District Court (Cal.) Says No HEA Pre-emption for FDCPA Claims, But Rosenthal Act Claims Were Preempted

In Wheeler v. Premiere Credit of North America, LLC, 2015 WL 222459, at *1-2 (S.D.Cal.,2015), Judge Curiel found that the HEA did not preempt the FDCPA, but did preempt the Rosenthal Act — as to the claims pleaded.  The facts were as follows.

Defendant is an accounts receivable contractor authorized to perform collection activities on defaulted student loans on behalf of ECMC. (ECF No. 16 ¶ 24; ECF No. 15–1, at 5.) On December 23, 1983, a federal student loan was taken out by someone alleging to be named Robert Wheeler. (ECF No. 16–2, Ex. B.) On October 31, 1985, final notice regarding the delinquency was sent to “Robert C Wheeler.” (ECF No. 16–9, Ex. I.) Following a failure to cure the delinquency, the loan entered default and the note transferred to the guarantor, California Student Aid Commission (“CSAC”). (ECF No. 16 ¶ 19.) On April 8, 1991, CSAC obtained a judgment on the loan. (ECF No. 16–10, Ex. J.) On September 12, 2009, the note was transferred to ECMC. (ECF No. 16–11, Ex. K.) Pursuant to the defaulted loan, ECMC initiated administrative wage garnishment actions against Plaintiff. (ECF No. 16 ¶¶ 25–26.)  On March 30, 2012, Defendant sent Plaintiff a notice of wage garnishment. (ECF No. 16–14, Ex. N.) On April 30, 2012, Defendant received an unsigned letter from Plaintiff requesting a hearing regarding his wage garnishment and stating: (1) that the wage garnishment would be an extreme financial hardship, and (2) that he did not owe the debt. (ECF No. 15–12, Ex. D.) On July 27, 2012, Defendant received a signed letter from Plaintiff again requesting a hearing regarding his wage garnishment and again stating that he did not owe the debt. (ECF No. 16 ¶ 35; ECF No. 15–13, Ex. E.)  On September 21, 2012, ED held a hearing and issued a final decision regarding Plaintiff’s wage garnishment, finding that he had presented insufficient evidence to prove that he did not owe the debt. (ECF No. 16 ¶ 38; ECF No. 15–14, Ex. F.) On October 22, 2012, Defendant informed Plaintiff that, pursuant to the ED’s decision, it would continue to collect on the debt. (ECF No. 15–15, Ex. G.)  Plaintiff alleges that he was the victim of identity theft and that he did not take out the loan at issue. (ECF No. 18–2 ¶ 5.) Based on the foregoing, Plaintiff alleges that Defendant violated the FDCPA and RFDCPA in two primary ways: (1) collecting on a debt that Plaintiff did not owe in violation of 15 U.S.C. § 1692f, and (2) making false representations, including that Plaintiff owed the debt, in violation of 15 U.S.C. § 1692e. (ECF No. 1–1, Ex. A ¶¶ 4–11.)

Judge Curiel found the FDCPA claims to survive.

Defendant argues that the HEA preempts the FDCPA. (ECF No. 20, at 3.) Citing Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260 (9th Cir.1996) cert. denied, 521 U.S. 1106, 117 S.Ct. 2484, 138 L.Ed.2d 992 (1997), Plaintiff argues that the Ninth Circuit has already rejected Defendant’s argument. (ECF No. 18, at 15–16.) In Brannan, the Ninth Circuit held that: (1) the HEA preempted the Oregon Unfair Debt Collection Practices Act (the “UDCPA”); (2) a guaranty agency was subject to the FDCPA; and (3) the “government actor” exception did not apply to the guaranty agency. 94 F.3d at 1262. The Brannan majority observed that if a student loan defaulter in Oregon believed that a third-party debt collector had engaged in unfair pre-litigation debt collection activity, her remedy lied in the FDCPA, not the Oregon UDCPA. Id. (quoting 55 Fed.Reg. 40,120 (Oct. 1, 1990)) (“[W]hile the GSL regulations preempt inconsistent State laws regarding pre-litigation collection activity, ‘significant Federal protection for GSL debtors remains under the FDCPA.’ ”). However, the Ninth Circuit has explicitly noted the limited scope of Brannan. Rowe, 559 F.3d at 1031–32. In Rowe, the court rejected the sweeping argument that Brannan “held categorically that collection activities of guaranty agencies under the HEA are subject to the FDCPA,” stating that “Brannan should be read as deciding only that the ‘government actor’ exception does not apply to a guaranty agency.” Id.  Additionally, the Secretary of Educations’s 1990 “Notice of Interpretation” took particular note of “the existence of Federal law that regulated the conduct of these third party collectors of defaulted student loans. These debt collectors were subject to the Fair Debt Collection Practices Act (FDCPA) … prior to the promulgation of these [government student loan] regulations, and … even under these [state law] preempting regulations they remain subject to the FDCPA.” 55 Fed.Reg. 40,120 (Oct. 1, 1990).  Brannan and the Secretary’s Notice of Interpretation make clear that the FDCPA is not categorically trumped or preempted by the HEA. However, Rowe cautions courts to determine case-by-case whether the alleged debt collection activities are covered and subject to the FDCPA. . . . If Plaintiff did take out the loan, then Defendant’s actions were required by HEA regulations and were not “per se violation[s]” of 15 U.S.C. §§ 1692e–1692f because Defendant’s claim that Plaintiff owed the debt would be true and Defendant would have been authorized to collect the amount. (Cf. ECF No. 18, at 9–10.) In this instance, there is a potential for conflict or duplication of efforts in having administrative garnishment proceedings before the Department of Education and a separate FDCPA action to address the identical issues, i.e. whether the debt was owed and whether there was identity theft. Ultimately, any concerns regarding requiring debt collectors to comply with both HEA regulations and FDCPA statutory provisions are unfounded. The FDCPA contains a “bona fide error defense” which negates liability “if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. § 1692k(c). Where debt collectors initiate wage garnishment pursuant to an ED administrative decision validating a debt, the bona fide error defense likely protects such debt collectors from FDCPA liability. Cf. Kort v. Diversified Collection Servs., Inc., 394 F.3d 530 (7th Cir.2005) (finding that the bona fide error defense applied to a debt collector’s allegedly faulty notice where the notice was approved and required by ED). As the FDCPA provisions alleged by Plaintiff are not preempted by either the HEA statute or its attendant regulations, the Court DENIES Defendant’s motion for summary judgment on Plaintiff’s FDCPA cause of action.

The District Court found the Rosenthal Act preempted, however.

Defendant argues that the HEA preempts the RFDCPA. (ECF No. 15–1, at 13–17.) Plaintiff responds that he “voluntarily withdraws” his RFDCPA cause of action. (ECF No. 18, at 1 n. 1.) As 20 U.S.C. § 1095a specifically states that guaranty agencies may garnish wages “[n]otwithstanding any provision of State law,” the Court finds that Plaintiff’s RFDCPA cause of action is preempted. See Cliff v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1125 (11th Cir.2004). Accordingly, the Court GRANTS Defendant’s motion for summary judgment on Plaintiff’s RFDCPA cause of action.