United States District Court, S.D. California
August 29, 2005.
AMIR PIROUZIAN, Plaintiff,
SLM CORP., a/k/a SALLIE MAE, INC., a Virginia Corporation, Defendant.
The opinion of the court was delivered by: BARRY MOSKOWITZ, District Judge
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR JUDGMENT ON
THE PLEADINGS AND DENYING MOTION TO STRIKE
On April 5, 2005, Defendant Sallie Mae, Inc. filed (1) a motion
for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c);
and (2) a motion to strike portions of the Complaint pursuant to
Fed.R.Civ.P. 12(f). For the reasons stated below, the Court
GRANTS IN PART AND DENIES IN PART Defendant's motion for
judgment on the pleadings and DENIES Defendant's motion to
The following allegations are made in the Complaint; the Court
does not make any findings as to the truth of these allegations.
Plaintiff is a physician who partially funded his education
through federally-funded student loans. (Complaint, ¶ 17.)
Defendant is a corporation engaged in a variety of services
related to student loans. Defendant is the servicer of
Plaintiff's student loans. (Id.) It is unclear whether
Defendant is also the lender of Plaintiff's student loans.
On a number of occasions, Plaintiff contacted Defendant by
telephone and requested a forbearance on his student loans.
(Complaint, ¶ 18.) Defendant always orally agreed to grant
Plaintiff a forbearance. (Complaint, ¶ 19.)
On or about June 2003, Plaintiff received an oral forbearance
from Defendant in keeping with their past practices. (Complaint,
¶ 20.) Plaintiff understood from his conversations with Defendant
that while the loans were in forbearance, Defendant would refrain
from reporting negative credit information about Plaintiff to
credit reporting agencies, and would not demand payment on the
loans. (Complaint, ¶ 21.) However, when Plaintiff reviewed his
credit report during this forbearance period, he discovered that
Defendant had reported negative credit information about him to a
number of credit reporting agencies. (Complaint, ¶ 22.)
Plaintiff contacted Defendant and demanded to know why
Defendant violated its previous agreement to grant Plaintiff a
forbearance. (Complaint, ¶ 23.) Defendant denied ever agreeing to
a forbearance and stated that Defendant would never grant a
forbearance over the telephone. (Complaint, ¶ 24.) Defendant then
informed Plaintiff that if he paid all of the past due payments
Defendant claimed were owed, Defendant would instruct the credit
reporting agencies to remove all of the negative credit
information in dispute. (Complaint, ¶ 25.) Plaintiff agreed and
paid the alleged past-due payments. (Complaint, ¶ 26.) However,
Defendant failed to correct the negative credit information as
promised. (Complaint, ¶ 27.) Defendant also failed to inform the
credit reporting agencies, that the previously reported debt was
in dispute. (Complaint, ¶ 29.) Furthermore, Plaintiff alleges
that Defendant failed to adequately investigate Plaintiff's
claims that the negative credit information was inaccurate and
should be corrected. (Complaint, ¶ 32.)
Subsequently, Plaintiff wrote to the credit reporting agencies
and disputed the accuracy of the reported information.
(Complaint, ¶ 30.) The credit reporting agencies conducted an
investigation into the dispute. (Complaint, ¶ 31.) During the
investigation, the credit reporting agencies contacted Defendant.
(Id.) When contacted, Defendant claimed that Plaintiff had failed to pay debts that were owed. (Id.)
Defendant failed to reinvestigate Plaintiff's claims regarding
the inaccuracy of this information. (Complaint, ¶ 32.)
Plaintiff alleges violations of the Fair Credit Reporting Act
(FCRA), 15 U.S.C. §§ 1681 et seq., and the California Fair
Debt Collection Practices Act (CFDCPA) (also known as the
"Rosenthal Fair Debt Collection Practices Act"), Cal. Civ. Code
II. LEGAL STANDARD
A motion for judgment on the pleadings attacks the legal
sufficiency of the claims alleged in the Complaint. This Court
must construe "all material allegations of the non-moving party
as contained in the pleadings as true, and [construe] the
pleadings in the light most favorable to the [non-moving] party."
Doyle v. Rayle's Inc., 158 F.3d 1012, 1014 (9th Cir. 1998).
"Judgment on the pleadings is proper when the moving party
clearly establishes on the face of the pleadings that no material
issue of fact remains to be resolved and that it is entitled to
judgment as a matter of law." Hal Roach Studios, Inc. v. Richard
Feiner and Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990).
A. Fair Credit Reporting Act
Defendant argues that Plaintiff's FCRA claims under
15 U.S.C. § 1681s-2(a) fail because there is no private right of action for
violations under said provision. The Court agrees. However, the
Court also finds that Plaintiff has a valid FCRA claim under
15 U.S.C. § 1681s-2(b).
Congress passed the FCRA in 1968 with the intent that "consumer
credit reporting agencies adopt reasonable procedures for meeting
the needs of commerce for consumer credit, personnel, insurance,
and other information in a manner which is fair and equitable to
the consumer, with regard to the confidentiality, accuracy,
relevancy, and proper utilization of such information. . . ."
15 U.S.C. § 1681(b). Originally, the FCRA established duties for consumer reporting agencies and users of consumer reports, but
did not address the requirements for furnishers of information.
In 1996, Congress passed the Consumer Credit Reporting Reform
Act, which amended the FCRA and imposed duties on furnishers of
information. Pub.L. No. 90-321, Title VI, § 623, as added
Pub.L. No. 104-208, Div. A., Title II, § 2413(a)(2),
110 Stat. 2009-447. As amended, the FCRA requires furnishers of credit
information to provide accurate information about consumers to
consumer credit reporting agencies. 15 U.S.C. § 1681s-2(a). It
also requires that furnishers correct any erroneous information
previously reported. Id. Furthermore, furnishers of credit
information must conduct an investigation upon receiving notice
from a consumer credit reporting agency regarding a dispute about
the accuracy or completeness of information previously provided
to the consumer reporting agency. 15 U.S.C. § 1681s-2(b). If,
after such investigation, the furnisher of information finds that
the information is inaccurate, the furnisher must report those
results to the consumer reporting agencies to which the
information was furnished. Id.
Based on the allegations of the Complaint, Defendant may have
violated 15 U.S.C. § 1681s-2(a) by failing to provide accurate
information about Plaintiff to the credit reporting agencies and
by failing to correct previously reported information. However,
subsection (d) states that subsection (a) shall be "enforced
exclusively under section 1681s of this title by the Federal
agencies and officials and the State officials identified in that
section." (Emphasis added.) Therefore, there is no private right
of action for violations of section 1681s-2(a).
Although Plaintiff did not specifically allege a violation of
section 1681s-2(b), the Court finds that the facts in the
Complaint sufficiently support a claim under that
section.*fn1 Plaintiff alleges that "Defendant failed to
adequately investigate or reinvestigate Plaintiff's claim that
the derogatory information filed was inaccurate and thereafter
correct this inaccurate information." (Complaint, ¶ 32.) The
Court construes the word "reinvestigate" to refer to a failure by
Defendant to adequately reinvestigate the accuracy of the
negative credit information Defendant had supplied to the credit agencies after
Defendant learned from the credit agencies that Plaintiff had
disputed the reports to the credit agencies.*fn2
B. Rosenthal Fair Debt Collection Practices Act
The purpose of the CFDCPA is "to prohibit debt collectors from
engaging in unfair or deceptive acts or practices in the
collection of consumer debts and to require debtors to act fairly
in entering into and honoring such debts . . ." Cal. Civ. Code §
1788.1(b). Section 1788.17 provides that a violation of the
CFDCPA occurs if a debt collector violates any of
15 U.S.C. §§ 1692b-1692j.
Plaintiff alleges that Defendant violated Cal. Civ. Code §
1788.17 by violating 15 U.S.C. §§ 1692e(2), 1692e(8), 1692e(10)
and 1692f. Section 1692e(2) proscribes the false representation
of "the character, amount, or legal status of any debt." Section
1692e(8) prohibits "communicating or threatening to communicate
to any person credit information which is known or which should
be known to be false, including the failure to communicate that a
disputed debt is disputed." Section 1692e(10) bans "the use of
any false representation or deceptive means to collect or attempt
to collect any debt or to obtain information concerning a
consumer." Section 1692f(1) prohibits the "collection of any
amount . . . unless such amount is expressly authorized by the
agreement creating the debt or permitted by law."*fn3
Defendant argues that Plaintiff's CFDCPA claims are preempted
by the federal Higher Education Act, 20 U.S.C. §§ 1070 et
seq., (HEA), Fair Credit Reporting Act (FCRA) 15 U.S.C. §§ 1681
et seq., and Fair Debt Collection Practices Act (FDCPA),
15 U.S.C. §§ 1692 et seq. The court finds that Plaintiff's
claims are preempted by the HEA and FCRA, but not the FDCPA. 1. Preemption by the Higher Education Act
Defendant contends that Plaintiff's CFDCPA claims are preempted
by the HEA. A federal law preempts state law if the scope of the
federal law suggests that Congress intended to occupy the field
of regulation exclusively or when there is actual conflict
between the state and federal law. Sprietsma v. Mercury Marine,
537 U.S. 51, 64 (2002). There is an actual conflict between state
and federal law when it is impossible for a party to comply with
both state and federal law or where state law acts as an obstacle
to the full purposes and objectives of the federal law. Id.
Defendant argues that Plaintiff's CFDCPA claims, if allowed,
would hinder the achievement of Congress' goals to encourage
participation of private entities in the student loan system and
to ensure the student loan system's viability.
The HEA creates a system whereby the federal government
indirectly insures student loan lenders in case a student loan
debtor defaults on his or her loans. See generally Timothy
Neagele, The Guaranteed Student Loan Program: Do Lenders' Risks
Exceed their Rewards?, 34 Hastings L.J. 599 (1983). Under the
HEA, lending institutions disperse their own funds to qualified
student borrowers for use by the borrower to attend eligible
post-secondary schools. Student Loan Fund of Idaho, Inc. v. U.S.
Dept. of Educ., 272 F.3d 1155, 1157 (9th Cir. 2001). The loans
dispersed by private lenders are guaranteed by state agencies or
non-profit organizations. Id. These state agencies and
non-profit organizations are in turn subsidized and reinsured by
the Department of Education. Id. The federal government pays a
portion of the interest on each student's federally insured loan.
20 U.S.C. § 1071(a)(1)(C). The purpose of the HEA, according to
section 1071(a)(1), is:
(A) to encourage States and nonprofit private
institutions and organizations to establish adequate
loan insurance programs for students in eligible
institutions (as defined in section 1085 of this
(B) to provide a Federal program of student loan
insurance for students or lenders who do not have
reasonable access to a State or private nonprofit
program of student loan insurance covered by an
agreement under section 1078(b) of this title,
(C) to pay a portion of the interest on loans to
qualified students which are insured under this part,
(D) to guarantee a portion of each loan insured under
a program of a State or of a nonprofit private
institution or organization which meets the
requirements of section 1078(a)(1)(B) of this title. In 1986, the Secretary of Education promulgated a new
regulation, 34 C.F.R. § 682.411, which requires a lender to
exercise due diligence by performing a series of collection
efforts when a student borrower becomes delinquent. The
regulation specifies that the lender must make certain efforts to
contact the borrower, including written notices and telephone
contact, and requires that within a certain time period, the
lender request default aversion assistance from the guarantee
In 1990, the Secretary of Education issued a notice of
interpretation which analyzes 34 C.F.R. § 682.411 and its
preemptive effects on inconsistent state laws.
55 Fed. Reg. 40120. The interpretation explains that the requirements created
in 1986 were "designed to prevent defaults and the loss to the
Federal Treasury, through claims under the Department's
reinsurance commitments, caused by these defaults, and where
these have already occurred, to recover from defaulting borrowers
the amounts paid from the Treasury." Id. The interpretation
further explains that "the Secretary clearly intended [34 C.F.R.
§ 682.411] to establish a uniform national minimum level of
collection activity, and therefore to preempt any State rule that
would hinder or prohibit the collection actions required under
the rules." Id. The Secretary concludes that
34 C.F.R. § 682.411 preempts any "State law that would prohibit, restrict, or
impose burdens on the completion of that sequence of contacts
either on [federally insured student] loans in general, or on any
category of [federally insured student] loans." Id.
Plaintiff's CFDCPA claims concern the reporting of inaccurate
information to credit reporting agencies and the failure to
correct such information. The CFDCPA provisions upon which
Plaintiff relies do not impose duties which would hinder
Defendant from contacting Plaintiff or otherwise making the
collection efforts required by 34 C.F.R. § 682.411.
However, the Ninth Circuit Court of Appeals has interpreted
55 Fed. Reg. 40120 as requiring preemption in any circumstance where
state law regulates pre-litigation collection activity. Brannan
v. United Student Aid Funds, Inc., 94 F.3d 1260, 1263 (9th Cir.
1996). In Brannan, the majority opinion relied on
55 Fed. Reg. 40120 in holding that the Oregon Unfair Debt Collection Practices
Act was preempted by the HEA. The majority explained that "`preemption includes any State law that would hinder or
prohibit any activity' taken by third party debt collectors
prior to litigation."*fn4 Id. at 1266 (quoting
55 Fed. Reg. at 40121).
As noted by Circuit Judge Fletcher, concurring in part and
dissenting in part, the majority opinion appears to hold that
all state laws that prohibit debt collectors from doing
anything related to pre-litigation federal collection are
preempted, regardless of whether the state laws burden compliance
with HEA due diligence requirements. Id. at 1268-69.
Accordingly, under Brannan, the CFDCPA claims in this case, all
of which deal with allegedly improper pre-litigation collection
actions by Defendant, are preempted.
The CFDCPA claims that are based on Defendant's reporting of
negative credit information about Plaintiff are further preempted
by 20 U.S.C. § 1080a(a). Under section 1080a(a), "each guarantee
agency, eligible lender, and subsequent holder [of federally
insured student loans] shall enter into agreements with credit
bureau organizations to exchange information concerning student
borrowers." When a loan has not been repaid by the borrower, the
lender must report the amount loaned, the amount remaining to be
paid, and the date of any default of the loan.
20 U.S.C. § 1080a(a)(1)-(3). State laws that impose duties with respect to
the furnishing of negative credit information to credit reporting
agencies may deter lenders from complying with section 1080a(a)
and are therefore preempted. See 55 Fed. Reg. at 40122
(explaining that section 1080a "preempts any conflicting or
inconsistent State law.").
2. Preemption by the Fair Credit Reporting Act
Plaintiff's CFDCPA claims are also preempted by the FCRA. The
FCRA states that it does not preempt state laws regarding the
collection, distribution, or use of any information on consumers,
except when state and federal law conflict. 15 U.S.C. § 1681t(a).
However, state law may not address the subject matter of §
1681s-2, which relates "to the responsibilities of persons who furnish information to consumer
reporting agencies. . . ." 15 U.S.C. § 1681t(b)(1)(F).
Plaintiff argues that the FCRA does not preempt his CFDCPA
claims because the FCRA pertains to the reporting of credit
information, while the CFDCPA regulates the collection of debts.
However, statutes that do not overtly regulate credit reporting
may still have the effect of regulating that area. As the Eastern
District of Pennsylvania noted in Jaramillo v. Experian
Information Solutions, Inc., 155 F.Supp.2d 356, 362 (2001):
The plain language of section 1681t(b)(1)(F) clearly
eliminated all state causes of action against
furnishers of information, not just ones that stem
from statutes that relate specifically to credit
reporting. To allow causes of action under state
statutes that do not specifically refer to credit
reporting, but to bar those that do, would defy the
Congressional rationale for the elimination of state
causes of action.
All of the CFDCPA claims in this case are preempted by the FCRA
because they pertain to Defendant's reporting of or failure to
report certain information about Plaintiff. Specifically,
Plaintiff alleges that Defendant violated the CFDCPA by failing
to communicate to the credit reporting agencies that Plaintiff's
debt to Defendant was in dispute and by failing to correct the
erroneous information. The claims clearly relate "to the
responsibilities of persons who furnish information to consumer
reporting agencies." 15 U.S.C. § 1681s-2.
3. Preemption by the Fair Debt Collection Practices Act
Defendant also contends that Plaintiff's CFDCPA claims are
preempted by the FDCPA.
Both the CFDCPA and the FDCPA regulate the collection practices
of debt collectors. The FDCPA provides that it does not preempt
state law unless the federal law and state law are inconsistent.
15 U.S.C. § 1692n. The FDCPA further provides: "A State law is
not inconsistent with this subchapter if the protection such law
affords any consumer is greater than the protection provided by
this subchapter." Id.
Defendant argues that the CFDCPA claims should be preempted
because the CFDCPA and the FDCPA define "debt collector"
differently. The FDCPA limits the definition of debt collector to one who collects debts "owed or due or
asserted to be owed or due to another." 15 U.S.C. § 1692a(6). The
CFDCPA defines a debt collector more broadly as one who collects
debts "on behalf of himself or herself or others, engage[d] in
debt collection." Cal. Civ. Code § 1788.2(c).
However, the CFDCPA's more inclusive definition of "debt
collector" is not "inconsistent with" the FDCPA. By enlarging the
pool of entities who can be sued, the CFDCPA merely affords a
separate state remedy, which grants protection beyond what is
provided by the FDCPA. As explained by the Northern District of
California in Alkan v. Citimortgage, Inc.,
336 F. Supp. 2d 1061, 1065:
California has not somehow expanded the scope of
federal liability under the FDCPA through [the
CFDCPA]. Instead, California simply incorporated by
reference the text of certain federal provisions into
the CFDCPA, rather than copying them verbatim into
the California code. Any resulting liability,
however, remains a state claim.
The real issue is whether California is permitted to
impose these duties on the broad range of entities it
defines as debt collectors. As discussed, nothing
indicates that Congress intended to preempt the
CFDCPA or to completely occupy the field of debt
Defendant also argues that Plaintiff's CFDCPA claims are
preempted because the CFDCPA and FDCPA have inconsistent
enforcement schemes. Pointing to 15 U.S.C. § 16921, Defendant
claims that the FDCPA is exclusively enforced by the FTC.
Defendant is incorrect. The FDCPA provides for private rights of
action as well as administrative enforcement. 15 U.S.C. § 1692k.
Therefore, the CFDCPA's enforcement provisions are not
inconsistent with the FDCPA.
Plaintiff's CFDCPA claims are not preempted by the FDCPA.
However, as already discussed, they are preempted by both the HEA
For the reasons discussed above, the Court GRANTS IN PART AND
DENIES IN PART Defendant's motion for judgment on the pleadings
[11-1]. The motion is GRANTED as to Plaintiff's claims under
15 U.S.C. § 1681s-2(a) and the California Fair Debt Collection
Practices Act, Cal Civ. Code §§ 1788-1788.32; the Court shall
enter judgment in favor of Defendant on these claims. The motion is DENIED as to
Plaintiff's claim under 15 U.S.C. § 1681s-2(b). The Court
DENIES Defendant's motion to strike [11-2] as moot. Defendant
shall file an answer as to the remaining claim within 20 days
after this order is stamped "filed."
IT IS SO ORDERED.
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