A student loan debtor sued her loan servicer, arguing that the servicer had violated Illinois consumer fraud law by asserting that its customer representatives were experts in repayment options and acted in a borrower’s best interest when they were in fact instructed to steer borrowers into payment options that benefited the servicer more than the borrower. The district court dismissed the suit, finding that federal disclosure law preempted the suit, but the appellate court reversed, holding that penalizing loan servicers for making affirmative misrepresentations did not impose additional disclosure requirements on servicers, and thus was not preempted.
Nicole Nelson financed her education with federal student loans. Great Lakes, Nelson’s loan servicer, manages borrowers’ accounts, processes payments, assists borrowers with alternative repayment plans, and communicates with borrowers about the repayment of their loans. Nelson began repaying her loans in December 2009. In September 2013, she changed jobs and her income dropped. She contacted Great Lakes, and its representative led Nelson to believe that “forbearance” was the best option for her personal financial situation. A few months later, Nelson lost her new job. She contacted Great Lakes again in March 2014. This time, the representative again did not inform her of income-based repayment options, and instead steered her into deferment.
Forbearance is the temporary cessation of payments, allowing an extension of the term of the loan, or temporarily accepting smaller payments than were previously scheduled. Under forbearance, unpaid interest is capitalized, which can substantially increase monthly payments after the forbearance period ends. Federal law requires lenders and loan servicers to offer income-driven repayment plans, which Nelson argues are more appropriate in situations of longer-term financial hardship. Enrolling callers in these plans is, however, time-consuming for customer service representatives. Nelson eventually sued Great Lakes on behalf of a putative class, arguing that Great Lakes breach Illinois consumer protection law when it held itself out as an expert on student loan plans and caused her to rely on their assertions that they would operate on her behalf. The district court dismissed Nelson’s complaint, finding that her claims were preempted by federal law that stated that federal student loans were not subject to state-law disclosure requirements. Nelson then appealed.
The appellate panel began by finding that the district court’s ruling was overly broad. The panel stated that preemption can occur in three ways: express, conflict, and field. The panel noted that express preemption occurs when Congress explicitly states its intention to preempt state law, while conflict preemption occurs when there is an actual conflict between state and federal law such that it is impossible for a person to obey both, and field preemption when federal law so thoroughly occupies a legislative field as to make it reasonable to infer that Congress has left no room for the states to act.
The panel first addressed Nelson’s claims under express preemption. The panel noted that while the intent to preempt some state law was evident from the statute relied upon by the district court, Congress did not define “disclosure requirements” in the statute itself. The panel stated that the federal law preempts a state law that states that a loan servicer must disclose certain things in a specific manner, but that Congress did not use language that preempts all state-law consumer protections for student loan borrowers when they are communicating with their loan servicers. The panel stated that Nelson complained primarily of false and misleading statements that Great Lakes made voluntarily, not required by federal law and that imposing liability for those voluntary but deceptive statements did not impose additional disclosure requirements on Great Lakes.
Finally, the panel stated that neither conflict preemption nor field preemption applied in the instant case. The panel noted that Great Lakes did not identify any specific conflicts between the statute at issue and state law. The panel then stated that field preemption was not at issue, as it is rare and applies only in situations where there is no room for supplementary state legislation. The panel, therefore, reversed the decision of the district court and remanded the case for further proceedings.
You can view the opinion here.
Our Aurora and Schaumburg, Illinois consumer rights private law firm handles individual and class action gift card, data breach, privacy rights, deceptive advertising, predatory lending, unfair debt collection, lemon law, and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totaling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at Lubin Austermuehle are proud of our achievements in assisting national and local consumer rights organizations to obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.
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