Prior to 2001, guarantee agencies were required to follow a very certain set of actions in collecting a debt. Guaranty agencies were required to take these actions in the first 45 to 181 days after default. In 2001 the Department of Education made a number of changes to its rules. Specifically guaranty agencies were no longer required to perform certain routine collection activities such as sending collection letters or making telephone calls. Instead, they were given the discretion to design their own collection strategies as long as they performed at least one activity every 180 days to collect the debt or locate the borrower. Although guaranty agencies have more freedom to develop collection strategies, there are still certain requirements they have to follow. Prior to reporting a default and assessing any collection costs the agency must provide written notice containing the following information:
- advise the borrower that the agency has paid the default claim filed by the lender and has taken an assignment of the loan;
- identify the lender that had made the loan and the school at which the loan was made;
- list the outstanding principal, accrued interest, and any other charges owing on loan;
- demand that the borrower immediately repay the loan;
- explain the rate of interest that will accrue on the loan, all costs incurred to collect the loan will be charged to the borrower, the authority for assessing those costs, and the manner in which the agency will calculate the amount of those costs;
- notify the borrower that the agency will report the default all nationwide credit reporting agencies; and
- explain the opportunities available to the borrower to request access to the agency’s records of the loan, to request an administrative review of the legal enforceability or past due status of the loan, and to reach a satisfactory payment agreement as well as the methods requesting this relief.
Unless the agency uses a separate notice to advise the borrower of proposed enforcement actions, the notice with the information discussed above must also:
- describe any enforcement action such as tax offsets or wage garnishment that the agency intends to use to collect the debt,
- explain the procedures available to the borrower prior to these actions to access records,
- explain the procedures available to the borrower to request administrative review or set up a payment plan.
During the initial 60 day period before the agency reports a claim to a credit reporting agency, borrowers must also be given an opportunity to inspect and copy agency records pertaining to the loan obligation, to have an administrative review of the legal enforceability of the debt, and to enter into repayment agreement on terms satisfactory to the agency.
A collection agency’s failure to follow these collection rules may violate the Fair Debt Collection Practices Act (“FDCPA”). Violations by guarantee agencies may also be actionable under the FDCPA.
If your rights under the FDCPA have been violated, you may be entitled to statutory damages of $1,000 or actual damages, whichever is greater, plus costs of the action and attorneys fees. This lawsuit is free to you. Call or e-mail Attorney Gary Nitzkin at Michigan consumer credit lawyers toll-free at (888) 293-2882 for a free, no obligation consultation.