Prior to 2001, guarantee agencies were required to follow a very certain set of actions in collecting a debt. Guaranty agencies were required to take these actions in the first 45 to 181 days after default. In 2001 the Department of Education made a number of changes to its rules. Specifically guaranty agencies were no longer required to perform certain routine collection activities such as sending collection letters or making telephone calls. Instead, they were given the discretion to design their own collection strategies as long as they performed at least one activity every 180 days to collect the debt or locate the borrower. Although guaranty agencies have more freedom to develop collection strategies, there are still certain requirements they have to follow. Prior to reporting a default and assessing any collection costs the agency must provide written notice containing the following information: advise the borrower that the agency has paid the default claim filed by the lender and has taken an assignment of the loan; identify the lender that had made the loan and the school at which the loan was made; list the outstanding principal, accrued interest, and any other charges owing on loan; demand that the borrower immediately repay the loan; explain the rate of interest that will accrue on the loan, all costs incurred to collect the loan will be charged to the borrower, the authority for assessing those costs, and the manner in which the agency will calculate the amount of those costs; notify the borrower that the agency will report the default all nationwide credit reporting agencies; and explain the opportunities available to the borrower to request access to the agency’s records of the loan, to request an administrative review of the legal enforceability or past due status of the loan, and to reach a satisfactory payment agreement as well as the methods requesting this relief.
Unless the agency uses a separate notice to advise the borrower of proposed enforcement actions, the notice with the information discussed above must also: describe any enforcement action such as tax offsets or wage garnishment that the agency intends to use to collect the debt, explain the procedures available to the borrower prior to these actions to access records, explain the procedures available to the borrower to request administrative review or set up a payment plan.
During the initial 60 day period before the agency reports a claim to a credit reporting agency, borrowers must also be given an opportunity to inspect and copy agency records pertaining to the loan obligation, to have an administrative review of the legal enforceability of the debt, and to enter into repayment agreement on terms satisfactory to the agency.
A collection agency’s failure to follow these collection rules may violate the Fair Debt Collection Practices Act (“FDCPA”). Violations by guarantee agencies may also be actionable under the FDCPA. If your rights under the FDCPA have been violated, you may be entitled to statutory damages of $1,000 or actual damages, whichever is greater, plus costs of the action and attorneys fees.
The Internal Revenue Service (IRS) takes the position that there is no right to an administrative review of the intercept within the IRS and courts do not have jurisdiction to hear challenges against the IRS based on the intercept. In denying a borrower’s attempt to appeal an offset, one court stated that, although the plaintiff could not seek review of his tax offset against the Department of Treasury, he is “free to pursue any and all remedies he may have against ‘the Federal agency . . . to which the amount of such [income tax refund] reduction was paid.’ 26 U.S.C. § 6402(f). ‘He may not, however, point the guns of this lawsuit against the Treasury.’ ” However, in another district court case, the court dismissed a case against the Department of Education when a borrower’s wife alleged that her tax refund was improperly seized.
The Department has not set out a formal administrative procedure to review offsets after they have occurred but has indicated that it will follow the pre-offset hearing procedure even for hearings requested post-intercept. The only difference is that the offset is not stayed pending the review.
Whether in fact guarantors or the Department will actually review such post-offset requests is an open question. Such an administrative appeal may be prudent before filing suit so as to forestall the Department’s argument that the borrower must first exhaust administrative remedies.
The firm, Principals and Responsible Officials of denied applicants and sanctioned Providers are entitled to an administrative review. The administrative review process is usually a two-step process. The firm, Principals or Responsible Officials request administrative review by the office that denied or sanctioned them. If the reviewing office affirms the denial of the sanction, the firm, Principals or Responsible Officials may request an appeal to the IRS Office of Appeals, unless the sanction is a written reprimand. Failure to respond within 30 calendar days of the date of any denial or sanction letter irrevocably terminates the right to an administrative review or appeal.
The process for administrative review of initial determinations is either a hearing conducted by telephone or a case review. We will provide you with a hearing by telephone when you appeal the initial determination made on your claim, unless you choose not to participate in a telephone hearing. If you choose not to participate in a telephone hearing, the review will consist of a case review. The hearing will be conducted by an individual who was not involved in making the initial determination. The individual who conducts the hearing will make the final decision after the hearing. If you are dissatisfied after we have made a final decision, you may file an action in Federal district court.