Mr. Michael Heninburg, Director
Dear Mr. Heninburg:
Mr. LeFevre has asked me to respond to your letter of May 10, 1989, concerning the applicability of the Fair Debt Collection Practices Act ("the Act") to schools that participate in the Health Education Assistance Loan (HEAL) program. You explain that HEAL provides federally-insured loans to students in graduate-level, health-related studies. The loans are made, serviced, and collected by the lender and if the borrower defaults, the lender may assign the loans to the federal government. However, prior to filing a default claim, the lender must advise the Department of Health and Human Services ("HHS") of the delinquency. Upon receipt of that notice, HHS sends the borrower three "pre-claims" letters to encourage the borrower to make satisfactory repayment arrangements with the lender. HHS provides a copy of its second pre-claims letter to the school the borrower was attending in the hope that the school can convince the borrower to establish a satisfactory repayment schedule with the lender. You ask whether the school, acting in this capacity, is covered by the Act.
On June 28, 1989, I spoke to Ellen Volpe in your office to learn what action a school might take in its effort to encourage the borrower's repayment. Ms. Volpe advised that the school might contact the borrower, by telephone or letter, apprising the borrower of its knowledge of the borrower's delinquency on the loan and encouraging the borrower to arrange a repayment schedule with the lender. In addition, the school might remind the borrower to submit deferment forms, where applicable, or review the options available to the borrower if he or she is experiencing financial difficulties. Ms. Volpe advised me that, at present, a school in this situation is not in a position to withhold services from borrowers, and would not threaten to do so in its communications with them. It is your opinion that a school in this situation would not be covered by the Act because it is not in a business "whose principal purpose is the collection of debts" nor does it "regularly collect or attempt to collect debts owed or due another."
As you know, Section 803 (6) of the Act defines a "debt collector" as anyone who (1) uses any instrumentality of interstate commerce or the mails in a business which has as its principal purpose the collection of debts or (2) regularly collects or attempts to collect, directly or indirectly, debts owed or due another. The term "regularly" is not defined in either the Act or its legislative history. In general, the term is intended to include those who collect debts for others in the ordinary course of business and excludes those who collect debts for others in an isolated or occasional instance.(1) Some factors to consider include, but are not limited to, the nature and frequency of the collection activities undertaken and whether those activities are an established part of a firm's business operation.(2) The object is to ascertain whether the school's activities are conducted on a routine basis and constitute bona fide "attempts to collect" the debts at issue or whether its activities are simply attempts to facilitate the actual collection of the debt by another party.
As you might expect, a school may be subject to the Act if its contacts with borrowers are similar in nature and content to those traditionally made by collection agencies, i.e., if the contacts are in the nature of dunning communications, and if those contacts are part of the school's normal operating procedure. For example, if, as a matter of practice, a school locates delinquent borrowers and sends them dunning notices demanding that payment be made to the respective lenders or implying that a borrower's nonpayment will have negative consequences for the borrower, the school would be engaging in the type of debt collection activities covered by the Act. In that case, the school would be required to comply with the Act, including its affirmative requirements.(3)
However, if a school's contacts with delinquent borrowers are limited in nature to those described in your letter and in my conversation with Ms. Volpe, i.e., in the nature of advice to the borrower that (1) the school knows of the borrower's delinquency and (2) the school encourages the borrower to arrange a repayment plan with the lender, or if they are in the nature of reminders to the borrower to submit deferment forms, if applicable, or a review of the options available for the borrower who is having financial problems, then it is our opinion that the school would not be a "debt collector" under the Act, whether or not such contacts are "regularly" made. The purpose of such contacts would be to assist, rather than dun, the borrower.
Even if these schools were otherwise deemed to be debt collectors, they would still be exempt from the Act by virtue of Section 803 (6) (F) (iii). That section exempts any person who collects debts owed or due another to the extent that such activity concerns debts that are not "in default" at the time they are "obtained" by such person. It is my understanding, based on my conversation with Ms. Volpe, that the loans in question are not technically in default at the time of a school's contact with the borrower. Therefore, the schools would be exempt under that Section of the Act.
The foregoing views reflect an informal staff interpretation that is not binding on the Commission or any court. However, they do reflect the staff's current enforcement position.
1. Congress illustrated the effect it intended as follows: "[t]he requirement that debt collection be done regularly, would exclude a person who collects a debt for another in an isolated instance, but would include those who collect for others in the regular course of business." S. Rep. No. 350, 95th Cong., lst Sess. 3 (1977).
2. See the attached informal staff opinion dated April 12, 1988, to Bruce A. Nants, Esquire, discussing the level of activity necessary to bring a collector within the purview of Section 803 (6).
3. See Sections 807 (11) and 809 of the Act, 15 U.S.C. §§ 1692e(11) and 1692g.