Consumer Fraud – Negligent Misrepresentation

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7^th Circuit Court of Appeals

Case Name: Nicole D. Nelson v. Great Lakes Educational Loan Services, Inc., et al.

Case No.: 18-1531

Officials: KANNE, HAMILTON, and ST. EVE, Circuit Judges.

Focus: Consumer Fraud – Negligent Misrepresentation

Like many students, plaintiff Nicole Nelson borrowed money to pay for her education. Defendant Great Lakes Educational Loan Services, Inc. services repayment of her federally insured loans. On its website, Great Lakes offered to provide guidance to borrowers struggling to make their loan payments. It told borrowers: “Our trained experts work on your behalf,” and “You don’t have to pay for student loan services or advice,” because “Our expert representatives have access to your latest student loan information and understand all of your options.” Nelson alleges that despite these representations, when she and other members of the putative class struggled to make payments, Great Lakes did not work on their behalf. Instead, Nelson contends, Great Lakes steered borrowers into repayment plans that were to Great Lakes’ advantage and to borrowers’ detriment.

Nelson alleges that defendant’s conduct violated the Illinois Consumer Fraud and Deceptive Business Practices Act and constituted constructive fraud and negligent misrepresentation under Illinois common law. The district court granted Great Lakes’ motion to dismiss, holding that all of Nelson’s claims were expressly preempted by this provision of the federal Higher Education Act: “Loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) shall not be subject to any disclosure requirements of any State Law.” 20 U.S.C. § 1098g. The district court reasoned that Nelson’s claims are expressly preempted because they all allege in substance only that Great Lakes failed to disclose certain information.

The district court’s ruling was overly broad. When a loan servicer holds itself out to a borrower as having experts who work for her, tells her that she does not need to look elsewhere for advice, and tells her that its experts know what options are in her best interest, those statements, when untrue, cannot be treated by courts as mere failures to disclose information. Those are affirmative misrepresentations, not failures to dis‐ close. Great Lakes chose to make them. A borrower who reasonably relied on them to her detriment is not barred by § 1098g from bringing state‐law consumer protection and tort claims against the loan servicer. Tort law has long recognized the difference between mere failures to disclose information and affirmative deceptions. And as we explain below, the Ninth Circuit decision the district court relied upon, Chae v. SLM Corp., 593 F.3d 936 (9th Cir. 2010), does not apply to claims of affirmative misrepresentations in counseling borrowers in distress.

Accordingly, Nelson’s claims are not expressly preempted to the extent she is alleging that Great Lakes made false or misleading affirmative representations to her in the counseling process. Also, neither conflict preemption nor field preemption applies to her claims. We vacate the judgment of the district court and remand for further proceedings consistent with this opinion.

Vacated and remanded

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.