The American Civil Liberties Union (ACLU) and the National Consumer Law Center (NCLC) filed suit yesterday in the US District Court in Massachusetts against the United States Department of Education (ED) under the Freedom of Information Act (FOIA), related to practices affecting student-borrowers.

On May 7, 2015 the ACLU and NCLC filed a FOIA Request for ED records concerning practices related to governing their contracted private collection agencies (PCAs). Specifically, they sought information about ED’s relationship with PCAs, the policies that govern their debt collection activities, and the way PCAs are compensated. They also sought information regarding the policies, if any, for monitoring the racial impact of ED’s collection policies and practices.

The complaint references a July 2014 report from the U.S. Department of Education Office of Inspector General, Handling of Borrower Complaints Against Private Collection Agencies, which found that ED “did not effectively ensure that PCAs are abiding by the Federal debt collection laws and the related terms of their contracts.”

According to the complaint, ED has yet to fulfill its obligation to make the requested records available. The Plaintiffs claim that information ED has released was improperly redacted. Evidently, ED claimed a law enforcement exemption to FOIA, saying the following “…would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law” 5 U.S.C. § 552(b)(7)(E):

  • The percentage of a borrower’s payment that goes to a PCA as collection costs
  • Administrative fees added to borrowers’ accounts by ED
  • The application of the FDCPA to PCAs
  • The requirements imposed by the Fair Credit Reporting Act
  • Information in the PCA Procedures Manual concerning what a PCA must do when it receives a written complaint from a borrower
  • The address to which a PCA should forward a written inquiry from a Member of Congress or the White House
  • Information in the PCA Procedures Manual concerning how and when PCAs should locate the promissory notes that underlie student loans
  • All information in the PCA Procedures Manual concerning the steps a PCA must take before initiating the process for garnishing a borrower’s wages
  • The documentation required to demonstrate a borrower’s death

An article today in inside Higher ED states that the publication “obtained an unredacted copy of a previous iteration of that document — which is available here – but the document has since been significantly revised by the department several times. The department previously posted the entire manual on its website, but took it down after a reporter wrote about it.”

insideARM Perspective

Indeed, the way ED manages the PCA business has often caused head-scratching, even within the ARM industry. The scorecard methodology should have led to a cycling out of low performers, but it never did.  Additionally, there has never truly been transparency to the public – which is what the consumer groups have been seeking.

Until a few years ago, ED published its quarterly performance scores for PCAs. insideARM reported on these regularly, with the latest release covering fiscal Q4 2012 – following a one year hiatus while new software was implemented. As noted at that time, performance results were determined by a weighted average of contractors’ performance in total dollars collected; total accounts serviced, and total administrative resolutions. ED awards 70 points to the top performer in the dollars collected category. Twenty points are awarded to the top performer in the total accounts serviced category, while the top performer in administrative resolutions receives 10 points. The other agencies are scored against the top performers in each category.

In May 2013 insideARM published a story about changes to ED’s tracking system that may have resulted in either overpayments or underpayments to its 23 PCAs, according to ED’s Office of the Inspector General. The report blamed a recent system upgrade for the problems. Also noted in the story was that the upgrade to the system had been fraught with delays and glitches, and was one of the main culprits cited in ED’s long layoff from reporting quarterly performance results.

In fact, the results released publicly for Q4 2012 were the last to come out of the department since then.

insideARM agrees with the Plaintiffs’ efforts to push for transparency and changes to the system of measuring contractors. Both collectors and servicers have complained about being blamed for adverse effects on consumers caused by ill-considered ED policy, claiming their hands were tied by the (private) rules. In fact, industry sources tell insideARM that they have been told by ED that they are not to release the Policies & Procedures Manual, and that any requests for them to do so must be forwarded to ED.

Sources also have told us that in the last two years PCAs have been audited far more frequently, more intensely, and for more accounts than ever before; and ED requires formal action plans to address deficiencies. In addition, they tell us that ED has created very formalized complaint escalation procedures which PCAs are held to.

This story will obviously continue.

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