Misrepresentation States Not Preempted: Eleventh Routine Laws and regulations Facing Preemption in the Student loan Circumstances
Economic Functions Viewpoints

As we’ve been tracking for over a year now, courts across the country have addressed the significant question of whether the federal laws governing federally owned or guaranteed student loans preempt state laws placing burdens on servicers of those loans. Last week, the Eleventh Circuit became the latest court to weigh in, holding in Lawson-Ross v. High Ponds Higher Ed. Corp. that the Higher Education Act’s (HEA) disclosure requirements do not preempt claims of affirmative misrepresentation by the loan servicer. Although court cases have come down on both sides of this dispute, this circuit-level decision marks a new chapter in the ongoing controversy.


In Lawson-Ross, the court’s preemption analysis turned on the precise claims raised by the plaintiffs. The plaintiffs (who were borrowers whose student loans were serviced by Great Lakes) had asserted claims for affirmative misrepresentation, rather than an allegation of failure to disclose. Specifically, the plaintiffs alleged that Great Lakes representatives “told them they were eligible for forgiveness of their loans through the [Public Service Loan Forgiveness Program], and only later did they discover they were not eligible-after they had already made payments that could not then be counted toward the PSLF Program.” According to the plaintiffs, Great Lakes had informed them that they were eligible for the PSLF Program and would qualify for loan forgiveness after making 120 payments, when the majority of the loans for each borrower were not federal direct loans, and thus were not eligible.

Brand new plaintiffs recorded a class action ailment, saying claims getting breach away from fiduciary responsibility, negligence, unjust enrichment, breach out-of an implied offer, and you can solution regarding Florida’s Consumer Range Techniques Operate, most of the premised toward allegation they had invested decades and then make repayments they sensed manage be eligible for the latest PSLF Program, only to learn if not afterwards.

High Ponds relocated to overlook the circumstances, competing your states was in fact expressly preempted of the Area 1098g off this new HEA, which preempts “any revelation criteria of any County law.” According to Higher Ponds, the claims were preempted once the nondisclosure states in accordance with the alleged failure to disclose details about the newest PSLF Program.

Rather, just after Great Ponds filed its actions to discount, the brand new Institution out-of Degree issued its observe to your , proclaiming one to “Congress created area 1098g so you can preempt people State law requiring lenders to disclose points otherwise guidance not required from the Federal law” hence one county guidelines towering “this new bans towards the misrepresentation or omission out of topic guidance” violated area 1098g’s share preemption provision. Great Ponds maintained the fresh borrowers’ says have been only restyled low-revelation claims. New federal district legal in the Fl decided. From inside the dismissing the way it is the fresh new area judge construed the fresh new misrepresentations because the a “inability to incorporate perfect pointers.” New plaintiffs appealed.

Eleventh Routine – Zero Preemption

On the focus, the latest Eleventh Circuit spotted something in another way. Although area 1098g expressly preempts condition laws which need more disclosures, brand new courtroom found it was not to-be comprehend so generally and therefore “state law reasons for action arising out-of affirmative misrepresentations a beneficial servicer voluntarily produced you to definitely didn’t matter the topic case of requisite disclosures enforce no revelation conditions.” The new court finished you will find no show preemption, conflict preemption, or job preemption for such as for instance says.

The fresh courtroom focused on the necessary disclosures to have fees options around the fresh new HEA’s area 1083(e) https://www.paydayloanscalifornia.net/cities/antioch/. They concluded that the affirmative misrepresentation-situated says was other in the form on disclosure-founded claims. The latest plaintiffs weren’t in default and you will was in fact simply requesting suggestions into loan forgiveness software, the fresh new judge reasoned. Depending on the accusations about complaint, High Lakes voluntarily provided new consumers incorrect information about the eligibility on PSLF System, this provides rise to a low-preempted allege.