ARM Firms Gear Up For Oral Arguments in Student Loan Debt Collection Contract Dispute

Later this week, a federal court in Washington will hear oral arguments in a student loan debt collection contract dispute pitting four collection agencies against the federal government and five other collection agencies. Due to the increase in parties, the arguments will now be heard over two days beginning Wednesday.

The lawsuit, Coast Professional, et. al. v. The United States and Financial Management Systems, et. al., was filed late last month in the Court of Federal Claims, the court that hears monetary claims against the U.S. government. The plaintiffs in the suit, four debt collection agencies, are seeking relief from the Department of Education over its decision to end its relationship with five student loan collection contractors.

After one formal bid protest was dismissed by the Government Accountability Office, the parties joined together in the suit to challenge the decision. At issue this week is a contract extension slated to kick in on April 21 that will see five other collection agencies receive additional accounts after the contract expires.

In conjunction with the dismissal of five collection agencies, ED said that it would award five other companies “Award Term” extensions, per the provisions of the contract. Four of the five agencies that had their contracts cancelled are moving to block that extension and prevent ED from distributing accounts on April 21, the day the current contract ends.

After dozens of filings on both sides, a clear point of contention has been reached on which the judge will decide: is the Award Term extension part of ordinary contract administration, or does it represent a new task order and procurement process? In the world of federal contracts, the distinction is important.

If the action represents a new procurement, then the government must use competitive procedures before awarding new contracts. If the extension is deemed to be a part of contract administration, then it has wider latitude to decide who gets the extension.

On Wednesday, a judge will begin to hear oral arguments addressing motions for a temporary restraining order on ED. The hearing was originally slated for just April 8, but will now extend into Thursday. The actual merits of ED’s decision will probably wait for later in the process.

One redacted court document filed in the case shed a little additional light on that matter.

Until now, the only information on ED’s decision was contained in the agency’s press release and only briefly mentioned issues with rehabilitations. After asking for clarity from ED, one of the contractors said in a filing that the agency said a review of collection calls had uncovered violations of the FDCPA and UDAAP provisions.

Specifically, ED told the contractor that the violations involved misrepresentations about credit reporting and the waiving of fees associated with the rehabilitation program. Apparently, the same information was sent to all 22 private collection agencies under contract with ED.

If the judge rules in favor of the plaintiffs and prevents ED from distributing accounts, it is not known how the move will impact borrowers, especially those that have yet to enter rehabilitation but may be eligible to do so.