Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D.N.Y.: Wells Fargo, student loan servicer unable to evade deceptive acts claims, (Sep 12, 2014)

By Greg Hammond, J.D.

A student loan borrower stated sufficient deceptive acts or practices claims under the New York General Business Law (GBL), after his loan servicer failed to correct his account, charging him $9,000 more than was listed in his original disclosure statement. In denying motions to dismiss by Wells Fargo Bank, N.A. and the loan servicer, the federal district court in Albany determined that the borrower sufficiently alleged that he was injured by the servicer’s deceptive acts, which were directed at consumers and were misleading in a material way (Reynolds v. Xerox Education Services, Inc., September 9, 2014).

Background. Wells Fargo, through a series of mergers and acquisitions, became the owner of Jeffrey D. Reynolds’ consolidated federal student loans. In 1999, Reynolds received a disclosure statement, stating that he would be required to make 215 monthly payments of $285.07 and one payment of $283.56 to pay off his loan by October 28, 2017. However, in February 2012, Reynolds discovered that his payoff balance was higher than the total of his 69 remaining payments. He made numerous phone calls to Xerox Education Services, Inc. (XES), the servicer of his loan, attempting to correct the issue. However, in December 2012, his account was still not corrected, reflecting required interest payments roughly $9,000 more than what was listed in the 1999 disclosure statement.

Reynolds consequently filed a putative class action against both Wells Fargo and XES, alleging—in part—deceptive acts or practices under the GBL. Wells Fargo and XES both brought motions to dismiss, arguing that Reynolds failed to a state a claim.

Sufficient allegations. To state a valid claim for deceptive acts or practices under the GBL §349, Reynolds was required to demonstrate: (1) the alleged deceptive acts were directed at consumers; (2) the acts were misleading in a material way; and (3) Reynolds was injured as a result. The court determined that Reynolds made a demonstration of all three elements. First, the court found that the deceptive acts were directed at consumers because XES is in the business of servicing student loans; the company treated Reynolds like any other student borrower; and the allegedly improper crediting and XES’ failure to remedy the improprieties arose from the company’s computer systems, which were purportedly used to maintain accounts of a broad class of consumers.

Second, the court concluded that the alleged conduct was objectively deceptive and materially misleading, because XES issued an amortization schedule, but did not adhere to it, causing Reynolds to incur thousands of dollars in additional charges. Further, because of the added interest, Reynolds was able to demonstrate he was injured by the allegedly deceptive conduct.

Agency relationship. Wells Fargo also moved to dismiss, arguing that it could not be held liable for acts committed by XES. The court disagreed, noting that “a principal may be held liable for the torts of its agent committed within the scope of the agency.” In this case, the complaint adequately alleged that XES is “the servicer of the Consolidated Student Loan acting as an agent of the Consolidated Student Loan’s prior owners Signet Bank, First Union, and Wachovia, and now Wells Fargo.” Consequently, the court determined that Reynolds sufficiently pleaded a principal/agency relationship, and whether Wells Fargo actually exercised the required level of control over XES to establish its liability as a principal, is a question of fact not resolvable on a motion to dismiss. The motions were therefore denied.

The case number is 6:13-CV-1223 (LEK/TWD).

Attorneys: Justin A. Kuehn (Bragar, Eagel Law Firm) for Jeffrey D. Reynolds. Edward K. Lenci (Hinshaw, Culbertson Law Firm) for Xerox Education Services, Inc. Allison J. Schoenthal (Hogan, Lovells Law Firm) for Wells Fargo Bank, NA.

Companies: Xerox Education Services, Inc.; Wells Fargo Bank, NA

Cases: StateUnfairTradePractices NewYorkNews