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Administrative Law Keyed to Popper
USA Group Loan Services, Inc. v. Riley
Citation:
82 F.3d 708 (1996)Facts
The federal government administers a massive student loan program through the Department of Education, where loans are made by banks but guaranteed by state and private agencies with reinsurance contracts with the Department. Third-party servicers assist lenders, guarantors, and educational institutions with administrative tasks related to these loans. After discovering mistakes and fraud by servicers that resulted in losses of federal money, Congress amended the Higher Education Act in 1992 to authorize the Secretary of Education to regulate these servicers. The Secretary promulgated regulations making servicers jointly and severally liable with their clients for program violations, though in a limited sense – the Department could pursue the servicer only if unable to collect from the servicer’s client. The regulations imposed strict liability, meaning that servicers could be liable even for unavoidable mistakes. During the required negotiated rulemaking process, the Department initially proposed capping servicer liability at the amount of their fees but later withdrew this proposal when servicers rejected it in favor of no liability. The servicers challenged the regulations, arguing they exceeded statutory authority, were arbitrary and capricious, and resulted from bad-faith negotiated rulemaking.
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