Source: http://cdm16804.contentdm.oclc.org/cdm/ref/collection/ACICS01/id/2254/
Timestamp: 2020-03-31 07:57:48
Document Index: 507818191

Matched Legal Cases: ['§ 177', '§ 177', '§ 177', '§ 177', '§ 177', '§ 177']

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these more stringent transfer require-ments, the regulations also provide that a transferee may obtain a warranty from tho transferor of the loan covering any fulure reductions in the amount of a deiault claim which may be made by the Coinmissioner.
The Commissioner is especially inter-ested in receiving comments from lenders on this section with regard to the extent that these new requirements may in-crease the lender's administrative costs and work load. In addition, the Commis-sioner would like to be apprised of the extent to which such regulations may net ve as a deterrent to loan transfers.
14. Section 177.62, dealing with the cancellation of a loan on account of the borrower's death or tot il and permanent disability, ha.s been re tdified to require the holder of a loan U return any pay-ments received from the estate of a bor-rower or paid on behalf of the borrower after the determination of deatli has been made.
The proposed regulation also specifies that once the holder has reason to believe that a borrower has become totally and permanently disabled, the holder may not attempt to collect 011 the loan from the borrower or an endorser until a final determination has been made by the Commissioner as to whether the borrow-er is in fact disabled. Any payments re-ceived by the lender after the holder has reason to believe that the borrower is disabled but before the Commissioner has made such a determination must be retained by the holder and returned to the iorrower at such time as the Com-missioner determines that the borrower is totally and permanently disabled. Payments received after the Commis-sioner's determination that a borrower is disabled must also be returned to the borrower.
15. New section 177.63, Cessation of lender collection activity in certain cases, is proposed in order to take into con-sideration the problems that borrow-ers sometimes face when certain condi-tions exist which may impact on their ability or willingness to repay their loans. Rather than having the lender placed in the difficult position of trying to collect such a loan, the proposed regulations re-quire the lender to file a default claim within 60 days of making a determina-tion that one of the following conditions exist (whether or not the loan is in the repayment period or the borrower is eli-gible for deferment under § 177.58(f)):
a. The educational institution which the borrower attended closed during the academic term for which the loan was made;
b. The Commissioner has directed that a default claim be filed as a result of an action which the Commissioner has commenced under Subpart H to limit, suspend, or terminate the eligibility of the educational institution which the borrower p ¡.tended (or of a lender which has h -Id the loan); or
c. The borrower, a State or local agency, or another Federal agency has instituted legal proceedings against a school or eligible lender alleging facts
which, If proven, would in the judgment of the lender entitle the student bor-rower to refuse to repay all or a portion of the loan or to obtain a judgment for recovery of payments previously made on the loan.
When a 1« der is required to file a de-fault claim nder the provisions of this section, the 1 nder may not report to any credit bureau or other third party con-cerning the borrower's failure to repay his loan. The Commissioner will pay the default claim if he finds that the loan is otherwise insurable and that one of the conditions just described actually exists. He will then pursue the borrower for re-payment only to the extent provided for in § 177.67. If the Commissioner finds that the lender's determination that one of these conditions exists is not correct, he shall refuse payment on the ('aim and the lender shall be required to re-sume collection activity on the loan in the same manner as if the determination Had not een made.
16. Se< Hon 177.64, Procedures lor fil-ing and p< ment of claims, has been modified to specify certain documents which the C< •mmissioner requires when a default or other claim is filed. These documents are needed in order to ascer-tain the insurability of a loan as well as to assess whether the loan has been h indled properly by the lender and to P ovide the Commissioner with a legal basis for pursuing the borrower for re-payment (in the case of a default claim).
The section has also been revised to require that, after a lender has filed a default claim which has bees paid or is pending, and the lender detei mines thai the borrower has been adjudicated ¡1 bankrupt, the lender may not ¡lie a prool of claim with the referee in bank i-uptcy but shall promptly forward the nctice OJ the first meeting of creditors to the Of-fice of Education in order that the Office of Education may file a proof of claim.
In order to facilitate collection action by the Commissioner against a defaulted borrower or additional matters which may be required of a lender as a condi-tion for payment of >, claim, the proposed regulations require that a lender must file a claim with the Commissioner with-in 60 days after it has been determined that the loan is in default, within 30 days after the receipt by the lender of the notice of the first meeting of credi-tors from the bankruptcy referee, or within 60 da.vs after the lender deter-mines that th borrower has died or the lender has be( 1 notified by the Commis-sioner that ti e boi t ower has been de-termined to be totally and permanently disabled. The Commissioner may reject claims filed after these periods. However, recognizing that t lere may be cases where a loan may st. 11 be collectable after the 120-day default period provided for by law, the proposed regulations per-mit the lender, where it reasonably de-termines that a loai* in default may still be collectable, to refrain from filing a deiault claim for a reasonable time after the normal 60 day period (following the 120 day default period) provided certain documented collection efforts are con-tinued. If the default is still not cured,
the lender must file the claim within 60 days after it is determined that the loan is uncollec table, but in no case later than six months after the normal 60 day ueri-od for filing a default claim.
The Commissioner believes thai the timely filing of claims is essentii 1 in order that the Commissioner may iosti-tute collection efforts to recover the amount of the loss in the casi of defaults. When lenders delay for a significant period of time beyond the date of de-fault, collection efforts become much more difficult and less successful. It should also be noted that the General Accounting Office has strongly urged that timely filing of claims be required of lenders.
The regulations have also iieen amended to indicate the extent to w lich the Commissioner will insure payment of interest on those loans (describe 1 at the beginning of § 177.65) which are eligible for the insurance of intere. t as well as the insurance of principal. If a loan has been handled properly, ail in-terest accruing through the period re-quired for the Commissioner to approve the claim for payment is insured.
17. Section 177.65, Determination 0} amount 0/ loss on default claims, con-tains a new proposed paragraph (d) in order to clarify that the Commissioner may deny payment of a default claim on a loan if certain oi these regulations have been violated. Certain violation is of the regulations are by their nature aon-curable, and eighteen examples of the types of non-curable regulatory viola-tions for which default claims ma; be denied are included. The proposed r-> ¿il-lations also provide eight examples of violations of the regulations for which default claims may be denied but which might be cured if conditions specified by the Commissioner are met.
Paragraph <d), however, also specifies that some regulatory violations may be excused by the Commissioner if the lender submitting the claim satisfies the Commissioner that: (a) The violation did not contribute to the default; or (b) the violation was committed by a pr*or holder of the loan and the Commissior or is satisfied that:
(i) the loan transfer transaction was entered into at arm's-length,
(ii) tho transferee inquired of the transferor as to whether the specific io-lation had occurred and was advised i hat it had not and
(iii) the lender filing the claim other-wise had 110 knowledge of the violation at the time of the transfer and could not have become aware of the violation through examination of the loan docu-ments.
It should be noted that any violation of these regulations, regardless of wheth-er it leads to denial of default claims, could form the basis for the limitation, suspension or termination of the eligibil-ity of a lender from further participat ion in the Federal Insured Student Loan Program.
The Commissioner believes that clari-fication as to when a default claim may be denied is desirable in order that lend-
FEDERAL REGISTER, VOL 41, NO. 215—FRIDAY, NOVEMBER 5, 1976
Transcript PROPOSED RULES 4.S871 these more stringent transfer require-ments, the regulations also provide that a transferee may obtain a warranty from tho transferor of the loan covering any fulure reductions in the amount of a deiault claim which may be made by the Coinmissioner. The Commissioner is especially inter-ested in receiving comments from lenders on this section with regard to the extent that these new requirements may in-crease the lender's administrative costs and work load. In addition, the Commis-sioner would like to be apprised of the extent to which such regulations may net ve as a deterrent to loan transfers. 14. Section 177.62, dealing with the cancellation of a loan on account of the borrower's death or tot il and permanent disability, ha.s been re tdified to require the holder of a loan U return any pay-ments received from the estate of a bor-rower or paid on behalf of the borrower after the determination of deatli has been made. The proposed regulation also specifies that once the holder has reason to believe that a borrower has become totally and permanently disabled, the holder may not attempt to collect 011 the loan from the borrower or an endorser until a final determination has been made by the Commissioner as to whether the borrow-er is in fact disabled. Any payments re-ceived by the lender after the holder has reason to believe that the borrower is disabled but before the Commissioner has made such a determination must be retained by the holder and returned to the iorrower at such time as the Com-missioner determines that the borrower is totally and permanently disabled. Payments received after the Commis-sioner's determination that a borrower is disabled must also be returned to the borrower. 15. New section 177.63, Cessation of lender collection activity in certain cases, is proposed in order to take into con-sideration the problems that borrow-ers sometimes face when certain condi-tions exist which may impact on their ability or willingness to repay their loans. Rather than having the lender placed in the difficult position of trying to collect such a loan, the proposed regulations re-quire the lender to file a default claim within 60 days of making a determina-tion that one of the following conditions exist (whether or not the loan is in the repayment period or the borrower is eli-gible for deferment under § 177.58(f)): a. The educational institution which the borrower attended closed during the academic term for which the loan was made; b. The Commissioner has directed that a default claim be filed as a result of an action which the Commissioner has commenced under Subpart H to limit, suspend, or terminate the eligibility of the educational institution which the borrower p ¡.tended (or of a lender which has h -Id the loan); or c. The borrower, a State or local agency, or another Federal agency has instituted legal proceedings against a school or eligible lender alleging facts which, If proven, would in the judgment of the lender entitle the student bor-rower to refuse to repay all or a portion of the loan or to obtain a judgment for recovery of payments previously made on the loan. When a 1« der is required to file a de-fault claim nder the provisions of this section, the 1 nder may not report to any credit bureau or other third party con-cerning the borrower's failure to repay his loan. The Commissioner will pay the default claim if he finds that the loan is otherwise insurable and that one of the conditions just described actually exists. He will then pursue the borrower for re-payment only to the extent provided for in § 177.67. If the Commissioner finds that the lender's determination that one of these conditions exists is not correct, he shall refuse payment on the ('aim and the lender shall be required to re-sume collection activity on the loan in the same manner as if the determination Had not een made. 16. Se< Hon 177.64, Procedures lor fil-ing and p< ment of claims, has been modified to specify certain documents which the C< •mmissioner requires when a default or other claim is filed. These documents are needed in order to ascer-tain the insurability of a loan as well as to assess whether the loan has been h indled properly by the lender and to P ovide the Commissioner with a legal basis for pursuing the borrower for re-payment (in the case of a default claim). The section has also been revised to require that, after a lender has filed a default claim which has bees paid or is pending, and the lender detei mines thai the borrower has been adjudicated ¡1 bankrupt, the lender may not ¡lie a prool of claim with the referee in bank i-uptcy but shall promptly forward the nctice OJ the first meeting of creditors to the Of-fice of Education in order that the Office of Education may file a proof of claim. In order to facilitate collection action by the Commissioner against a defaulted borrower or additional matters which may be required of a lender as a condi-tion for payment of >, claim, the proposed regulations require that a lender must file a claim with the Commissioner with-in 60 days after it has been determined that the loan is in default, within 30 days after the receipt by the lender of the notice of the first meeting of credi-tors from the bankruptcy referee, or within 60 da.vs after the lender deter-mines that th borrower has died or the lender has be( 1 notified by the Commis-sioner that ti e boi t ower has been de-termined to be totally and permanently disabled. The Commissioner may reject claims filed after these periods. However, recognizing that t lere may be cases where a loan may st. 11 be collectable after the 120-day default period provided for by law, the proposed regulations per-mit the lender, where it reasonably de-termines that a loai* in default may still be collectable, to refrain from filing a deiault claim for a reasonable time after the normal 60 day period (following the 120 day default period) provided certain documented collection efforts are con-tinued. If the default is still not cured, the lender must file the claim within 60 days after it is determined that the loan is uncollec table, but in no case later than six months after the normal 60 day ueri-od for filing a default claim. The Commissioner believes thai the timely filing of claims is essentii 1 in order that the Commissioner may iosti-tute collection efforts to recover the amount of the loss in the casi of defaults. When lenders delay for a significant period of time beyond the date of de-fault, collection efforts become much more difficult and less successful. It should also be noted that the General Accounting Office has strongly urged that timely filing of claims be required of lenders. The regulations have also iieen amended to indicate the extent to w lich the Commissioner will insure payment of interest on those loans (describe 1 at the beginning of § 177.65) which are eligible for the insurance of intere. t as well as the insurance of principal. If a loan has been handled properly, ail in-terest accruing through the period re-quired for the Commissioner to approve the claim for payment is insured. 17. Section 177.65, Determination 0} amount 0/ loss on default claims, con-tains a new proposed paragraph (d) in order to clarify that the Commissioner may deny payment of a default claim on a loan if certain oi these regulations have been violated. Certain violation is of the regulations are by their nature aon-curable, and eighteen examples of the types of non-curable regulatory viola-tions for which default claims ma; be denied are included. The proposed r-> ¿il-lations also provide eight examples of violations of the regulations for which default claims may be denied but which might be cured if conditions specified by the Commissioner are met. Paragraph