USA Group Loan Services, Inc. v. Riley case brief

USA Group Loan Services, Inc. v. Riley case brief summary
82 F.3d 708 (7th Cir. 1996)

CASE SYNOPSIS

Plaintiff servicers brought suit against defendant department of education seeking to invalidate portions of amended regulations governing standards to be employed in the servicing and collection of student loans. The United States District Court for the Southern District of Indiana rejected the challenge. The servicers appealed.

CASE FACTS
A government program subsidized student loans that were guaranteed by state and private agencies. The proceeds of the loans were used to pay tuition and other expenses. Servicers were in charge of collecting the loans from the students when the loans came due. Servicers challenged an amendment to the Education Act that established minimum standards for servicers to employ in the management and accountability of the loans. After their challenge was dismissed, servicers appealed, asserting that the amendment was unreasonable.

DISCUSSION

• The court held that servicers failed to carry their burden of proving what increment of liability the amendment imposed over and above their ordinary common law liabilities, for the careless mistakes of their employees, and that the increment was so great as to make the regulation arbitrary and capricious. 
• There was no bad faith on the part of the department when it negotiated the amendment.

OUTCOME

The judgment in favor of the department of education was affirmed.

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