Student debt collector argues suing borrowers was harmless

REUTERS/Dado Ruvic/Illustration
  • Borrowers propose class action, claiming deceptive collection lawsuits violated consumer protection law
  • Collector Transworld Systems Inc says Supreme Court precedent requires concrete harm

(Reuters) - A debt collector that serviced student loans after they were bundled and sold to investors urged a judge in Manhattan on Thursday to throw out a proposed class action alleging it lied in debt collection cases across the country.

Borrowers sued the four investment trusts and debt collectors Transworld Systems Inc (TSI) and EGS Financial Care Inc in 2018, claiming they violated the Fair Debt Collection Practices Act by filing thousands of lawsuits between 2012 and 2017 to collect on loans that were not properly documented.

The borrowers claim the lawsuits violated the FDCPA because they were based on false statements about the loan documentation.

Attorney Bryan Shartle, who represents the debt collectors, surprised U.S. Magistrate Judge Barbara Moses at oral arguments on Thursday by arguing for the first time that the entire case should be thrown out based on the Supreme Court’s ruling last year in TransUnion v. Ramirez.

In that case, the justices ruled that individuals who sued credit bureau TransUnion for matching their names to government watch lists could only sue under the FDCPA if they had suffered concrete harm by having the information publicly released.

The judge asked why the debt lawsuits weren’t similar.

"The pendency of a debt collection lawsuit against a consumer is a reputational harm, is it not?" the judge asked, citing hypothetical examples of employers and landlords turning down applicants with delinquent debt.

"The information being in the public record is not enough," Shartle replied, saying that the plaintiffs needed to prove the court filings resulted in further damage.

Moses said that position seemed to drastically curtail the ability of borrowers to bring federal class actions under the FDCPA, because the harms they incurred would all be different.

Shartle replied that while the FDCPA is a “good” law, Congress cannot expand federal courts’ jurisdiction to handle disputes that don’t involve redressable injuries.

The judge will later issue a recommendation on the motion to U.S. District Judge Paul Gardephe, who oversees the case.

The Consumer Financial Protection Bureau levied a $2.5 million fine against TSI for deceptive collection practices in 2017. TSI did not admit to the allegations.

The agency is still litigating against a group of 15 student loan trusts. The 3rd U.S. Circuit Court of Appeals is currently considering whether the trusts are subject to the CFPB's authority.

The cases are Bifulco et al. v. National Collegiate Student Loan Trust 2004-2 et al., No. 18-CV-07692, and Seaman et al. v. National Collegiate Student Loan Trust 2007-2 et al., No. 18-CV-01781, U.S. District Court, Southern District of New York.

For the borrowers: Gregory Frank of Frank

For the trusts: Gregory Casamento of Locke Lord

For TSI: Bryan Shartle of Sessions, Israel & Shartle

Read more:

U.S. Supreme Court curbs TransUnion 'terrorist list' lawsuit

U.S. cracks down on debt collection of private student loans

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com