Taming the Wild West: an Examination of Private Student Loan Consolidation Companies' Violations of Section 43(a) of the Lanham Act by Using Trade Names and Logos That Closely Resemble Those Used by the United States Department of Education

• Jurisdiction: United States,Federal
• Citation: Vol. 41
• Publication year: 2022

41 Creighton L. Rev. 515. TAMING THE WILD WEST: AN EXAMINATION OF PRIVATE STUDENT LOAN CONSOLIDATION COMPANIES' VIOLATIONS OF Section 43(A) OF THE LANHAM ACT BY USING TRADE NAMES AND LOGOS THAT CLOSELY RESEMBLE THOSE USED BY THE UNITED STATES DEPARTMENT OF EDUCATION

Creighton Law Review

Vol. 41

INTRODUCTION

"Private loans are the Wild West of the student loan industry," according to New York Attorney General Andrew Cuomo, who has been conducting an ongoing investigation of student loan lending companies' business practices since he took office in early 2006.(fn1) Thus far, Attorney General Cuomo's investigation uncovered the following: student loan lenders and universities had revenue-sharing agreements; lenders provided a pool of private loan money for high-risk borrowers at universities in return for the universities designating the lender as the preferred or exclusive lender for that university; some university financial aid officers had stock in companies appearing on the colleges' preferred-lender lists; financial aid officers also received consulting fees or other perks from lenders on preferred-lender lists; and employees of student loan lenders working in call centers for a college recommended the lender's own loans to students.(fn2) Attorney General Cuomo also uncovered that student loan lenders paid alumni associations for loans taken by its members and used the alumni association's logo on their mail solicitations.(fn3) Attorney General Cuomo's investigation centered on student lending companies' deceptive trade practices under the business and consumer laws of the state of New York.(fn4) As a result of his investigation, Attorney General Cuomo has secured settlements with a number of large student loan consolidation companies ("SLCCs"), including Sallie Mae, JPMorgan Chase, and Citibank, and twenty-five colleges.(fn5) Using data from Attorney General Cuomo's investigation, Senator Edward Kennedy (D-Massachusetts) and Senator Christopher Dodd (D-Connecticut) each proposed amendments to the Higher Education Act, which, at its inception, was intended to be renewed every five years but has not been updated since 1998.(fn6) The purpose of the Higher Education Act was to bolster educational resources in universities and colleges and to offer financial assistance to students in college and graduate school.(fn7) Further, as of October 2007, Attorney General Cuomo made agreements with twelve student loan lenders and twenty-six schools to abide by a new code of conduct regulating student lending.(fn8) Although the movement toward correcting the abuses of the student lending industry was progressing, hardly any attention was given to the deceptive advertising practices SLCCs engaged in via mail solicitations that used trade names or logos suggesting the consolidation letter was from the United States Department of Education.(fn9)

The trend changed in October 2007, when Attorney General Cuomo shifted the focus of his investigation towards SLCCs' aggressive and misleading marketing practices.(fn10) Attorney General Cuomo issued thirty-three subpoenas to SLCCs, requesting information on any deceptive or misleading tactics used in mail solicitations to students and recent graduates.(fn11) Attorney General Cuomo stated, "The practices we have found in the direct marketing of loans to students are surprisingly blatant and even involve some companies who portray themselves as arms of the federal government."(fn12) Attorney General Cuomo claimed these practices might violate state consumer protection laws and the Higher Education Act.(fn13)

This Note argues SLCCs that use trade names or logos that closely resemble the United States Department of Educations' or, in general, the federal government's trade names or logos should be held liable for trademark infringement under § 43(a) of the Lanham Act.(fn14) SLCCs that use these similar trade names and logos should be held liable under § 43(a) of the Lanham Act because the trade names and logos in question are likely to confuse recent college graduates who likely have little experience with the inner workings of loan consolidation or debt.(fn15) Further, this Note also proposes an amendment to the Higher Education Act that would prohibit SLCCs from using trade names or logos that resemble those the U.S. government uses.(fn16)

This Note proceeds in three sections.(fn17) First, the Background examines a brief history of the landscape of the student loan industry in America, the history and purpose of § 43(a) of the Lanham Act, and analogous trademark infringement cases under § 43(a) of the Lanham Act.(fn18) Next, in the Argument section, this Note argues the similarities between four pertinent cases in which the Lanham Act was violated by SLCCs' use of trade names and logos that closely resemble those used by the federal government.(fn19) Considering that analysis, this Note argues an amendment should be added to the Higher Education Act to regulate SLCCs' advertising practices and dispel confusion for student borrowers.(fn20) Using the boundaries set by § 43(a) of the Lanham Act, this Note advocates an amendment to the Higher Education Act that would prohibit SLCCs from using words, terms, names, and symbols that are likely to cause confusion for student borrowers regarding the SLCCs' affiliation with the federal government.(fn21) Further, this Note argues an amendment to the Higher Education Act would ensure that a student borrower likely to be damaged by this misleading advertising has a clear cause of action against SLCCs for this type of conduct.(fn22) Finally, this Note concludes that because the goals of the Lanham Act and Higher Education Act are to protect consumers from false advertising and to promote higher education, this amendment is necessary to further allow students to pursue their education without the worry of being defrauded by companies out to make a profit from their inexperience with student loans.(fn23)

BACKGROUND

A. STUDENT LOANS IN GENERAL AND STUDENT LOAN CONSOLIDATION COMPANIES

In 2006, the United States Department of Education provided over seventy-seven billion dollars to more than ten million students and their families in the form of grants, loans, and other federal student aid programs to help fund higher education.(fn24) In 2006, the average cost of attending a public university was $13,000 a year and the average cost of a private university was over $30,000 a year.(fn25) During that time, the federal government's commitment to providing student financial aid waned in relation to the increase in cost of higher education, leaving a gap between tuition cost and aid available of approximately $120 billion.(fn26)

This gap has pushed many students to borrow from private loan lenders to pay for their education.(fn27) The private loan market has grown by 1200% in the last decade alone.(fn28) Although private loans make it possible for a number of students to attend college, consumer advocates and student groups are concerned that a lack of understanding about private loans could prove troublesome for students in the future.(fn29) Unlike federal student loans, private loans are not assured by the federal government and have no limits on their interest rates.(fn30) Moreover, a number of students do not understand the difference between federally-subsidized loans and private student loans.(fn31) A student should borrow the maximum amount available from the federal government's Stafford program to ensure the lower, government-mandated interest rate, before financing with private loans, where interest rates are not fixed and take into consideration the student's credit history.(fn32) In 2003, a Public Interest Research Groups' study found that almost half the undergraduates with private loans failed to first borrow the maximum amount from the federal government's Stafford program.(fn33) This is likely because students do not understand the difference between federal and private loans and have a general lack of sophistication to make informed decisions concerning their college loans.(fn34)

Another major decision facing a student loan debtor is deciding whether to consolidate multiple student loans into one loan that allows the student to more easily manage and pay the loan.(fn35) The consolidation process allows students to consolidate all of their federal and, if necessary, private loans with one lender.(fn36) Further, consolidation allows students to make one loan payment per month.(fn37) However, one of the major problems with loan consolidation is the confusion that arises when students are faced with the decision to consolidate their loans with the federal government or a private lender.(fn38)

Student loan consolidation companies ("SLCCs") exacerbate the confusion by soliciting students with mailers that appear to be actual loan documents or government-issued letters.(fn39) One associate for a public interest advocacy group remarked, "Direct-to-consumer marketing for student loans has exploded . . . We're seeing the propagation of these types of aggressive, sometimes misleading mailings."(fn40) The legislative director of the U.S. Student Association, Rebecca Thomp-son, stated that these mailings especially confuse students.(fn41) Thompson blamed the confusion on the probability that college loans are usually the first time a student has ever taken out a loan.(fn42) This notion is reinforced by a report by...