Student-Loan Case Prompts Thomas Dissent

     (CN ) – A divided Supreme Court on Monday declined to wade into a dispute over the rules governing the rehabilitation of student loans after a default, prompting a sharp rebuke from Justice Clarence Thomas in dissent.
     Bryana Bible, of Ramsey County, Minnesota, obtained a student loan under the federal Family Education Loan Program and defaulted on that loan in 2012. Bible immediately entered into a loan rehabilitation program.
     As recounted in her complaint, Bible understood that her loan would be taken out of default if she made nine on-time payments within a ten-month period. Typically loan’s like Bible’s are held by a guaranty agency. Once the default is removed, it is generally resold to a commercial lender.
     Bible believed that under the terms of the rehabilitation program approved by the U.S. Department of Education, her payments would be “reasonable and affordable” in line with her current disposable income and expenses.
     She also stated she took that to mean she would not be charged collection fees as she made the payments to bring her loan up to date.
     However, she says rather than help her get her student loan back on track, defendant United Student Aid Funds improperly inflated the amount she owned by unlawfully imposing collection costs on each of her nine payments.
     Bible claimed she made nine payments of $450 each, from which United Student Aid Funds allocated $374 to the interest on her loan, and $76 to the allegedly unauthorized collection costs.
     As a result, she said, none of the money she paid was allocated to paying down the principal of her student loan.
     Bible said not only has this made it harder for her to repay her loan, but that if and when the defendant sold the loan to a private lender, the loan balance would be at least 18.5 percent higher than it should be.
     All this was done, she contended, because the “improperly inflated” balance will allow the defendant to receive a higher price for her loan from a private lender.
     Bible filed a class action against United Student Funds in April 2013, but a federal judge ultimately granted the defendant’s motion to dismiss the case. In doing so the court reasoned that Bible’s claims were preempted by the Higher Education Act, which does not provide a private right of action.
     The court also held in the alternative that Bible’s claim failed on its face because both the Higher Education Act and the Federal Stafford Loan Master Promissory Note, the form governing her loan, expressly permit the imposition of collection fees against borrowers who default on their loans.
     the court went on to toss a RICO claim Bible had advanced, holding that he failed to show there was a scheme to defraud her or that the interstate mails or wires were used to carry out such a scheme.
     A divided Seventh Circuit reversed, concluding that neither of Bible’s claims was preempted by the Higher Education Act. In regard to her breach of contract claim, the three-judge appellate panel found there was no conflict between her claim and federal law.
     In fact, it said, Bible’s interpretation of the applicable statutes and regulations was consistent with that of the secretary of education.
     As for RICO claim, the Seventh Circuit said Bible’s allegations were sufficient to allow the case to proceed,
     “It remains to be seen whether she can marshal evidence to support her claim, but that’s a matter for further proceedings in the district court,” wrote U.S. Circuit Judge David Hamilton on behalf of the panel majority.
     While the two other members of the panel concurred with Hamilton to an extent both also expressed reservations, particularly in regard to the Education Department’s interpretation of the rules regarding collection costs and whether the department’s interpretation should be given deference.
     That was the critical question United Student Aid Funds wanted the Supreme Court to consider. The justice who declined to grant certiorari did not explain their rationale for doing so.
     But Justice Clarence Thomas blasted his colleagues, accusing them of choosing to sit “idly by” while “[h]e who writes a law” also “adjudges its violation” – a line borrowed from an earlier dissent written by the late Antonin Scalia.
     Thomas said in his view, the question of deference to an agency’s interpretation to its own rules as spelled out in two prior Supreme Court decisions, Auer v. Robbins and Bowles v. Seminole Rock & Sand Co., is worthy of review.
     “The doctrine of Seminole Rock deference (or, as it is sometimes called, Auer deference) permits courts to defer to an agency’s interpretation of its own regulation ‘unless that interpretation is plainly erroneous or inconsistent with the regulation,'” Thomas wrote.
     “Any reader of this Court’s opinions should think that the doctrine is on its last gasp. Members of this Court have repeatedly called for its reconsideration in an appropriate case,” he said, adding “The doctrine has metastasized … and today ‘amounts to a transfer of the judge’s exercise of interpretive judgment to the agency.'”
     This case, Thomas said, is emblematic of the failings of Seminole Rock deference.
     “Here, the Court of Appeals for the Seventh Circuit deferred to the Department of Education’s interpretation of the regulatory scheme it enforces — an interpretation set forth in an amicus brief that the Department filed at the invitation of the Seventh Circuit.
     For the reasons stated in Judge Daniel Manion’s partial dissent, “the Department’s interpretation is not only at odds with the regulatory scheme but also defies ordinary English. More broadly, by deferring to an agency’s litigating position under the guise of Seminole Rock, courts force regulated entities like petitioner here to ‘divine the agency’s interpretations in advance,’ lest they ‘be held liable when the agency announces its interpretations for the first time’ in litigation,” Thomas wrote.
     “By enabling an agency to enact ‘vague rules’ and then to invoke Seminole Rock to ‘do what it pleases in later litigation, the agency (with the judicial branch as its co-conspirator) ‘frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government,'” he concluded. ” This is the appropriate case in which to reevaluate Seminole Rock and Auer.”

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