Milberg Files National Collegiate Student Loan Trusts Lawsuit
by Brian Eckert
Milberg Coleman Bryson Phillips Grossman (“Milberg”) has filed a class action lawsuit against National Collegiate Student Loan Trusts (NCSLT) for alleged violations of the Fair Credit Reporting Act (FCRA) and other laws.
The lawsuit seeks to establish a national class and a Nevada subclass and recover damages on behalf of borrowers whose student debts were lawfully discharged through bankruptcy but were not recognized as discharged by NCSLT. If you meet the class criteria, you could automatically be eligible to join this lawsuit and receive a share of any settlement or verdict that may result.
About National Collegiate Student Loan Trusts
NCSLT is one of the nation’s largest holders of private student loan debt, but it is not the originator of any loans. Made up of 15 separate trusts (named as defendants in Milberg’s NCSLT lawsuit), National Collegiate holds around 800,000 private student loans worth an estimated $12 billion.
These loans—originally made by lenders such as Bank of America, Charter One Bank, and JPMorgan Chase—were pooled together by a company called First Marblehead Corporation. First Marblehead created the trusts, placed the student loan debt that it acquired in the trusts, and then sold bonds backed by the loans to investors as securities.
Despite being fully aware of their legal obligations, NCSLT continuously breached obligations under federal and state debt collection laws.
Because investors profit on these securities when the student loan is paid off by the borrower, National Collegiate has an incentive to aggressively pursue loan repayment—something that it has routinely done and come under scrutiny for. The Consumer Financial Protection Bureau (CFPB) took legal action against NCSLT and its debt collector in 2017, saying that they engaged in illegal student loan debt collection lawsuits.
Milberg Lawsuit Cites FCRA, Bankruptcy Code Improprieties
The student loan debt that NCSLT owns is private, not federal. Contrary to popular belief, some private loans for educational purposes can be discharged through bankruptcy like other consumer debts.
However, as the CFPB points out, lenders do not always respect the protections offered to consumers who discharge their debts via bankruptcy. For example, there are cases where lenders ignore credit reporting industry standards, which keeps consumer credit scores low and has a wide range of negative consumer impacts, including higher interest rates. In other cases, lenders may attempt to collect on student loan debt that has been discharged in bankruptcy.
Milberg’s lawsuit alleges that NCSLT engaged in these and other practices, to the detriment of borrowers. Specifically, the plaintiffs in the case, who co-signed on a private student loan held by National Collegiate and subsequently received a bankruptcy discharge of the debt, accuse the trusts of:
- Ignoring the “automatic stay” during the bankruptcy
- Sending debt collection communications following the plaintiffs’ debt being discharged
- Misrepresenting the private student loan debt as non-dischargeable and therefore owed
- Threatening to take legal action for failure to service the discharged debt
- Collecting on debt that was no longer owed due to bankruptcy discharge
“As a matter of policy and practice, Defendants regularly and consistently fail to engage in any efforts to ensure the debts upon which they attempt to collect are not subject to a bankruptcy discharge,” states Milberg’s complaint. “Despite being fully aware of their legal obligations, Defendants continuously breached obligations under federal and state debt collection laws.”
The plaintiffs seek to establish two classes—one national and one specific to Nevada residents—defined as:
- All persons/All residents of Nevada whose “private student loans” were incurred prior to them filing bankruptcy and were subsequently discharged in their bankruptcy, but National Collegiate Student Loan Trusts continued to collect on these debts as if the “student loans” were not discharged in bankruptcy.
The lawsuit seeks damages based on the Fair Credit Reporting Act, the U.S. Bankruptcy Code, and the Nevada Deceptive Trade Practices Act, including compensatory damages, punitive damages, and attorneys’ fees and costs. It is pending certification in U.S. District Court, District of Nevada. Claims made in this case are similar to those made in a previous Milberg lawsuit against Navient Solutions LLC.
Milberg has a proud history of enforcing consumer rights through class action litigation. If you believe that a lender is unlawfully pursuing debt collection, private legal action may be a superior option to making a complaint to the CFPB. To discuss your legal rights with an attorney, please contact us.