Student Loan Creditor Off the Hook for Third Party Collectors’ TCPA Violations, But is Not Exempt for Collecting Government Backed Debts


A District Court in the Southern District of California recently cut loose a student loan creditor entangled in a Telephone Consumer Protection Act (TCPA) lawsuit, finding the defendant was not vicariously liable for the alleged TCPA violations by its third party collectors. See Henderson v United Student Aid Funds, Inc., No. 13CV1845 JLS, 2017 WL 766548 (S.D. Cal. February 28, 2017). Although United Student Aid Funds, Inc., (USAF) conducted quarterly audits, yearly reviews, and required the servicing of certain loans by top performing collection vendors, the Court found no agency relationship with its vendors because USAF “controlled only the outcome of [the vendor’s] work, rather than the manner and means by which it was accomplished.”

USAF was the guarantee agency for the plaintiff’s student loans, issued pursuant to the Federal Family Education Loan Program (FFELP). It later purchased the claims to the defaulted loans and hired Navient Solutions for service and collection. Navient subcontracted with collectors to place debt collection calls to the plaintiff.

Several factors appeared to sway the Court’s rejection of express actual authority and subagency: 1) Navient was not required to use any particular subcontractor recommended by USAF; 2) USAF was not permitted to terminate any Navient hired collectors; 3) the parties structured their relationship as independent contractors; 4) Navient’s yearly plan could only be reviewed by USAF for compliance with the law and their agreement; and, 5) consumer complaints received by USAF were forwarded to Navient. USAF’s quarterly review and “recommendations for improvement” did not result in an agency relationship because Navient was “not required to—and did not always—take [USAF’s] post-audit recommendations.” Moreover, that USAF required “all collection vendors on first placements of defaulted Loans [to] be within 87% of the top performing collection agency on first placement of defaulted loans[,]” did not exhibit sufficient control to establish an agency relationship.

The plaintiff’s theory of implied actual authority didn’t fit either. The Court found it “unremarkable” that Navient’s collectors were “permitted to perform their jobs pursuant to their exclusive contracts with [Navient]—i.e., [to] accept payments” and offer extensions on deadlines without first contacting USAF. (Emphasis in original.) It also rejected the plaintiff’s argument that “when [USAF’s] yearly audit indicated no problems with a [Navient]-hired [c]ollector [USAF] therefore ‘approve[d]’ of the [c]ollector’s process, procedures, and collection efforts.” The Court found “no indication that [USAF’s] audits even encompassed TCPA compliance” and, even if they did, “the fact that [USAF’s] audits of particular [c]ollectors did not reveal any violations…is insufficient to establish a reasonable belief on the part of [the collectors] that [USAF] impliedly granted them actual authority to breach the TCPA.”

With no principal-agent relationship—a requisite for ratification—the Court also rejected the plaintiff’s ratification theory and granted summary judgment for USAF.

The Court denied, however, that the TCPA exemption created by the Bipartisan Budget Amendment Act of 2015 (the “Budget Act”) applied in this case. The Budget Act contained a new exemption for any call “made solely to collect on a debt owed to or guaranteed by the United States.” The FCC’s Notice of Proposed Rulemaking (NPRM) construed the phrase “owed to or guaranteed by the United States” as including “only debts for which the United States is currently the owner or guarantor of the debt.” According to the FCC, debts insured by the United States do not qualify.

USAF argued the FFELP’s language contains both a guarantee and insurance component and that “no matter how [the government’s] role is described, it is ultimately responsible for repayment of defaulted loans.” The plaintiff emphasized that the “particular word used to described the FFELP parties’ relationship does, in fact matter, and that USAF itself has many times noted that it is ‘a non-profit guarantee agency working with federally insured student loans.”

Siding with the plaintiff, the Court concluded “that the new exception to the TCPA created by the Budget Act Amendment applies solely when the calls are made during a period in which the United States’ obligations as the ultimate guarantor or debtee have been triggered and are active.” The ruling did not, however, address when the United States’ obligations as the ultimate guarantor or debtee under an FFELP loan “have been triggered and are active.” The Court therefore left open the possibility that calls to collect an FFELP loan may be exempt from the TCPA, depending on the state of the debt.

Beyond student loans, Henderson could frame disputes in other industries (i.e., mortgage) seeking shelter from the TCPA for collecting debts owed to or guaranteed by the United States. Dorsey attorneys will continue to monitor the Courts as they take these first steps to apply the exemption.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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