SAN FRANCISCO (CN) – A federal judge has advanced class-action claims that Sallie Mae’s parent company double-dipped on student loan late fees.
Lead plaintiff Tina Ubaldi sued SLM dba Sallie Mae and Sallie Mae Servicing for unfair business practices and unjust enrichment over the $22,796 loan she took for culinary school.
Unlike most fixed-term installment loans, Sallie Mae allegedly computes and charges daily interest on its private education loans. “In addition to the daily interest on the outstanding principal that Sallie Mae earns every day, the promissory note provides that if a payment is not received within the 15 day period, Sallie Mae may assess a late charge of the greater of $5.00 or 5 percent of the payment amount not received,” according to the Northern District of California’s summary of Ubaldi’s complaint.
“Plaintiff alleges that as a result of assessing a $5.00 or 5 percent fee for nonpayment and also continuing to charge the borrower daily interest for use of the funds, the borrower pays Sallie Mae twice – in two different ways – for being late on a single loan payment,” violating California’s business and professions codes.
Ubaldi says the late charges constitute improper liquidated damages under California law, exceeding the actual costs associated with a late payment.
In a motion to dismiss, SLM claimed that the National Bank Act pre-empts Ubaldi’s suit, which did not allege state-law claims.
Loans that originate from national banks are allowed under the act to include late charges and other forms of interest at the rate allowed by the laws of the state where the bank is located.
Ubaldi’s Sallie Mae loan names Stillwater National Bank and Trust Co. as the lender, and SLM says this Stillwater, Okla., bank is allowed under Oklahoma law to make the late charges on Ubaldi’s loan.
“[SLM] contends that because Stillwater National Bank, located in Oklahoma, is identified as the lender on the loan documents, Section 85 [of the National Bank Act] expressly preempts plaintiff’s state law claims,” U.S. District Judge Elizabeth Laporte explained.
But Ubaldi countered that Stillwater is the lender in name only, and that Sallie Mae is the de facto actual lender since it rents Stillwater’s bank charter.
“Sallie Mae pays to use the name of the bank so that it may evade and violate California law,” according to Ubaldi’s first amended complaint (FAC).
“Plaintiff argues that because Sallie Mae is not a national bank, the NBA does not preempt plaintiff’s claims,” Laporte summarized. “Thus, the issue of whether Section 85 expressly preempts plaintiff’s claims turns on whether the imprimatur of a national bank on the loan documents automatically triggers preemption, foreclosing inquiry into the real nature of the loan, or whether the debtor may invoke the protection of state consumer laws if she proves that the actual lender in substance is not a national bank.”
What’s more, Stillwater Bank’s parent company has allegedly acknowledged that Stillwater is “substantially dependent” upon Sallie Mae, which provides all of the servicing and funding for the loans, and insures Stillwater against loss on the loans.
“The FAC alleges that Sallie Mae has carried out all interactions with the borrowers applying for the private education loans, has established and controlled the terms and conditions under which the private education loans were offered, has approved or decided not to approve private education loan applications in accordance with its own underwriting policies, has used its own copyrighted forms, promissory notes, brands and platforms, and has disbursed the payments to those borrowers whom it approved for private education loans,” Laporte wrote.
“The FAC also alleges that Sallie Mae has collected and kept the vast majority of fees and interest on the loans, has borne the credit risk on all the private education loans, provided credit lines to fund the loans, has insured and/or guaranteed the private education loans so that Sallie Mae bears the risk of loss on the loans even prior to purchasing them, and has assumed the risk of loss directly when it executes the assignments of the private education loans,” she added.
LaPorte said the 9th Circuit has never before determined a de-facto relationship between lenders in a national bank case, and neither of the parties squarely addressed the issue for summary judgment.
“On the legal issue presented, neither party offers persuasive authority as to whether Section 85 of the NBA expressly preempts state law claims against a loan servicer that is alleged to have actually ‘made’ the loan, rather than the bank named on the loan documents,” LaPorte wrote. “At this early pleading stage, where plaintiff contends that the national bank may have retained no significant interest in her student loan, presenting a factual dispute over the identity of the actual lender, the court will permit plaintiff to conduct discovery on this limited issue to determine whether her de facto lender theory has factual support.”
SLM also failed to dismiss the allegations under California’s Unfair Competition Law. “Plaintiff contends that Sallie Mae’s late fees amount to liquidated damages prohibited by civil code,” LaPorte wrote.
“Because the validity of the late charges may not be governed by the NBA, the motion to dismiss the UCL claims for unlawful and unfair business practices is denied,” she added.
The judge dismissed Ubaldi’s claim of unjust enrichment with prejudice since, “under California law, there is no claim for unjust enrichment; rather, it is an equitable remedy.”