Whether a creditor can apply student loan rehabilitation agreement payments to collection costs is a question that split a panel of the 7th Circuit Court of Appeals three ways, but Circuit judges agreed they’ve heard enough of the matter for now.
The panel rejected rehearing en banc in Bryana Bible, Individually and on Behalf of the Proposed Class v. United Student Aid Funds, Inc., 14-1806. Panelists David Hamilton, Joel Flaum and Daniel Manion each wrote separately to reverse dismissal of Bible’s claim and remand for further proceedings before Judge Tanya Walton Pratt of the U.S. District Court for the Southern District of Indiana.
The original panel majority reinstated Bible’s claim that United Student Aid Funds Inc. breached its contract by assessing collection costs on an $18,112.85 loan rehabilitation agreement. Bible made monthly payments of $50, but USA Funds subsequently tacked on $4,547 in collection costs and applied her payments to those costs rather than principal and interest.
In denying en banc rehearing sought by USA Funds, the panel wrote simply, “no judge in active service has requested a vote on the petition for rehearing en banc, and all judges on the original panel have voted to deny the petition. Accordingly, the petition is denied.”
Judge Frank Easterbrook wrote a concurring opinion analyzing the competing interpretations of federal statutes governing debt collection on student loans versus loan rehabilitation agreements. He noted the Education Department has taken the position that collection costs cannot be assessed on rehabilitation agreements – a position that has changed over time.
“Judge Flaum thought that the court is required by Auer v. Robbins, 519 U.S. 452 (1997), to accept the agency’s view that collection costs may not be assessed against borrowers who sign rehabilitation agreements,” Easterbrook wrote. He noted justices have expressed deep reservations about deferring to agency positions adopted through means other than rulemaking.
“I do not think that it would be a prudent use of this court’s resources to have all nine judges consider how Auer applies to rehabilitation agreements, when Auer may not be long for this world,” Easterbrook wrote.
“… (A)n agency’s (or litigant’s) invocation of Auer deference is a frequent occurrence, and one whose effects this litigation illuminates – for deference has set the stage for a conclusion that conduct, in compliance with agency advice when undertaken (and consistent with the district judge’s view of the regulations’ text), is now a federal felony and the basis of severe penalties in light of the Department’s revised interpretation announced while the case was on appeal,” he wrote.