OAKLAND, Calif. (CN) - A class action can proceed against Sallie Mae, a federal judge ruled, declining to dismiss claims that the lender illegally charged collection fees of 25 percent on student loans that had entered default before summoning debt collectors.
The four class members, all of whom took out private student loans to attend the California Culinary Academy in San Francisco between 2002 and 2004, claimed Sallie Mae added a collection charge of 25 percent to their loan balances and reported the loans to third-party debt collectors, who then tried to collect the principals, interest and the 25 percent charge. In one case, plaintiff Shawnee Silva paid collection costs of at least $1,000 on each of her two loans.
U.S. District Judge Laurel Beeler rejected Sallie Mae's contention that the class needed to be more specific in its allegations that the costs were unreasonable. She also threw out "Sallie Mae's argument that plaintiffs must show losses of money or property eligible for restitution."
Beeler did dismiss two of the class's claims with leave to amend. Since the students could not prove the loans were goods or services, or that Sallie Mae itself unfairly attempted to collect on debts, the class can claim neither unfair charges under the Consumer Legal Remedies Act nor unfair debt collection practices under the Rosenthal Act.
The culinary school attended by the students is an affiliate of Le Cordon Bleu, like the California School of Culinary Arts, which has seen its own share of fraud lawsuits.
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