In Guracar v. Student Loan Solutions LLC, a California Court of Appeal found that claims against private education lenders or servicers brought under state and federal debt collection statutes do not need to show violations resulted in actual, concrete harm in order to recover damages in state court.
In 2007, Osman Yunus Guracar took out a $7,000 private student loan from Bank of America (Bank). The loan required monthly payments and included an acceleration clause allowing the lender to demand full repayment after default. Mr. Guracar defaulted in 2009. In January 2010, the Bank charged off the entire $8,288.53 debt as uncollectable and removed it from their accounting books. A month later, the Bank sent Mr. Guracar a letter demanding immediate payment despite the charge-off.
In 2017, Student Loan Solutions (SLS) purchased the loan from the Bank. From November 2017 to June 2022, SLS’s collection agent, Williams & Fudge (W&F), issued Mr. Guracar two demand letters for payment of the debt. Notably, the letters varied in tone, amount demanded, disclosure of the debt’s nature, and enforcement language.
In September 2022, SLS filed a lawsuit against Mr. Guracar for $3,963.06 for missed payments over the prior four years, claiming it had accelerated the loan in its 2022 notice, thereby making the entire principal and interest due upon Mr. Guracar’s failure to make payment. Mr. Guracar cross-complained against SLS, W&F, and their counsel (cross-defendants), for violation of the Debt Buyer’s Act (DBA), Penal Statutes of Limitations Consumer Remedies Act (PSLCRA), Rosenthal Act (Rosenthal Act), and the federal Fair Debt Collection Practices Act (FDCPA). The trial court dismissed Mr. Guracar’s claims, affirming that the 2022 letter represented cross-defendants exercise of the acceleration clause and the claim to be within the four-year statute of limitations. Mr. Guracar appealed.
The DBA, PSLCRA, Rosenthal Act, and FDCPA contain explicit compliance requirements for loan collectors and servicers, prohibiting collectors from taking action to collect time-barred debts. The DBA and PSLCRA specifically require collectors to possess certain information and documents before contacting a debtor. The Rosenthal Act, which incorporates portions of the FDCPA, prohibits false or misleading representation in collection efforts.
On appeal, cross-defendants argued that Mr. Guracar lacked standing because he had not shown any actual or concrete injury, as required under federal law.
The Court of Appeal considered two issues: (1) whether Mr. Guracar had standing in state court without showing concrete harm, and (2) whether the collection efforts violated the debt collection statutes.
The Court of Appeal reversed in part. First, the Court concluded California’s debt collection statutes do not require plaintiffs seeking statutory damages to prove concrete injury. Statutory penalties are available without actual harm under these consumer protection laws.
Next, the Court cited the acceleration clause doctrine. It emphasized that earlier demand letters in 2010 and 2017 may have triggered acceleration of the loan. If they demanded acceleration of the loan then, the limitations period began then, not in 2022.
The Court found the 2022 letters may have violated the statutes by failing to disclose the debt’s time-barred status and using language suggesting enforceability. Even without an explicit threat to sue, the language could mislead the debtor. The Court therefore permitted Mr. Guracar to continue his cross-claims against SLS and others.
The Guracar holding could increases liability risks for institutions that collect on student loans. Phrases in payment demand letters such as “we accelerate the loan” and “the balance is now immediately due” carry legal weight and may create a false impression of enforceability if the statute of limitations has expired. Servicers must align their collection language with the loan’s actual legal status and disclose time-barred conditions clearly.
The Court made clear that technical missteps, deceptive conduct, or missing disclosures will not be excused. Private institutions that manage or service private student loans must proactively review all communications. Even without a direct threat to sue, inconsistent or unclear messages can lead to legal exposure. Institutions should track loan status, monitor applicable time limits, and ensure all borrower communications comply with state and federal law.
Guracar v. Student Loan Solutions LLC (Case No. H051407)