As we’ve been tracking for over a year now, courts across the country have addressed the significant question of whether the federal laws governing federally owned or guaranteed student loans preempt state laws placing burdens on servicers of those loans. Last week, the Eleventh Circuit became the latest court to weigh in, holding in Lawson-Ross v. Great Ponds Large Ed. Corp. that the Higher Education Act’s (HEA) disclosure requirements do not preempt claims of affirmative misrepresentation by the loan servicer. Although court cases have come down on both sides of this dispute, this circuit-level decision marks a new chapter in the ongoing controversy.

History

In Lawson-Ross, the court’s preemption analysis turned on the precise claims raised by the plaintiffs. The plaintiffs (who were borrowers whose student loans were serviced by Great Lakes) had asserted claims for affirmative misrepresentation, rather than an allegation of failure to disclose. Specifically, the plaintiffs alleged that Great Lakes representatives “told them they were eligible for forgiveness of their loans through the [Public Service Loan Forgiveness Program], and only later did they discover they were not eligible-after they had already made payments that could not then be counted toward the PSLF Program.” According to the plaintiffs, Great Lakes had informed them that they were eligible for the PSLF Program and would qualify for loan forgiveness after making 120 payments, when the majority of the loans for each borrower were not federal direct loans, and thus were not eligible.

The new plaintiffs submitted a course step problem, saying says getting breach out-of fiduciary obligations, carelessness, unfair enrichment, infraction regarding a suggested deal, and you can ticket regarding Florida’s Individual Collection Strategies Operate, most of the premised into the allegation that they had invested ages while making repayments they experienced carry out be eligible for the fresh PSLF System, just to find out otherwise later.

Great Ponds gone to live in dismiss the situation, competing that the states was in fact expressly preempted by Part 1098g regarding the newest HEA, hence preempts “people revelation standards of any County law.” Based on Higher Lakes, all of the states was in fact preempted given that nondisclosure states according to research by the alleged failure to disclose factual statements about the brand new PSLF System.

Rather, after High Lakes submitted its action so you can dismiss, the brand new Service of Studies provided its see towards , announcing that “Congress suggested part 1098g so you can preempt any State legislation demanding lenders to reveal facts or advice not necessary by the Government rules” hence any county regulations towering “the new bans for the misrepresentation or omission out-of thing pointers” broken part 1098g’s display preemption provision. Great Ponds handled the latest borrowers’ says have been only restyled low-revelation says. The brand new government district court inside Florida assented. In the dismissing the situation new region court construed the misrepresentations since an excellent “incapacity to incorporate direct advice.” The fresh new plaintiffs appealed.

Eleventh Circuit – No Preemption

On notice, the fresh Eleventh Circuit noticed one thing in a different way. Regardless if part 1098g explicitly preempts condition laws which need extra disclosures, the brand new legal think it is was not to be discover very generally which “condition laws causes of step developing regarding affirmative misrepresentations an effective servicer voluntarily produced that don’t matter the subject question of requisite disclosures demand zero disclosure standards.” The brand new judge finished there was zero display preemption, argument preemption, otherwise career preemption for like states.

The latest legal concerned about the desired disclosures to possess installment choices significantly less than this new HEA’s point 1083(e). It determined that the newest affirmative misrepresentation-created claims had been additional in form regarding the revelation-based claims. This new plaintiffs just weren’t within the standard and you may was basically just requesting suggestions to the mortgage forgiveness applications, the courtroom reasoned. According to accusations regarding the ailment, Great Ponds willingly provided new consumers incorrect factual statements about their qualification on PSLF System, this provides go up to help you a non-preempted claim.