hide the extent of its non-com- essential to Bible’s fraud claims. Even if the pliance regulations. might permitted by regula- with the That in- collection costs were tions, dicate that theory USA Funds intended to defraud statements in the borrowers, might reasonably misleading. who have relied form documents sent to her were *27 timing of unrelated to the amount or
isfactory agency” to the under tions 682.410(b)(5)(ii), payments § such that a rehabilita- the in the rehabili- rehabilitation 682.405(b)(l)(vi). might scope the It agreement agreement.” § tion fall within tation 682.410(b)(5)(ii)’s exception § great leap of no to that is therefore conclude costs be rule that collection will general agreements repayment rehabilitation in borrowers default. assessed the agreements satisfactory “on terms to Rather, reference to collection the sole concepts. agency” mutually are exclusive § appears in to assume the costs 682.405 hand, Judge On other Hamilton’s in collection costs the reha- assessment of position agreements that the rehabilitation context. See bilitation §in are a of the described subset 682.405 682.405(b)(l)(vi)(B) (explaining § that the agreements repayment referenced in must a guaranty agency inform borrower 682.410(b)(5)(ii) intuitively appealing. § is agreement entering into a rehabilitation all, just other of loan After like forms any the amount of collection costs to “[o]f repayment, offers borrowers rehabilitation unpaid principal added to of path good standing, a to and does not back an eligible loan when the loan is sold to to permit repayment them avoid eventual lender, may not 18.5 percent which exceed 682.405(b)(4) § (explaining full. See unpaid principal and accrued inter- eligible a re- purchasing that lender “[a]n sale”). at the time of the est on the loan loan repay- habilitated must establish a Further, unsurprising it is that a reha- meets re- ment schedule that the same agreement may qualify not bilitation to other quirements applicable that are “satisfactory” guarantor. to a lan- The Program of FFEL loans the same loan 682.410(b)(5)(ii)suggests §of guage loan”). type as the rehabilitated guaranty agency retains discretion in de- Moreover, I skeptical am of the dissent’s termining a repay- which terms render assertion shield from agreement “satisfactory.” ment Under those who collection borrowers however, 682.405, guaranty agencies agree repayment to of the full immediate have in setting almost no discretion outstanding balance of their defaulted agreements: terms rehabilitation provi- loans. The regulation requires a borrower’s 682.410(b)(5)(ii), sion, § clearly was drafted monthly repayment amount be “Reason- with the intent who permit to borrowers affordable,” 682.405(b)(l)(i), able and lapsed have into to opportunity default specific guidelines and sets forth which regain good standing many and to avoid guarantor calculating must adhere in report consequences i.e., adverse 682.405(b)(l)(iii)(“The that amount. See — bureau credit and assessment of guaranty agency initially considers with default. Yet costs—associated borrower’s reasonable and pay- affordable opportunity only to make that available equal ment amount to be amount to 15 immediately capable those borrowers percent of the amount which the bor- paying outstanding their (AGI) Adjusted balance rower’s Gross Income ex- full render second illuso- would chance guideline ceeds 150 percent poverty ry. Practically im- speaking, would be family amount to the borrower’s applicable State, possible majority for the vast of borrowers except size divided that if $5, default- presumably this amount less than default —who have is borrower’s monthly $5.”). ed a result of their inabil- payment on their loans as regulation ity monthly also make far specifies payments— lower “[t]he agency may impose any entirety other condi- of their student eliminate *28 (which easily tary’s reach into proffered interpretation here, debt could the per- dollars) in single tens of thousands of haps Department the might consider reex- that, I payment. unlikely And think it amining revising and the language of the drafting regulation, Secretary this the regulations.
sought
nearly every
to exclude
borrower in
purview.
default from its
MANION, Circuit Judge, concurring in
sum,
question
aspects
In
while I
certain
part
dissenting
and
in part.
my respected colleagues’
of each of
posi
agree
I
with the court’s conclusion that
tions, they both offer plausible readings of
Bible’s claims are not preempted, but I
complex
ambiguous regulatory
this
disagree
pleaded
that she
a valid breach of
scheme.
I therefore believe the appropri
contract or RICO claim. As a matter of
ate
of action
accept
guid
course
is to
the
law,
Funds, Inc.,
United Student Aid
did
sought
Secretary
ance that we
from the
of
Promissory
not breach the Master
Note
Education.
the Supreme
Under
Court’s
(MPN) and did not commit
upon
the fraud
Robbins,
452,
decision Auer v.
519 U.S.
which Bible’s
predicated.
RICO claim is
(1997),
117 S.Ct.
agency’s interpretation of its regula own agreement bilitation 34 C.F.R. tions, that interpretation even when is in § 682.405 is the same as the formally announced. See Christopher v. — agreement say of 682.410.I Bible’s theo- U.S. -,
SmithKline Beecham Corp.,
ry
truly
it
because
is her own contrivance.
2156, 2159,
132 S.Ct.
when the events of this case unfolded. interpretation The correct is this: the Aside from fact that the the law is not agreement rehabilitation is not the same ambiguous Department’s interpre- the “repayment agreement as the on terms unreasonable, tation is the fact that there satisfactory agency” to the in mentioned opportunity was no notice and oppose to regulation. the administrative The two Department’s the substantial “revision” separate, are and the govern- gives very good us a reason not to defer to ing each are separate, also even though the Department’s interpretation. guarantors’ the practice current is to offer a defaulted borrower a rehabilitation theory
B. Bible’s relies on fun- two agreement at they the same time offer her damental errors. repayment agreement. To avoid collec- big picture us, the default, With now before I tion a report costs and the my analysis start Department’s with the borrower repayment must choose the is, interpretation, new theory. agreement pay Bible’s and either in her balance 682.410(b)(2)requires Section guaran- the full or come to “terms satisfactory to the “charge tor to equal agency” borrower an amount that do not include collection agency reasonable costs incurred costs. alternative collecting a loan.” interpreta- agreement “repayment is not a agreement (G). (E) 682.410(b)(5)(vi)(D), Sixty § & satisfactory agency,” on terms the borrower it does not allow days guarantor after the has sent no- accepting re- and default collection costs escape tice, if the not “reach[ed] borrower has Rather, by to loan re- agreeing porting. repayment terms satisfacto- repayment of loan instead habilitation ry prevent agency and her default incurs costs borrower defaulted,” reporting from the loan as then capped at but her costs will reported, report guarantor “shall” borrow- default will be cleared from 18.5% and her all reporting default to national credit er’s successfully if com- report her credit she 682.410(b)(5)(i); 20 U.S.C. agencies. cf. rehabilitation. loan pletes 1080a(c)(4) 30-day (requiring only wait default). reporting before repayment, not loan rehabil- Loan C. itation, offers defaulted borrowers agrees repayment If to a opportunity collec- to avoid agreement sufficiently acceptable reporting. default tion costs and report for the not guarantor guarantor to loan re-
Although accepted neither default, then will guarantor through full nor repayment payment report the borrower’s default to all the necessary to re- agreement, another it is agencies. credit reporting national works order view how 682.410(b)(5)(vi)(G); 20 U.S.C. *31 C.F.R. a bor- understand Bible’s errors. Once to 1080a(c)(4). Although § the borrower default, in make a by failing is to rower may report the default in avoid of her this (270 monthly payment for nine months way, she is still in default and therefore 1085(2); § C.F.R. days), 20 U.S.C. “a pay must collection costs: borrower 682.200(b)(1),the § lender hands the loan loan made who has defaulted on a under guarantor pays to the who the default over subchapter required ... shall be to 682.410, § 34 C.F.R. the claim. Under ... pay costs[.]” reasonable collection has the guarantor days provide then to 1091a(b)(l). So, although § U.S.C. the oppor- with written notice and borrower guarantor prevented charging is from col- records, inspect re- tunities to the loan costs the provides lection notice before review, quest an administrative and “enter opportunities, C.F.R. repayment agreement into a on terms sat- 682.410(b)(5)(ii), § charge it is required 682.410(b)(5)(ii) isfactory agency.” § to the Again, collection costs afterwards. “the (6)(ii). guarantor may & not assess agency charge a guaranty shall borrower costs any collection the borrower costs equal an amount to reasonable in- report the default to the or borrower’s ’by in agency collecting.” curred the agencies until it reporting provides credit 682.410(b)(2). said, guarantor § That opportu- the borrower the notice and charge discretion has the to not collection 682.410(b)(5)(h). § nities. The notice agreement under a repayment be- must, among things, other “[d]emand that repayment agreement cause “on immediately repay- begin the borrower satisfactory agency.” terms loan,” explain ment of “that all costs 682.410(b)(5)(ii)(D). Thus, § the borrower charged incurred to collect the loan will be may avoid ensur- collection costs either borrower,” explain opportu- to the incur ing guarantor does not col- agreement nity repayment “to reach on th.e costs, is, by paying lection loan satisfactory agency prevent terms in full upon guarantor’s from loan balance de- reporting as agencies.” coming to consumer reporting payment, defaulted mand for “terms (nine months) satisfactory that do not but agency” to the default it allows the Id. get include collection costs. borrower time to on her back feet. Id. However, loan rehabilitation will incur the Obviously, agreement “repayment report of default and collection costs. This agency” requires, satisfactory terms to the is because it is available to a borrower most, payment outstanding at full (or be) default report- whose has been will and, least, that actually at terms balance collection, ed whose loan is in in other a chance of off the loan. paying stand words, a rejected has who a re- 682.410(b)(5)(ii)(D). If § the borrower payment agreement satisfactory to the full, pays outstanding her balance then guarantor. default report she avoids the and collec- full, pay post-2006 regulations tion costs. If she is unable to While the may de- comes to that do not but terms include scribe rehabilitation as a type of costs, monthly also collection then she avoids the agreement (explained below), report of default and collection costs. If it is not “a repayment agreement satisfactory she cannot reach such favorable terms but on terms to the agency” be- repayment agreement, can still reach a cause it is not a repayment agreement that 682.410(b)(5)(ii)(D). report repay § then she avoids the of default but can the loan. Finally, collection if costs. the bor- Loan rehabilitation requires the bor- accept a repayment voluntarily rower declines to rower make nine out of ten (which cannot (perhaps monthly payments she afford can be as little one), $5.00) then, regulations, according to demonstrate the borrower’s guarantor reports repay the borrower’s good-faith de- intention to the loan. 682.405(b)(l)(iii). reporting agen- fault to the national credit pay- The nine token cies ments charges costs. alone are insufficient to rehabilitate 682.410(b)(2). 682.410(b)(5)®; loan, because the loan must be sold to
a new lender for it to be considered reha- separate D. Loan is a rehabilitation 682.405(a)(2)(h). § Only bilitated. after opportunity, a after borrower has the loan is sold to a lender who new estab- rejected repayment, loan to re- repayment lishes a new schedule is the move the loan from default status loan rehabilitated back in a standard report and erase the of default. 682.405(b)(4). repayment Thus, § status. a loan in of process because the rehabilita- Yet, for a like Bible who can- tion is still in default and under collection repayment way not afford there is a out: lender, it guaran- until is sold to a new “[a] loan rehabilitation. Loan rehabilitation is ty agency may the charge borrower and 682.405, separate § program, a for those retain collection costs in amount not to borrowers who are unable to meet the percent outstanding exceed 18.5 of the repayment obligations stricter of the time principal interest at of sale of § requires payments 682.410. It that § a loan 20 U.S.C. 1078- rehabilitated®” afford; can the borrower removes the 6(a)(1)(C) (effective 2006). 1, July collection, loan from clears the default history, from the borrower’s credit E. Loan rehabilitation is not (now 16%) 18.5% limits collection costs to repayment. outstanding of the loan’s balance and ac- 1078-6; theory § is crued interest. Central to Bible’s her claim U.S.C. agreement § a lengthy process 682.405. It the of 34 C.F.R. is rehabilitation § repayment agree- it took to 682.405 long get and takes as as into C.F.R. is the ” 682.410(b)(5)(ii)(D). rehabilitating defaulted loans.... pose § ment in 34 C.F.R. 682.405(a)(2) 682.405(a)(1). § § Although states It is not. rehabili- considered be loan is “[a] Second, history of the the borrower has made only after [t]he tated they are not the also demonstrates agency has received nine guaranty and the 682.405(a)(2) did Section not de- same. payments required qualifying of the ten agreement a scribe the rehabilitation repayment agreement,” monthly under a 8, September “repayment agreement” until description, not a defini- merely a is always § but used the term. 682.410 the “repay- not allow term tion. It does §in 682.410 to be re- agreement” ment Third, prevented a is from guarantor agreement.” A
placed “rehabilitation with report- collection costs and charging both may type agreement rehabilitation ing provides until it the bor- default but agreement, it is not the repayment to enter opportunity rower with the into “repayment agreement terms satisfac- satisfactory repayment agreement tory agency” required by 682.410(b)(5)(ii). § If a guarantor. rehabil- 682.410(b)(5)(ii)(D). § agreement necessarily is a repay- itation reasons why are several the two There agreement satisfactory guarantor, ment First, agreements not the it is are same. guarantor prevented so that is from apparent differing their from levels dis- costs, guaran- charging collection then requires cretion. Section 682.410 from prevented report- tor would also be guarantor agreement offer Yet, ing primary the default. one satisfactory to [guaranty] “on terms purposes of loan rehabilitation is to clear 682.410(b)(5)(ii)(D). agency.” Quite § ob- report of default from the borrower’s viously, the terms of a particular whether history, including report- credit the default satisfactory to agreement guaran- are by guarantor guarantor, ed which tor a matter of largely guarantor’s is must do loan rehabilitation com- once Department agrees discretion. 682.405(b)(3)©; plete. U.S.C. 1078- Br. Amicus 15. On the this. Gov’t. 6(a)(1)(C). timely acceptance If of a reha- hand, of a other the terms agreement prevented bilitation are mandated costs, prevent then it also should default 682.405(b)(1). timing The amount and reporting. prevented But if it default re- regula- are defined payment each porting, primary purposes then one of the tion, may impose and “[t]he *33 pointless. of loan rehabilitation would be any conditions to the other unrelated Obviously, argue Bible does not that the timing pay- of the amount or rehabilitation timely loan acceptance of rehabilitation in the rehabilitation agreement.” ments prevents report the of default because it 682.405(b)(l)(i)-(vi). Bible, § According to would absurd. agreement a every rehabilitation must be Fourth, to it is unreasonable hold that a repayment agreement satisfactory the to agreement “satisfactory is to rehabilitation guarantor guarantor accepts because the agency” repayment the for actual each But even that agreement. is mandat- loan. Id. The loan rehabilitation’s “month- “A regulation: guaranty agency ed the ly repayment only part is agreement” ... enter into a loan must rehabilitation agreement. payments nine token agreement Secretary. The guar- with the The anty are used prove good- must establish loan to borrower’s rehabili- repay for all faith to the loan it is program tation borrowers intention once lender, note not to promissory pur- purchased by repay for the a new enforceable
669 any repayment It is the new guarantor. arrangement the loan to the that debtor afford, regardless can repayment that sets the actual of the amount lender time repay pay the rehabilitated needed to the debt off schedule will under (b)(4). 682.405(a)(2)(ii), arrangement. § loan. 34 C.F.R. See 20 U.S.C. 1078-6(a) (defaulter § pay- may In Bible’s case the rehabilitation have loan re- the interest ac- habilitated and default ments did not even cover status cured af- payments ter installment cruing guar- on her loans. 10786(b) (defaulter antor); § may regain litigation The F. does eligibility Barnes/Black for new student aid after six theory support Bible’s reasonable payments affordable repay- loan rehabilitation is loan based on the borrower’s total financial ment. circumstances). The therefore guar- direct Department’s
The
brief in Ed. Credit
charge
antors to
collection
only
costs
to
Barnes,
Mgmt. Corp. v.
B.R.
those debtors who
guarantor
cause the
(S.D.Ind.2004),
sub nom. Black v.
aff'd
to incur collection
by failing
costs
to
Mgmt. Corp.,
Educ. Credit
Department require guarantor rales is not in repayment agreement by bound acquires original who a loan reason of the repayment schedule. Accord- (...) Bible, default of the charge ing Department because the sup- providing ported subsequent proposition with a after opportunity statute, debtor an to contest the debt citation to the loan rehabilitation 1078-6, and to enter into a arrange- Department U.S.C. was ment explaining guarantor debt. 34 C.F.R. somehow that a *34 682.410(b)(5). § guarantor, The more- prevented charging from collection costs if by original timely accepts over is not bound a borrower a rehabilitation schedule, but can It agree to was not.2 Department 2. cited A System The 1078-6 with a Blue Boor Uniform of Citation eds., (Columbia introductory signal, "see” Law Review et which is used when Ass’n al. ed.2015). step step "there is an inferential between au- 20th The citation's inferential thority proposition supports.” repayment agreements cited and the it is that are like rehabil- that, if has Barnes Barnes, suggests The Trustee held that we affirmed we When (HEA) loan, not ECMC could express- his Act rehabilitated Education Higher collection at a flat impose collection costs guarantor have assessed ly allows a Trustee, loans: ECMC According on rehabilitated rate. costs only the actual guaran- a could have recovered prohibits HEA in the Nothing collecting in assessing collection costs incurred costs that ty agency from upon rehabilita- percentage during period a flat-rate student loan as Barnes’ contrary, the statute ex- tion. To up to rehabilitation. leading guaranty agen- that provides “[a] plicitly governing rehabili- regulation But the and retain the borrower cy may charge guaranty agency a plainly tation allows in an amount not to ex- costs collection collection costs at a flat rate to assess outstanding percent ceed 18.5 “not exceed” 18.5 long as the rate does of sale interest at the time principal See C.F.R. percent. 20 U.S.C. rehabilitated.” of a loan 682.405(b)(l)(iv). 6(a)(1)(C). Thus, if even § 1078— have been rehabili- loans could Barnes’s Secretary of Appellee for United Br. Chapter proceed- through his tated Black, Education, Department States charged that ECMC the 18.06% ing, at 33 2005 WL 459 F.3d costs falls within for collection Barnes omitted). (citation nor the De- Neither we under the what is allowed the bounds of special exception a recognized partment provisions. rehabilitation HEA’s loan guarantor a prevented that would have a collection costs Black, holding charging In so we from F.3d at 803. Department’s plainly loans. We said disagree on rehabilitated did “[njothing prohibits its rules. On the con- in the HEA interpretation of that Department, assessing with the collection trary, agreed guaranty agency we from percentage upon told us its brief: reha- which then costs as a flat-rate (em- Black, at 803 459 F.3d Furthermore, bilitation.” argument the Trustee’s added). in the phasis Nothing that assumption a mistaken Barnes/ upon rests theory that litigation supports the have enabled Black would Bible, advances.3 Department, and now the collection costs. pay Barnes to lower App. Department also they Appellant’s 66. The agreements in are not bound itation by the disagreed that collection costs assessed by original repayment schedule. Where- if the could be unreasonable flat-rate formula as, step be have the inferential Bible would argu- of actual costs. Its costs are in excess agreements repay- are like that rehabilitation by guar- incurred ment concerned the costs can agreements in that the borrower ment contractor, such who uses a collection antor For that to be the avoid collection costs. Funds used GRC: as USA case, support had to the citation would have may object A contractor debtor the one it did. the sentence before generating a incurred modest costs contingent particular payment, and that the court 3. brief before the district In its payment by for fee the contractor earned Barnes, guar- Department made clear that collecting exceeds the "actual costs” charge collection costs or those antors must objection misses the amount. Such an taxpayer: will be borne negotiated point: incurs a con- the creditor regula- problem which To restate the for that tingent fee owed to the contractor guarantor the student loan regardless tion addresses: needed payment, of the effort enough particular pay- must recover to meet its the contractor to secure costs, charged pay the contrac- costs will be The creditor must or those ment. tor, expense a real taxpayer exactly what 484A U.S.C. and that cost is [20 — solely 1091a(b) guarantor, incurred because prevent. and one intended to ] was *35 regulation’s 60-day The collection-cost G. deadline because there is no dead- provisions exemption contain no line for loan rehabilitation. rehabilitated loans.
for regulatory The scheme does not require theory contrary plain rehabilitation, is to the that a guarantor Bible’s offer loan language regulations only guarantor of the statutes and that the program have a regu- because nowhere do the statutes and where may request borrower “[a] rehabili- contemplate lations that “reasonable costs” tation of the borrower’s defaulted loan equals timely “no costs” for borrowers who held guaranty agency.” 682.405(b)(1) added). § agreement. enter into a rehabilitation See (emphasis It was 1078-6, 1091a; §§ 20 U.S.C. 34 C.F.R. not until 2010 regulation was 682.405, §§ why 682.410. That is we held require guarantors amended to to “[i]n- “[njothing pro- in Black that in the HEA options the borrower of the that are forrn guaranty agency hibits a from assessing available to the borrower to remove the default, collection costs as a flat-rate percentage loan from including explanation Black, upon rehabilitation.” 459 F.3d at of the fees and conditions associated with added). 682.410(b)(5)(vi)(M)(effec- (emphasis regulation’s § option.” each added). 1, 2010; exception July for collection costs refers to tive emphasis -When limiting Department collection costs to 18.5% on reha- regulations finalized the said, they bilitated consolidated loans. regula- “We believe the 682.410(b)(ii)(2) (“Except provided accurately as in tions reflect the HEA and Con- 682.401(b)(18)(i) §§ gressional intent. Borrowers must re- 682.405(b)(l)(iv)(B)”). initiate, Plainly, quest, or in some loan fashion costs cannot be limited on rehabilitated period during so they loans unless are first allowed. which the 9 qualifying payments must be guaranty agency made is clear for both the theory explain tries to this incon- and the borrower.” 71 Fed.Reg. 64389 gruity by saying regulations’ that the ref- (Nov. 2006) added). (emphasis erences to collection costs refer to those Thus, timely agree borrowers who fail to to loan require do not a rehabilitation, rehabilitation, agree- guarantor or fail to honor the to offer but mere- First, ly ment. This cannot be the case. to make rehabilitation If available. regulations’ requirement references to collection costs there is no to offer rehabilita- tion, deadline, do not refer to a borrower who fails therefore no then there agreement nothing gauge honor the rehabilitation be- is whether applies “timely” “promptly” cause the limitation “at the time of has into a entered sale,” 20 U.S.C. 1078 rehabilitation This 6(a)(l)(D)(i)(II)(aa), equivocation and the loan cannot be whole reason for Bible’s be- sold unless the borrower honors the reha- tween a rehabilitation and a 1078-6(a)(l)(A). agreement, repayment agreement satisfactory bilitation Second, importantly, guarantor. and more the refer- Bible needs the agreement’s special ences do not refer to a borrower who deadline to create the fails within agree to loan rehabilitation category “promptly” of borrowers who en- previously pay the debtor has failed to contingent contractors collection ac- fee for guarantor debt. Because the objecting liability incurs have tion no basis for fee, can, must, guarantor pass contingent charged rate" fee “flat real cost on to the debtor. Debtors whose percentage payment recovered. added). Appellant’s App. (emphasis by guarantors loans have been referred *36 672 loan rehabili- ly a defaulted borrower But as offer agreements. rehabilitation
ter into Nevertheless, prac- the current tation. above, the reha- length at explained I have Funds by USA practiced as tice—at least is not of 682.405 agreement bilitation guaran- to be for the appears in this satisfactory to the repayment case— at the same rehabilitation tor to offer loan fic- Without Bible’s of 682.410. guarantor The De- repayment. loan time it offers al- regulations category, special titious giving method of endorses this partment without loans on rehabilitated low costs states: a choice. Its website the borrower exception. getting options several You have or do the statutes put, nowhere Simply out of default. These include your loan may costs say that collection regulations (cid:127) repayment loan when, unless, except be assessed (cid:127) rehabilitation, and loan to loan rehabilita- timely agrees tion and honors (cid:127) consolidation. loan turn loan rehabilita- would interpretation Response to Gov’t Appellee’s Addendum A of at-will deferment. tion into a kind clearly de- Department Br. The Amicus her payment make no borrower could and loan rehabili- loan scribes and then make for nine months loans gives separate options as tation months, nine for another payments token provided they options are impression costs, only to have all without collection (Loan is also a concurrently. consolidation lender and by a new purchased her loan in this option, but is not at issue separate from her record. This the default erased case.) description of Department’s The intended. As ex- Congress not what was mention collec- repayment does not loan in 2006: plained by Department costs, description its of loan tion whereas accurately regulations believe the col- (“Outstanding We does. Id. Congressional HEA and in- may principal reflect the to the costs added lection be balance.”). Additionally, a reasonable and Department’s description tent. ... The payment amount needs be collections affordable of loan rehabilitation includes established, consequences of them. regulations because the allow (“the rehabilitation, consequences such Fed.Reg. loan addition rehabilitation, such as the addition costs to the rehabilitated loan collection amount, loan costs to the rehabilitated post-rehabilitation loan explained amount ... need period likely and the increased payment borrower”). amount, explained need to be payment to the borrower. offers loan rehabili- guarantor aWhen repay- time as loan tation at the same added). Fed.Reg. (emphasis there is an incentive for the borrow- ment advantage takes H. Bible because it. er to choose loan rehabilitation offering guarantors’ practice of But expensive in the short term. is less at the same loan rehabilitation rehabilitation, the bor- by choosing loan repayment. time as loan rejects necessarily repayment. loan rower rejects repay- loan in an- Because the borrower regulations obfuscates the ment, de- report must advantage guarantor way. other She takes And, re- collection costs. her loan re- fault and assess fact that USA Funds offered guarantor prohibited at the same time as offered member habilitation of- charging collection costs before do from repayment. her loan So, when the fering repayment. guarantor immediate- require *37 loan rehabilitation at the guarantor option, offers The first “to pay full the out- standing balance on repayment [the] same time as loan it is not defaulted the loan(s)” option, and the additional “Alter- collection costs until the allowed to assess Payment native Arrangements,” were both rehabilitation, chooses loan “repayment agreement on terms satis- thereby rejecting repayment. loan If the factory to the agency” of 682.410. By defaulted, previously borrower has not paying full, the outstanding balance in Bi- then collection costs will be zero when ble would have avoided collection costs and loan rehabilitation is offered. report By de-fault.4 “Al- choosing practice entirely permissible This un- Payment ternative Arrangements,” Bible long guaran- der the as as the would have avoided the default but not separate requirements tor meets the for collection costs. description USA Funds’ each option. Borrowers are not harmed Payment “Alternative Arrange- by practice, long they so receive the ments” portion stated that “[a] of each necessary warnings regarding collection payment you received from will be allocat- consequences. and other As can be costs pay ed to collection costs.” Id. But Bible an seen from examination of GRC’s corre- chose neither options. of those Instead of Bible, spondence practice choosing repayment, this was the loan Bible chose loan rehabilitation, which followed here. USA Funds described opportunity
as “the to resolve a loan de- fault and improve your credit record I. Bible fails to state claim for removing guarantors’ report your either breach of contract or RICO loan default.” Id. GRC also informed Bi- because USA Funds and GRC part ble that your eligibility “[a]s for complied regulations. with the rehabilitation, loan you will be assessed The default letter sent GRC to Bible collection costs at a reduced rate of 18.5% stated: a dispute, pay “Without failure to of the outstanding your balance at the time full, lender, the account in loan is agree satisfactory purchased by eligible to a and the repayment arrangement, purchasing may lender add these utilize another your costs to outstanding principal.” loan recovery option as outlined on the attached added). (emphasis By Id. insert, choosing loan may result additional collection rejected repay- Bible loan efforts.” Appellant’s App. top 13Í. At the ment, thereby incurring the collection of the attached insert awas call-out box permitted costs under the statutes and which stated in type: you bold “If are regulations. pay unable to in full outstanding bal- loan(s), your
ance on defaulted call rep- Both the default letter and the loan re- resentative to find out which of the follow- habilitation application letter listed Bible’s ing options you additional qualify for.” Id. current collection-cost balance on each of at 133. The insert then listed three addi- her four loans as zero because was. 1) options: tional Payment “Alternative Appellant’s App. 137. USA Funds 2) Rehabilitation,” Arrangements,” “Loan prohibited charging was from collection 3) and “Loan Consolidation.” Id. costs until Bible loan acted its offer of capitalize then-outstanding 4. Bible’s MPN included an [her] acceleration loans and all unpaid balance, clause that made the entire balance of principal into a new and interest immediately payable Bible’s loan due and immediately fees will due collection become Appellant’s App. the event of It default. 122. payable.” Id. guarantor may purchase also states that "the 682.405(b)(l)(vi)(B), 682.410(b)(2)®, §§ expired. the offer repayment, or 682.410(b)(5)(H). paid regula Had need look no further. The we C.F.R. would avoided tions define “reasonable collections costs” her in full she have account not, costs, but she did she chose with a flat-rate formula must collection ac capped principal she loan at 18.5% of the loan When chose rehabilitation. rejected interest rehabilitated loans. Id. rehabilitation she crued By Department’s guaranty See letter began accruing. also *38 directors, agreed agency rehabilitation Bible at 674-75. The choosing loan infra may now capitalize Department “that collection definition the advocates the lender outstanding principal comport those regulations. costs of 18.5% of does not with Instead, Department’s interpretation interest rehabilitation of upon and accrued loan(s).” my Appellant’s App. 139. amounts to a rule that determines new charged be for when costs'will rehabilitat Funds abided the statutes and USA loans, ed not those what costs will be. regulations. Funds neither breached USA not a for gap “explicitly That was left [ ] committed nor fraud. For the contract Chevron, fill.” agency to 467 U.S. at reason, this Bible’s breach contract 843, 104 Congress quite S.Ct. 2778. stated RICO should claim and claim be dis- guarantor may that a explicitly charge the missed. on a costs rehabilitated 1078-6(a)(l)(D)(i)(II). loan. 20 U.S.C. give deference J. cannot to the We permit agency, We are not allowed “to .Department’s interpretation be- guise interpreting regula under the regulations cause statutes tion, regulation.” to create de a new unambiguously allow collection facto 576, Cnty., v. Harris Christensen 529 U.S. Depart- and because the costs 588, 1655, 120 146 621 interpretation S.Ct. L.Edüd ment’s is unreason- (2000). regulation Because the not am is able, prior inconsistent with inter- biguous regarding collection for re pretations, warning. and without loans, Depart habilitated and because the The Department response our re- —in interpretation plainly ment’s is erroneous quest an amicus it brief—claims that regulation, and inconsistent it is with always interpreted has its Id.; Auer, not 519 entitled deference. provide exception to collection costs 461,117 at 905. U.S. S.Ct. when enters promptly a borrower into a complies with Moreover, the Department’s amicus It claims also its brief its interpretation demonstrates that interpretation deference under deserves entirely is new and inconsistent with its Chevron, U.S.A., Inc. v. Natural Res. Def. prior interpretations. See Thomas Jeffer Council, Inc., 2778, 837, 467 U.S. 104 S.Ct. Shalala, 504, 515, son v. 512 U.S. Univ. (1984), 81 694 Auer L.Ed.2d v. Rob- (1994)(“an 2381, S.Ct. 129 L.Ed.2d bins, 519 U.S. 117 S.Ct. 137 agency’s interpretation reg of a statute (1997). L.Edüd prior interpre ulation conflicts with Department’s interpretation considerably
The less defer tation is entitled to First, consistently entitled to held view” Congress deference. ence than omitted)). may up Department Depart left it marks (quotation have to the The costs,” reasoning define taken appears “reasonable collection but ment’s already support has from with Department clearly de- wholesale Bible’s briefs term, ing actually fined material undermines its C.F.R. nothing case. There is the record that that do not exceed 18.5% of the outstand- concept pri- that the ing demonstrates existed balance and accrued interest are “rea- attorneys filing or to Bible’s this class sonable.” (As above, I explained Depart- action. Now, letter, from the 1997 which the
ment’s brief Barnes did not advocate Department sent to the loan corporation’s holds.) position now president response vice question to his concerning collection In an costs for loan provide repay- effort to some record that agreements ment Department developed interpreta- under 682.410(b)(5)(ii)(D): lawsuit, tion Department before Bible’s provided general two letters: a 1994 letter Department agrees your with inter- guaranty agencies directors of and a 682.410(b)(5)(ii)(D) pretation of 34 CFR president 1997 letter to the vice of Texas its interaction Guaranteed Loan Corporation. Student 682.410(b)(2)(i). provision This *39 Although excerpts the are I long, include regulations provides the op- borrower an them to show how unreasonable and incon- portunity to enter satisfactory into a sistent Department’s interpretation the is. repayment agreement agency before the general From the 1994 letter addressed to either reports the default a to credit guaranty agency the directors: bureau or assesses collections costs have concluded that the amount the required [W]e of borrower as 682.410(b)(2). § currently the collection costs You assessed also are correct borrowers as under that “terms satisfactory agency reasonable 34 CFR to the 682.410(b)(2) require is not ...” does not reasonable when the that the loan be paid in full provides agency borrower has shown the initiative to ad- the the through establishing satisfactory dress default one of these discretion a programs repayment two agreement rehabilitation and with the [loan borrow- Therefore, er. If agency signed the obtains a consolidation]. the De- re- partment modify payment agreement has to decided its earli- from the borrower policy guidance 60-day period, er within the and the restrict the bor- begins rower payments, amount collection costs that will be to make the agency required considered “reasonable” under is not to assess the these cir- cumstances to be an amount borrower collection costs. Collection that does percent not exceed 18.5 related the default would be outstand- only assessed if the borrower ing principal amount and accrued failed to payments by continue to make the re- interest on the loan at the time the agency arranges payment agreement. the lender purchase to pay- rehabilitate the loan or certifies the added). (emphasis Gov’t Amicus Br. la off amount to the consolidating lender. letter This does not concern loan rehabili- percentage This is consistent with the Instead, tation at all. it confirms that percentage guaranty agency a is allowed 682.410(b)(2) requires guaran- while to retain under the loan rehabilitation costs, charge provision tor to collection program at purchase. the time of lender requiring “repayment agreement added). (emphasis satisfactory agency” grants Gov’t Amicus Br. 3a terms to the guarantor charge This letter contains no mention of an ex- the discretion not ception for promptly agree cry providing borrowers who costs. That is a far from rehabilitation, explicitly exception promptly and it states who en- for borrowers agreement collection costs on rehabilitated loans ter into a rehabilitation omitted). (citation (Thomas, J., fact, concurring) In
comply with ques-1 constitutional This raises serious Department’s from inference proper tions. does not that, 682.405 since letter discretion as the same guarantor
grant is not interpretation Department’s 682.410(b)(5)(ii)(D) does, guarantor Furthermore, even deference. entitled to costs on rehabilitat- collection charge must truly interpreted Department if the loans. ed regulations prior statutes extraordi- Department’s claims, accept the cannot
To case as it we events of this us to hold that requires nary position to USA Funds. interpretation apply president an assistant vice single indeed, letter to an entire subject To USA Funds — explaining that agency guaranty liability of one based on a industry- RICO —to has the discretion that was never enforced—and rule costs under charge manifestly unjust. recently announced—is sufficient notice for constitutes reasons, respectfully I all of these For are agencies prohibited all the rule that dissent. costs on rehabilitated charging from hardly the kind of “fair That is loans. Department, es- required of the
warning” Bible seeks to “invoke
pecially since ambigu- interpretation
[Department’s] *40 impose potentially mas- regulations to
ous liability on for conduct [USA Funds]
sive interpreta- that occurred well before BAY CONSTRUCTION DUNNET Christopher v. announced.” tion was COMPANY, Corpo- an Illinois — Beecham U.S. Corp., SmithKline ration, Plaintiff-Appellant, 2167, -, 2156, 183 L.Ed.2d 132 S.Ct. omitted). (2012) v. marks (quotation 10, 2015, July Department’s recent. BORGGREN, in her official Erica J. clarify to “restate and purporting letter Acting Secretary capacity for the to the court (provided the rules” Transporta- Department Illinois as a “citation of additional Department tion, al., Defendants-Appellees. et authority”) nothing short of admis- No. 14-1493. entirely Department’s that the rule is sion is not Ultimately, Department new. Appeals, Court of United States Instead, regulations. interpreting Seventh Circuit. Department] claims for itself [the What Argued Dec. 2014. power political to make here is not Aug. Decided 2015. judgments implementing Congress’ power even the to make policies, nor competing policy
tradeoffs between by Congress. power It is the
goals set any particular fideli-
to decide—without
ty policy goals to the text —which [the pursue. wishes to
Department] — E.P.A., -,
Michigan v. U.S. (2015) 2699, 2713, 192 L.Ed.2d
S.Ct.