The Consumer Financial Protection Bureau has denied a petition from the Pennsylvania Higher Education Assistance Agency to set aside a civll investigative demand into whether the servicer maintained adequate policies and procedures to determine whether loans were dischargeable in bankruptcy and if attempts were made to collect on loans that had been discharged in bankruptcy, saying that it is investigating potential violations of the Consumer Financial Protection Act and not the Bankruptcy Code.
A copy of the ruling can be accessed by clicking here.
The CFPB said it is investigating PHEAA for whether it engaged in unfair, deceptive, or abusive acts or practices by failing to determine whether loans it serviced were discharged in bankruptcy and then making collection attempts on loans that consumers did not owe because the loans had been discharged in bankruptcy. The Bureau cited a number of precedents from different courts across the country that attempting to collect on debts that consumers do not owe can be subject to the CFPA.
PHEAA also argued that the Bankruptcy Code displaces the CFPA if the reason a debt is not owed is due to a bankruptcy discharge, but the CFPB noted that different courts have ruled that the Bankruptcy Code does not displace nor repeal the Fair Debt Collection Practices Act and there is no conflict in complying with both.
“The Bureau seeks to determine whether a student loan servicer violated the prohibition on unfair, deceptive, and abusive acts and practices not just by making individual attempts to collect discharged debts from individual debtors, but also, more globally, by having no policies and procedures in place to determine whether loans in the servicer’s portfolio are dischargeable in bankruptcy via standard bankruptcy orders, a practice that could put entire populations of borrowers at risk of harmful and unlawful collection efforts,” the Bureau wrote in its response.