Appeals Court Rules Student Loan Guarantor Not ‘Collector’ Under FDCPA, Even When Trying to Collect on Non-Existent Debts

The Eleventh Circuit Court of Appeals has affirmed a lower court’s decision that the Pennsylvania Higher Education Assistance Authority, a guarantor of student loans, does not meet the definition of debt collector under the Fair Debt Collection Practices Act after it was accused of collecting debts from the wrong individual.

A copy of the ruling in the case of Darrisaw v. Pennsylvania Higher Education Assistance Authority can be accessed by clicking here.

The plaintiff, who had students loans with Nelnet that were in deferment through the end of 2016. In April 2016, the plaintiff received a collection letter from the defendant, saying it was now the “legal owner” of the plaintiff’s loans. The plaintiff received a second collection letter, demanding $18,812.83 in unpaid loans. The plaintiff contacted the defendant, and a representative denied the plaintiff had an outstanding debt with the company and terminated the call. The defendant then moved to start garnishing the plaintiff’s wages because she had not yet made a payment on the unpaid loans. At that point, the plaintiff sued, alleging the defendant violated the FDCPA by making false or misleading representations and failing to validate the debt. The defendant argued it was not a debt collector under the FDCPA and a judge dismissed the suit.

The plaintiff appealed, arguing that while the definition of debt collector under the FDCPA excludes “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . is incidental to a bona fide fiduciary obligation,” that does not apply to the attempted collection of non-existent debts, like in this case.

In affirming the lower court’s ruling, the Appeals Court determined that the language in the FDCPA that protects the defendant rests on “or asserted to be owed or due” under the definition of debt collector.

“What matters is not whether the debt is real or nonexistent, but whether the guaranty agency acted ‘incidental to a bona fide fiduciary obligation’ in attempting to collect it,” the Appeals Court wrote.

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