Misrepresentation Claims Not Preempted: Eleventh Circuit Guidelines Up against Preemption from inside the Education loan Situation

Misrepresentation Claims Not Preempted: Eleventh Circuit Guidelines Up against Preemption from inside the Education loan Situation
Financial Services Perspectives

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. Higher Ponds High 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 title loans Mckenzie for each borrower were not federal direct loans, and thus were not eligible.

Brand new plaintiffs submitted a class step ailment, asserting says to own violation of fiduciary duty, neglect, unfair enrichment, infraction out of a suggested offer, and admission from Florida’s User Range Techniques Operate, all of the premised toward allegation they’d spent decades making repayments they thought create be eligible for the fresh PSLF Program, simply to learn or even after.

Higher Ponds moved to dismiss the case, competing the says was basically explicitly preempted from the Section 1098g out-of the newest HEA, and that preempts “one revelation conditions of any County laws.” Based on Great Ponds, all says had been preempted since the nondisclosure states according to the so-called inability to disclose information about this new PSLF Program.

Somewhat, immediately following High Ponds filed its actions to help you dismiss, the latest Department out of Studies given its see with the , announcing you to “Congress intended section 1098g to preempt one County law demanding loan providers to reveal facts or advice not required from the Federal laws” which people county regulations imposing “the newest bans into misrepresentation otherwise omission regarding procedure suggestions” violated point 1098g’s express preemption provision. High Lakes managed new borrowers’ claims was basically merely restyled non-revelation states. The fresh federal section courtroom when you look at the Florida concurred. During the dismissing the actual situation the fresh new section court construed the newest misrepresentations while the an effective “failure to include perfect guidance.” The latest plaintiffs appealed.

Eleventh Circuit – Zero Preemption

Into notice, the Eleventh Circuit noticed one thing differently. Though part 1098g expressly preempts condition legislation which need additional disclosures, brand new judge think it is wasn’t to get discover so broadly and therefore “state law factors that cause action arising away from affirmative misrepresentations an excellent servicer willingly produced you to definitely don’t concern the niche question of called for disclosures impose no revelation criteria.” The courtroom finished there clearly was no show preemption, argument preemption, otherwise profession preemption having such as for instance says.

The fresh new court worried about the desired disclosures for installment solutions significantly less than the newest HEA’s section 1083(e). It determined that brand new affirmative misrepresentation-created claims had been more in the kind throughout the disclosure-mainly based states. The newest plaintiffs weren’t within the standard and you will was simply requesting information on loan forgiveness applications, the brand new judge reasoned. According to the accusations on problem, Higher Ponds voluntarily provided the new individuals incorrect information regarding their qualifications to the PSLF System, this provides rise to help you a low-preempted allege.