NY Attorney General Settles with Debt Collection Company Over Allegedly Unlawful Student Loan Debt Collection Practices

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GoodwinOn September 14, 2020, New York Attorney General Letitia James announced that she secured protections for thousands of student borrowers who defaulted on student loans and who were allegedly subject to misleading and unlawful actions by one of the nation’s largest debt collectors.  The settlement agreement resolves an investigation of the debt collector after the Office of the New York Attorney General (AG) found that the debt collector violated multiple federal and state consumer protection laws by making false, misleading, and deceptive statements in lawsuits and communications with borrowers.

The AG alleged that, as part of the debt collector’s aggressive strategy to rely heavily on litigation to collect defaulted debts, it repeatedly, directly or through law firms it retained:  filed sworn affidavits in support of default judgment motions attaching documents it identified as “redacted” versions of original documents when, in fact, they were documents the debt collector created for the purpose of litigation; filed sworn affidavits in support of default judgment motions in which staff asserted that they had personal knowledge of certain business records when, in fact, they lacked such knowledge; filed complaints representing that a borrower applied for a loan from a “servicing agent” when, in fact, the borrower never dealt with such an entity; and filed lawsuits outside of the three-year statute of limitations applicable to such lawsuits in New York.  The AG’s office concluded that the debt collector’s acts and practices violated New York Executive Law § 63(12); New York General Business Law § 349; the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq.; and the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531 et seq.

Under the settlement agreement, the debt collector has agreed to make significant changes to its practices and to pay $600,000, which will be disbursed as restitution to New York borrowers and/or penalties to the state.  The debt collector will also dismiss wrongfully-filed lawsuits against student borrowers in situations where the statute of limitations expired and will protect borrowers who default on their loans in the future from the alleged practices described above.

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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