A District Court judge in Ohio has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act lawsuit filed by a student loan borrower, ruling that a guaranty agency collecting defaulted federal loans on behalf of the Department of Education is not a debt collector under the statute.
The background: The plaintiff, who represented himself, had Federal Family Education Loan Program loans that went into default and were guaranteed by the defendant.
- In January, the defendant sent the plaintiff a notice stating that, “acting as a guarantor on behalf of the U.S. Department of Education,” it held a claim against him that it intended to collect by Treasury offset, including federal and state tax refunds, Social Security benefits, and federal travel reimbursements.
- The plaintiff filed suit, alleging the debt was invalid, the amount sought was incorrect, and the defendant could not prove he owed it.
- The plaintiff also alleged that his “skull was injured on the debt collection” in Brazil in April 2024, calling the defendant the “tortfeasor,” and later asserted that the defendant entered his hotel room in São Paulo and injured him.
- The plaintiff argued the FDCPA applied “per the Department of Education (DOE) website,” that the defendant was a debt collector because it requested a Treasury offset, and that the fiduciary relationship was “squashed” because he attended a private university, making the loan a “private debt.”
The ruling: Judge Edmund A. Sargus, Jr. of the District Court for the Southern District of Ohio granted the motion, finding the plaintiff’s opposition “difficult to discern” and holding that the defendant’s collection activity was incidental to a bona fide fiduciary obligation and therefore outside the FDCPA’s definition of a debt collector.
- The judge explained that guaranty agencies act as intermediaries between lenders and the Department of Education, stepping in when a lender cannot collect, paying the lender, and then pursuing the borrower through tax refund offsets, garnishment, or lawsuits, with the ability to recover losses from the DOE. Multiple courts have found that arrangement satisfies the fiduciary exception.
- Judge Sargus drew the line where those courts did: collection is incidental when an agency is acting as a guarantor on behalf of the DOE, but the FDCPA applies if an agency’s “sole function is to collect a debt on behalf of a third party.”
- The complaint did not allege the defendant’s sole function was collection, and the plaintiff “cites no legal authority that supports these arguments, nor does he address the FDCPA fiduciary exception and the cases recognizing that guaranty agencies fall within that exception.”
- Even if the defendant were a debt collector, the judge wrote, the plaintiff’s “conclusory allegations that ‘the debt is false'” did not meet federal pleading standards, and the head injury allegations came with “no facts that plausibly establish those claims.”
