USA Group Loan Services, Inc. v. Riley
United States Court of Appeals for the Seventh Circuit
82 F.3d 708 (7th Cir. 1996)
In 1992, Congress amended Title IV of the Higher Education Act (Act) to authorize the Secretary of Education to establish regulations for the management and accountability of student loan servicers. The Secretary of Education established, among other things, regulations to make loan servicers jointly and severally liable with their customers for violations of statutes, regulations or contracts governing the student loan program. Before promulgating the regulations, the Secretary submitted draft regulations to the process of negotiated rulemaking, as required by the amendment to the Act. The negotiated rulemaking was to be conducted in accordance with the Negotiated Rulemaking Act. An official of the Department of Education promised the servicers that the Department would abide by any consensus reached during the negotiation. The Secretary proposed in the negotiation to cap of servicers’ liability at the amount of fees servicers received from their customers. The servicers pressed for no liability. However, the Secretary abandoned the cap on liability when the regulation was put forth for notice-and-comment rulemaking. Several servicers (plaintiffs) brought suit to invalidate the regulations on the basis that the Secretary negotiated in bad faith. The district court rejected the servicers’ claims and the servicers appealed.
Rule of Law
Holding and Reasoning (Posner, J.)