Publication Date: November 2004
DCL ID: FP-04-08
Application of the Lender Due Diligence 45-Day Gap Rule
Posted on 11-08-2004
Subject: Application of the Lender Due Diligence 45-Day Gap Rule
Summary: This letter reminds FFELP lenders and guaranty agencies of the regulatory requirement that a lender may not permit a gap of more than 45 days between certain required collection activities, including the final demand letter.
We have become aware that some Federal Family Education Loan Program (FFELP) lenders and guaranty agencies may not fully understand the so-called "45 day gap rule" in the regulations at 34 CFR 682.411(b)(2). Specifically, some lenders and guaranty agencies may believe that the 45-day gap rule does not apply to the period between the issuance of the final demand letter required by 34 CFR 682.411(f) and the previous required collection activity.
The regulations at 34 CFR 682.411(b)(2) provide that -
At no point during the periods specified in paragraphs (c), (d), and (e) of this section may the lender permit the occurrence of a gap in collection activity, as defined in paragraph (j) of this section, of more than 45 days (60 days in the case of a transfer).
The term "collection activity" is defined at 34 CFR 682.411(l) and includes the final demand letter. Thus, a lender must ensure that no more than 45 days elapse between the previous required collection activity and the final demand letter. And, of course, guaranty agencies must, when reviewing default claims submitted by lenders, examine the timeframe between all required collection activities, including the issuance of the final demand letter.
Victoria L. Bateman, CPA, CGFM
FSA Chief Financial Officer and
Acting General Manager, Financial Partner Services