Full opinion text
MEMORANDUM ORDER COPENHAVER, District Judge. This matter is before the court on the motions to dismiss filed by the Secretary of Education of the United States, the Higher Education Assistance Foundation, Inc., and each of the defendant banks named in the plaintiffs’ amended complaint. I. The plaintiffs, Timothy Wayne Tipton, Lyle Breece, George W. Leeson, Jr., and John Wilburn, filed this action for declaratory and other relief under the Higher Education Act of 1965 (hereinafter “HEA”), 20 U.S.C. § 1071, et. seq., and implementing regulations, against the defendant Secretary of Education of the United States, (hereinafter “Secretary”), the Higher Education Assistance Foundation, Inc. (hereinafter “HEAF”), and the following bank defendants named in the amended complaint: Charleston National Bank; Community Bank & Trust; One Valley Bank of Morgantown; Fed One Savings Bank; United National Bank; Atlantic Financial Federal-West Virginia; First Federal Savings & Loan Association of Morgantown; Commercial Banking & Trust Company; Higher Education Loan Program of West Virginia, Inc. (hereinafter “HELP”); Central National Bank; Wachovia Bank & Trust Company; Wachovia Services, Inc.; Marine Midland Bank; and Union Bank and Trust. Plaintiffs in this action were former vocational students at the now defunct Northeastern Business College (hereinafter “NBC”), whose educations at that institution were funded in part with student loans obtained through the federally sponsored Guaranteed Student Loan Program (“GSLP”). The plaintiffs’ loans were received from one or more of the defendant banking institutions, consistent with the GSLP, in order to pay their tuition and other costs related to their attendance at NBC. The defendant HEAF guaranteed these loans, and the defendant Department of Education, which administers the GSLP, provided the lenders with interest subsidies on the loans and contracted to reinsure HEAF for its losses occasioned by payments made on its loan guarantees. In their amended complaint, plaintiffs allege that they were unable to obtain adequate educational training at NBC because the school was inadequately staffed and equipped to provide such training. Plaintiffs further allege that NBC fraudulently misrepresented its ability to provide them the vocational training upon which the subject indebtedness is based. Although NBC is not named as a defendant in this action, plaintiffs seek a declaration that their student loan obligations, now in default, are unenforceable by the named defendants, arguing that, under various theories of state and federal law, the defendants are each subject to the claims and defenses which the plaintiffs could raise against NBC on the enforceability of the subject loans. In addition to seeking a declaration from the court that their student loans are void and subject to no further enforcement by any of the named defendants, plaintiffs seek a rescission of any future payment obligations on the loans and reimbursement of any monies previously paid in partial satisfaction of the loans. Plaintiffs expressly disavow, however, any claim for monetary damages for noncompliance by the defendants with the statutory and regulatory requirements of the guaranteed student loan program. See Plaintiffs’ Brief in Opposition to Defendants’ Motions to Dismiss at 137. Each of the defendants has filed motions to dismiss pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, alleging that the plaintiffs have failed to state claims against them upon which relief can be granted. In analyzing the viability of the various legal theories advanced by plaintiffs to avoid repayment of their loan obligations, and the defendants’ motions in opposition thereto, it is helpful at the outset to briefly examine the plaintiffs’ allegations regarding their experience with, and the eventual demise of, Northeastern Business College. II. According to plaintiffs, Northeastern Business College operated during the period of time in question in this case as a mere “sham” organization which grossly misrepresented its facilities and fraudulently promised to potential enrollees non-existent educational and employment opportunities. Plaintiffs argue that, despite gaining notoriety for its fraudulent and deceptive educational practices, NBC was improperly permitted to continue to participate in the GSLP until 1986, and consequently collected millions of dollars in tuition fees from GSLP loans issued to what plaintiffs describe as undereducated, low income students. One of the named plaintiffs’ experiences with NBC is said to be representative. Finding his minimum wage job insufficient to support his wife and two young children, the plaintiff responded to a newspaper advertisement by NBC regarding its offering of a “security and law enforcement” course. He was allegedly told by NBC representatives, among other things, that he would be eligible for part-time work while attending school, that all course materials and polygraph training would be provided, that the school had extensive equipment and library facilities, and that the training would cost nothing at the time — “the federal government would provide GSL loans to pay for his training.” The course offering was, according to plaintiffs, meaningless. They contend, for example, that NBC did not have the facilities represented, did not offer the training promised, and that the course was designed merely to attract a large number of low income individuals with minimal educational achievement who would qualify for GSL program funds. The only promise kept, plaintiffs’ allege, is that the individual received a loan for his education, albeit one which he did not receive. Plaintiffs assert that NBC could not have existed without the GSLP, as managed by the Secretary and HEAF, and contend that the school was improperly permitted to arrange for thousands of students to take out GSL loans, with the proceeds of those loans being paid directly to the school, thereby bypassing the students entirely. Plaintiffs assert that the Secretary and HEAF, being knowledgeable about the improper practices of the school, stood idly by while NBC “pocketed the cash,” leaving the students with nothing but dashed hopes and additional indebtedness: Although HEAF and the Secretary knew of the numerous problems at NBC, neither did anything to sanction NBC or to otherwise protect students whose GSL loans were going straight to NBC. NBC had an open-ended contract with the Secretary to participate in the GSL program.... Because of the Secretary’s and HEAF’s failure to monitor NBC’s use of the GSL program, class members were recruited to sign GSL loans, with the proceeds going to NBC for vocational training that NBC could not provide. Now the defrauded students are being pursued by the Secretary, HEAF, and various banks to pay amounts pursuant to these notes for something they never received. As a result, their individual lives are being substantially and detrimentally affected. Plaintiffs’ Brief, at pp. 3-4. Plaintiffs contend that, after ceasing to pay on their student loans for education never received, they have been subjected to a wide range of coercive collection practices. Specifically, plaintiffs allege that they have received threatening telephone calls and “dunning” letters, have had income tax refunds intercepted, have been precluded from qualifying for other educational loans, and have had their credit records ruined. They assert: The collection practices of the government and HEAF are often more onerous than those of many private creditors. The government turns over student loans to out-of-state collection agencies which often violate federal and state collection laws. The guaranty agency HEAF does some of its own collection work and contracts out a substantial portion to collection agencies. Their collection practices are similarly onerous and abusive. In virtually no situations known to plaintiffs’ counsel have suits been initiated against the class members so that they might have the opportunity to assert defenses against the loans. Rather, their lives are ruined by the inability to get credit precluding home purchases, and by being harangued by calls and correspondence from collectors. Plaintiffs’ Brief, at p. 6. One of the plaintiffs' more sweeping allegations is that the losses which they have allegedly sustained as a result of their NBC experience stems from the defendants’ failure to adequately evaluate and monitor the qualifications and programming of schools participating in the GSLP. This failure, plaintiffs argue, has opened the door to widespread abuse of the entire student loan program and its individual participants. As a result of allegedly insufficient evaluation and monitoring of trade schools such as the now-defunct Northeastern Business College, plaintiffs contend that proprietary schools such as NBC have been permitted to become businesses whose primary goal is to process student loan funds received through the GSLP. They argue that the Department of Education, the school, the banks, and the guaranty agency are all closely entwined participants in the GSL program and that many students are attracted to schools such as NBC because of the credibility which institutional participants, especially the federal government, give to schools deemed eligible to participate in the GSL program. Nonetheless, and despite the close interrelationships alleged, plaintiffs state: Now that NBC has been discredited, all the institutions who supplied money to NBC — the banks, HEAF, and the Secretary — are furiously pointing fingers at each other, each claiming it is not responsible for the actions of the school or for anything else. In spite of the attempts of these parties to distance themselves from the school and each other, the reality of the GSL program is very different. The GSL loans are issued in a highly regulated environment where the school and lenders work very closely together, where every action taken by the school and lenders is orchestrated by HEAF and the Secretary, and where every action taken by HEAF is supervised by the Secretary. See Plaintiffs’ Brief at p. 10. Based upon the highly-regulated nature of the GSLP and the allegedly close relationship between the bank defendants and NBC, as well as between the banks, HEAF and the Secretary, plaintiffs argue, collectively, that the “defendants are responsible for the entire GSL enterprise and NBC’s fraudulent use of it.” More specifically, however, plaintiffs’ complaint focuses in substantial part upon the conduct of HEAF and the Secretary for allegedly failing to enforce certain statutory and regulatory guidelines of the guaranteed student loan program. III. The Higher Education Act of 1965, (hereinafter “HEA”) was enacted in an effort to address the growing need for financial assistance for students in higher education. 20 U.S.C. §§ 1060-1098. A variety of financial aid components comprise the HEA, including but not limited to the Pell Grant Program, 20 U.S.C. § 1070a, and the Guaranteed Student Loan Program (“GSLP”), 20 U.S.C. § 1071, et seq. See also C.F.R. 668.1(b). The GSLP, which is at issue here, has two separate and distinct parts: (1) a guaranty agency program under which a state agency or private non-profit agency such as HEAF guarantees the student loans and is, in turn, reimbursed under a reinsurance agreement by the Secretary for part or all of the insurance claims which they pay to the lenders on defaulted notes, 34 C.F.R. § 682.100(a)(1); and (2) the Federal Insured Student Loan Program (“FISLP”) under which the student loans are guaranteed by the federal government directly, 34 C.F.R. § 682.100(a). See 20 U.S.C. § 1071(a). There is no dispute between the parties to this action that the lenders on the student loans at issue received their guarantees on those loans from guaranty agencies, primarily HEAF, rather than from the government directly. Moreover, HEAF and the Department of Education have, at all relevant times, been parties to a reinsurance agreement as provided for in 20 U.S.C. § 1071(c). Pursuant to the provisions of the HEA and the applicable regulations promulgated by the Secretary to implement the provisions of the Act, private lenders make loans to qualified borrowers in furtherance of their education at eligible post-secondary schools. When, in cases such as this, a student loan is in default under the guaranty agency program, the guaranty agency pays the holder of the loan pursuant to the terms of its guaranty, and, under its reinsurance agreement with the Secretary, may thereafter be reimbursed for some or all of the funds which it has expended in paying the default claim to the holder of the note. Under the regulatory provisions pertaining to reinsurance/guarantee agreement cases, the guaranty agency must pursue, with “due diligence” collection on any defaulted loan on which it has received reimbursement. 20 U.S.C. § 1078(c)(2); 34 C.F.R. § 682.200 & 34 C.F.R. § 682.-401(b)(15)(3). The HEA also provides for direct federal subsidies to be paid to lenders on loans made to qualified borrowers. For example, the holder of a qualifying loan is to be paid the interest accruing on the loan during which time the student is enrolled and attending school, during a six (6) month post-enrollment grace period, and during certain authorized deferment periods. See 20 U.S.C. § 1078(a)(1), (b)(1)(A). The Department of Education also pays to the holder, for the life of a qualifying loan, a “special allowance,” which is calculated to provide the holder a specified rate of return on the amount of the loan. See 20 U.S.C. § 1087-1(b). That the GSLP is a highly-regulated program governed by a myriad of statutory and regulatory provisions is not subject to debate. Under the program, for example, federal benefits are available only for loans made to students attending an “eligible institution,” within the meaning of 20 U.S.C. § 1085(a)-(c). The “eligible institution” must also have executed a program participation agreement with the Department of Education which spells out in detail that its participation in the program is conditioned upon total compliance with the provisions of the Act. See 20 U.S.C. § 1094(a); 34 C.F.R. § 668.11(d). Between 1981 and 1986, the period of time at issue in this case, the term “eligible institution” was defined to include a “vocational school” which: (1) admits as regular students only persons who have completed or left elementary and secondary school and who have the ability to benefit from the training offered by such institution; (2) is legally authorized to provide, and provides within the State, a program of postsecondary vocational or technical education designed to fit individuals for useful employment in recognized occupations; (3) has been in existence for two years ... (4) has been accredited by a nationally recognized accrediting agency or association listed by the Secretary pursuant to this clause.... 20 U.S.C. § 1085(c) (1985). The “accreditation” of vocational schools as referenced in 20 U.S.C. § 1085(c) is, the Secretary argues, properly vested in nationally recognized accrediting agencies which have been determined by the Secretary to be reliable authorities as to the quality of the training offered at schools seeking to participate in the GSLP. The Secretary determines which accrediting agencies are to be recognized, with agencies being required to submit a petition to Education detailing compliance with regulatory criteria pertaining to its role and function within the HEA. Accrediting agencies may be given a five-year recognition by the Department of Education, a conditional recognition, or rejection. According to a Declaration submitted by the Secretary, accrediting agencies may be reevaluated at the Secretary’s discretion. See Ross Declaration, attached unmarked to Secretary’s Motion to Dismiss. According to the Secretary, NBC was regarded as an “eligible institution” under the GSLP and other Title IV, HEA programs commencing in 1972 when, under its former name (West Virginia Career College), it established its licensure by the State of West Virginia and its accreditation by the Accrediting Commission of the Association of Independent Colleges and Schools (hereinafter “AICS”). There is apparently no dispute that AICS, which accredited NBC, was and has been continuously recognized by the Secretary since 1956. Plaintiffs contend, however, that the Secretary’s reliance upon accrediting agencies such as AICS for determining the educational quality of schools seeking to participate in the GSL is, in practical effect, “outlandish” and insufficient to protect the integrity of the student loan program and the rights of individual student borrowers thereunder. IV. In this action, plaintiffs seek a declaration that they, as GSL borrowers, may assert any claims and defenses which they have against NBC against the bank defendants, the guarantee agency HEAF, and against the Secretary, arguing: (1) that West Virginia common and statutory law, as well as federal common and statutory law, renders the bank defendants, and in turn, HEAF and the Secretary, subject to the students’ claims and defenses; (2) that the bank defendants are subject to such defenses to the extent that they had an origination relationship with NBC; (3) that the Federal Trade Commission’s “Holder Rule” applies and renders the defendants subject to the students’ claims and defenses; (4) that HEAF took the notes with notice of the defenses which the students had against NBC; (5) that HEAF and the Secretary are not entitled to claim that the students’ claims and defenses are cut off as to them because they are not holders in due course on the notes at issue; and (6) that there was not a negotiable instrument or waiver of defense clause in the loan contracts. See Amended Complaint, Prayer, at ¶ 2(a)-(vi) (pertaining to HEAF and the Secretary) and ¶ 2(b)(i)-(ii) (pertaining to the lenders). As to HEAF and the Secretary specifically, plaintiffs also submit multiple additional theories upon which those defendants should be held subject to the students’ claims and defenses, specifically arguing that HEAF and the Secretary were actually the “ultimate lenders” in the loan transactions at issue; and that HEAF and the Secretary should be estopped from insulating themselves from the students’ claims and defenses because of the control which they exert over the student loan program. As to the Secretary alone, plaintiffs argue that the Secretary should be unable to enforce the student loans due to failure to properly evaluate the financial responsibility of NBC; due to failure to properly determine which accrediting agency was a reliable authority to ascertain the quality of education or training offered by NBC; and due to a breach in the Secretary’s duty to investigate the continued eligibility of NBC as a participant in the GSLP. Plaintiffs further contend that the Secretary should be held subject to the students’ claims and defenses under general principles of agency law and argue that they are entitled to rescission of their student loan obligations and reimbursement of monies paid to date on the loans due to the Secretary’s general failure to safeguard the plaintiffs’ educational interests. Finally, as to HEAF alone, plaintiffs contend that HEAF should not be permitted to collect on the students’ notes inasmuch as, in its role as guaranty agency, HEAF has allegedly failed to comply with the directives of the HEA and implementing regulations. See Amended Complaint, Prayer, at ¶ (k). They assert further that HEAF has acted as an insurer of legally unenforceable loan obligations and has improperly attempted to collect on those obligations in violation of explicit regulations promulgated by the Secretary, thus rendering collection on the notes by HEAF improper as a matter of law. Id. at (1). V. In considering the various theories urged by plaintiffs upon which to hold the defendants subject to the students’ school-related defenses, it is noted that the plaintiffs and the Secretary, against whom the majority of plaintiffs’ wrath appears to be directed, actually agree on one very significant issue. Specifically, the Secretary has consistently embraced the position that: If plaintiffs establish a defense to repayment under either State or Federal statutory or common law, they will obtain the relief they seek, because Education’s rights against them are subject to defenses that accrued against the original lenders prior to the assignment of the loans, after default, to HEAF. See Secretary’s Reply Brief, at p. 3 (emphasis in original). Apparently, under the Secretary’s view of the dispute, if the court concludes that borrower defenses have accrued against the original lenders pursuant to the theories of state and/or federal law asserted by plaintiffs, then the plaintiffs’ loan obligations are both uninsurable and unenforceable by the Secretary as well and no further collection actions will be taken against the students to satisfy their loan obligations. Importantly, however, the bank defendants and HEAF vigorously contest the various theories upon which the plaintiffs base their argument that they are subject to the claims and defenses which the students would have against NBC. They contend, in large measure, that the state statutory consumer laws upon which plaintiffs rely are preempted by the HEA, and assert further that, under the HEA and implementing regulations, the only times in which a student’s guaranteed student loan obligation may be forgiven are in cases of death, disability or discharge in bankruptcy. VI. Plaintiffs argue that application of West Virginia’s consumer protection statute, W.Va.Code § 46A-2-103, clearly establishes that the original lenders and their assignees, particularly, HEAF and the Secretary, are subject to the claims and defenses which the students could assert against NBC. W.Va.Code § 46A-2-103. See also W.Va.Code § 46A-2-102. The statutory provision pertaining to lender liability relied upon by plaintiffs, W.Va.Code § 46A-2-103, states: (2) The following provisions shall be applicable to the claims and defenses of borrowers, arising from consumer sales, with respect to consumer loans made after the expiration of one year after the date this chapter becomes operative: A lender, other than the issuer of a lender credit card, who, with respect to a particular transaction, makes a consumer loan for the purpose of enabling a borrower to buy goods or services, other than primarily for an agricultural purpose, is subject to all claims and defenses of the borrower against the seller arising from that specific sale of goods or services if the lender participates in or is connected with the sales transaction as provided in subdivision (a), subsection (1) of this section, without regard to the provision therein as to notices. W.Va.Code § 46A-2-103(2). Subdivision (a), subsection (1) referred to in W.Va.Code § 46A-2-103(2) — exclusive of the notice provision specifically excepted— states in pertinent part as follows: (1)(a) A lender, other than the issuer of a lender credit card, who, with respect to a particular transaction, makes a consumer loan for the purpose of enabling a borrower to buy goods or services, other than primarily for an agricultural purpose, is subject to all claims and defenses of the borrower against the seller arising from that specific sale of goods or services if such lender participates in or is connected with the sales transaction.... Without limiting the generality of the foregoing, a lender is deemed to be connected with such sales transaction if: (i) The lender and the seller have arranged for a commission or brokerage or referral fee for the extension of credit by the lender; (iv) The lender directly supplies the seller with documents used by the borrower to evidence the transaction or the seller directly supplies the lender with documents used by the borrower to evidence the transaction; (v) The loan is conditioned upon the borrower’s purchase of the goods or services from the particular seller, but the lender’s payment of proceeds of the loan to the seller does not in itself establish that the loan was so conditioned; [or] (vi)The seller in such sale has specifically recommended such lender by name to the borrower and the lender has made ten or more loans to borrowers within a period of twelve months within which period the loan in question was made, the proceeds of which other ten or more loans were used in consumer credit sales with the seller or a person related to the seller, if in connection with such other ten or more loans, the seller also specifically recommended such lender by name to the borrowers involved; W.Va.Code § 46A-2-103(1)(a). Plaintiffs argue that, pursuant to this statute, a lender who makes a consumer loan to a borrower for the purchase of goods or services is, as a matter of law, subject to all claims and defenses which the consumer has against the seller of those services, if that lender is “connected with” the sales transaction in one of the seven ways enumerated therein. See W.Va.Code § 46A-2-103(1)(a)(i)-(vii). In their amended complaint, plaintiffs assert that the banking defendants, through their role in the GSLP, possess the necessary “connection” with NBC in accordance with four of the subsections of § 46A-2-103, so as to subject the lender to the claims and defenses which the students would have against the school. They specifically assert, as to Charleston National Bank, that the bank had an origination relationship with NBC as defined by 34 C.F.R. § 682.200, whereby “the school informed students of the availability of the GSL program and assisted students applying for federally guaranteed student loans from the bank.” Amended Complaint at ¶¶ 142, 151-154. They also contend that Charleston National paid to NBC a referral or “finders fee” in the amount of $10.00 for each loan referred to it by NBC. See Amended Complaint at ¶¶ 142-143. Plaintiffs likewise assert that origination relationships existed between several of the other original lender defendants and NBC. Again, their position in this regard is predicated on the assertion that each lender “delegated to NBC certain functions normally performed by lenders before making loans.” See Amended Complaint at § 149. They also specifically contend as to all the defendant banks that “each of the defendant Banks and the HEAF affiliate lender [HELP] delegated to NBC certain functions normally performed by lenders before making loans,” that NBC had a “business relationship with each defendant Bank,” that NBC routinely referred students to the defendant Banks, that NBC “used applications/promissory notes upon which each of the defendant Banks had stamped its name as the lender,” and had “supplied the school with the HEAF loan documents used by the student borrowers to evidence the transaction.” See Amended Complaint at ¶¶ 142-154. In opposition to the defendants’ motions to dismiss, plaintiffs argue that the facts alleged in their amended complaint which pertain to the close relationship between the bank defendants and NBC clearly invoke subparagraphs (i), (iv), (v) and (vi) of W.Va.Code § 46A-2-103(1)(a) and support their claim that the bank defendants are subject to the students’ claims and defenses against NBC. They specifically assert that subparagraph (i) of § 46A-2-103(1)(a) pertaining to “finders fees” is clearly applicable to the actions of the defendant Charleston National Bank. Subparagraphs (iv), (v) and (vi) are said to be applicable to all of the lenders inasmuch as the student loans were uniformly conditioned “upon the borrower’s purchase of goods or services from the particular seller,” § 46A-2-103(1)(a)(v), inasmuch as the lenders “sup-plie[d] the seller with documents used by the borrower to evidence the transaction,” § 46A-2-103(1)(a)(iv), and inasmuch as the sellers “specifically recommended such lender by name to the borrower ....” W.Va.Code § 46A-2-103(1)(a)(vi). See Plaintiffs’ Brief at pp. 33-34. Plaintiffs further argue that assignees of the original lenders are also subject to the students’ claims and defenses on the basis that the term “lender,” by definition, includes assignees of the lender. See § 46A-1-102(21). Although plaintiffs acknowledge that assignees do not per se acquire the obligations of the lender, they argue that if an assignee seeks to avail itself of the same rights as the lender and attempts to collect on the loans, it must step into the lender’s shoes with regard to defenses pursuant to § 46A-2-103(2). See Plaintiffs’ Brief at p. 35. Plaintiffs also argue that, under state and federal common law, “assignees are by operation of law subject to defenses that could be raised against the assigned [sic].” Id., citing Lightner v. Lightner, 146 W.Va. 1024, 124 S.E.2d 355 (1962); Capital Investors Co. v. Executors, 484 F.2d 1157 (4th Cir.1973); United States v. Kellerman, 729 F.2d 281 (4th Cir.1984). The defendant lenders and HEAF vigorously contest the applicability of state law defenses, and the state statutory law relied upon by plaintiffs to hold the bank defendants and HEAF subject to those defenses, arguing inter alia that the HEA specifies only three (3) times in which a GSLP loan may be forgiven, and that the scheme of federal regulation pertaining to the GSLP is so persuasive as to establish that Congress intended to leave no room for state law to supplement the regulatory scheme of the HEA through application and enforcement of state consumer laws. Moreover, the defendant lenders and guaranty agency argue that enforcement of the state consumer protection laws relied upon by plaintiffs in this case are in irreconcilable conflict with both the letter and the spirit of the governing federal statute and regulations and are, therefore, preempted entirely by the federal law embodied in the HEA. A. Preemption of State Consumer Laws The Supremacy Clause of Art. VI of the United States Constitution provides Congress with the power to preempt state law. Such preemption may result not only from action taken by Congress itself, but also when a federal agency acts within the scope of its congressionally delegated authority. See Louisiana Public Service Comm’n. v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 1898-99, 90 L.Ed.2d 369 (1985). The United States Supreme Court has consistently recognized that, in determining whether a state statute is preempted by federal law and thereby rendered unenforceable under the Supremacy Clause, the Court’s sole task is to ascertain the intent of Congress. See California Federal Savings & Loan v. Guerra, 479 U.S. 272, 280, 107 S.Ct. 683, 689, 93 L.Ed.2d 613 (1986); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 2898-99, 77 L.Ed.2d 490 (1983); Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 1189-90, 55 L.Ed.2d 443 (1978). In ascertaining congressional intent, the Court has recognized several different ways in which state law may be pre-empt-ed: First, when acting within constitutional limits, Congress is empowered to preempt state law by so stating in express terms. Second, Congressional intent to pre-empt state law in a particular area may be inferred where the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress “left no room” for supplementary state regulation ... As a third alternative, in those areas where Congress has not completely displaced state regulation, federal law may nonetheless pre-empt state law to the extent it actually conflicts with federal law. Such a conflict occurs either because “compliance with both federal and state regulations is a physical impossibility,” or because the state law stands “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. See California Federal Savings & Loan v. Guerra, 479 U.S. 272, 280-81, 107 S.Ct. 683, 689, 93 L.Ed.2d 613 (citations omitted). The Supreme Court has also cautioned that “pre-emption is not to be lightly presumed,” Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2128-29, 68 L.Ed.2d 576 (1981), and has, in fact, recognized a presumption against preemption of state law in areas traditionally regulated by the States. California v. ARC America Corp., 490 U.S. 93, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86 (1989), citing Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 716, 105 S.Ct. 2371, 2376-77, 85 L.Ed.2d 714 (1985). Thus, in Rice v. Santa Fe Elevator Co., the Court specifically held that, when Congress legislates in a field traditionally occupied by the states, “we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Rice, 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). None of the parties to this action contend that Congress has explicitly preempted state law in the enactment of the HEA or its implementing regulations. Instead, the bank defendants, relying upon “pure preemption law,” assert that the state consumer statutes relied upon by plaintiffs are preempted inasmuch as Congress, in establishing the GSLP, has created and occupies an original, comprehensive and all-encompassing body of law which spells out in exacting detail nearly every aspect of the operation of the program. The lender defendants also emphasize the critical importance of their participation to the success of the GSLP, arguing that it has been Congress’ consistent and manifest intent to encourage lender participation and to shield lenders who volunteer to participate in the GSLP from “all risk and liability of every kind.” They argue that it is “unthinkable to suppose that Congress, in enacting the GSLP, contemplated that lenders could be subjected to the unlimited risk posed by vicarious liability claims grounded on state consumer law statutes,” and contend that the state consumer laws relied upon by plaintiffs are diametrically opposed to, and in conflict with, the congressional policies underlying the GSLP: It requires little imagination to conclude that if the courts were to allow such an intrusion by state law into the operation of the GSLP which is entirely a creature of federal law, such action would thoroughly destroy the primary force which drives the GSLP and keeps it alive, namely the willingness of lenders to participate in the program. If lenders who volunteer to commit their investors’ funds to guaranteed student loans were subject to the vagaries of vicarious liability actions based upon the misconduct of persons over whom lenders have no control, the machinery of the GSLP would quickly come to a grinding halt. See Brief of Charleston National, et. al., at pp. 25-26. See also pp. 26-27. They continue: As Congress sought to make the GSLP as attractive as possible to lenders, it acted, again and again, to remove all administrative burdens from the lenders, to guarantee them a reasonable profit in return for their dedication of funds to the GSLP, and to shield them from all risks. 1972 U.S.Code Cong. & Admin.News, 2488, 1976 U.S.Code Congr. & Admin.News, 4734. As early as 1980, both the House and the Senate had reached the point where they viewed the GSLP entirely as a “national program,” 1980 U.S.Code Cong. & Admin.News, 3177, in which the lenders’ role was to maintain an ever-increasing flow of funds to the program and to “confine themselves to making lending decisions and leave educational decisions to students, their families and institutions of post-secondary education.” Id. at 3178. Brief of Charleston National Bank at pp. 24-25 (emphasis in original). In this action, the plaintiffs do not dispute the extensive federal statutory and regulatory framework within which the GSLP functions, noting repeatedly that the program takes place within “a highly regulated environment where every action relating to the extension of guaranteed student loans taken by Northeastern Business College and banks was orchestrated by HEAF and the Secretary and where every action taken by HEAF was supervised by the Secretary.” Amended Complaint at ¶ 19. The plaintiffs argue, however, that the highly-regulated nature of the GSLP does not warrant a finding of preemption of state law defenses inasmuch as 20 U.S.C. § 1087 pertaining to discharge of a GSLP loan in cases of death, disability, or bankruptcy are not to be construed as the exclusive circumstances in which a loan may be unenforceable and properly discharged. Moreover, they contend that there is no sound basis upon which to conclude that the HEA preempts state statutory consumer laws which subject lenders having a close connection to the participating school to a student’s school related defenses under either “pure preemption law” or the Clearfield Trust doctrine. The Secretary has taken the same general view as that espoused by the plaintiffs on the preemption issue and has asserted, here and elsewhere, that, although Congress has given the Department of Education the authority to issue regulations which preempt state law, “generally, ... such preemption in the area of borrower defenses is not necessary to accomplish the objectives of the Guaranteed Student Loan Program.” See Reply Brief of Secretary, at pp. 5-6. In this regard, the Secretary has consistently taken the position that rendering GSLP lenders with a close connection to the participating school subject to state law claims and defenses is not inconsistent with the federal interests underlying the HEA, and will not hinder lender participation in the student loan program. See Brief of Secretary filed in Tipton v. Northeastern Business College, Civil Action No. 2:86-1280. See also, Brief of Secretary filed in Veal v. First America Savings Bank, 914 F.2d 909, 911 (7th Cir.1990). The Secretary posed the following argument during the course of the Veal litigation: The HEA simply does not attempt to itemize or limit borrower defenses on GSLP loans; to the contrary, the seminal requirement that the loan agreement be an “enforceable obligation under applicable law,” implicitly disavows any congressional attempt to “leave no room for State regulation.” Therefore, neither the adoption of three specific discharge provisions in § 477 nor the administrative sanctions listed later by the district court demonstrate the kind of comprehensive regulation of borrower’s rights and remedies on GSLP loans as to “occupy the field” and leave “no room for supplementary State regulation.” See Exh. E to plaintiffs’ brief in opposition to the defendants’ motions to dismiss. Inasmuch as the parties in this action do not argue that the HEA expressly preempts state law in the area of borrower defenses, resolution of the preemption question under well-established Supreme Court precedent turns first upon whether, from the scheme of federal regulation, it can be inferred that Congress intended to “leave no room” for supplementary state regulation. If it cannot be so inferred, the court must then undertake to consider whether state based defenses to the enforceability of a GSLP loan, and the applicability of W.Va.Code § 46A-2-103(a)(2)(A) pertaining to the availability of those defenses against lenders “connected with” the transaction, are preempted as being in conflict with the HEA. (1) Whether the scheme of the HEA is sufficiently comprehensive as to raise the inference that Congress intended to preempt state law. In making this determination, the court finds that a review of the provisions of the Act itself are strongly indicative of congressional intent not to preempt the applicability of state law as it pertains to the validity and enforceability of a student’s loan obligation and borrower defenses thereto. Indeed, the Act expressly provides in § 1077(a) that a loan will be insurable by the Secretary only if: (2) evidenced by a note or other written agreement which- (A) is made without security and without endorsement, except that if the borrower is a minor and such note or other written agreement executed by the borrower would not, under the applicable law, create a binding obligation, endorsement may be required. 20 U.S.C. § 1077(a)(2)(A). Congress’ statutory reference to a binding obligation under the applicable law within this provision implicitly embraces state law as it pertains to the underlying enforceability of loan obligations under the GSLP and negates any inference that Congress intended to stake out the entire field and leave no room for supplementary state laws. Indeed, the only law “applicable” to similar loan transactions when the HEA was enacted in 1965 was state law. Consequently, any construction of the language of § 1077 which denies the applicability of state law as it pertains to the enforceability of the promissory note which is central to the federal insurability of GSLP loans would render Congress’ plain choice of words meaningless. That Congress has also acted to expressly preempt other areas of state law pertaining to a GSLP loan obligation is also persuasive evidence that it did not and does not intend to preempt state law as it pertains to the enforceability of a loan and the area of borrower defenses. For example, Congress has manifested its express intent to preempt state law regulation regarding borrower-lender transactions in the following specific instances: state disclosure requirements, 20 U.S.C. § 1099; state-based statutes of limitations and collection expense laws, 20 U.S.C. § 1091(a) & (b); and state usury laws, 20 U.S.C. § 1078(d). Perhaps most telling, in 1986, Congress acted to preempt only one type of state law defense, that of infancy, to the enforceability of GSLP loans. See 20 U.S.C. § 1091a(b)(l) & (2) (1986). Importantly, however, although Congress has not completely displaced state law, federal law may nonetheless preempt state law “to the extent it actually conflicts with federal law.” California v. Guerra, 479 U.S. 272, 280-81, 107 S.Ct. 683, 689, 93 L.Ed.2d 613 (1987). In making this determination, the relevant inquiries are (1) whether compliance with both federal and state regulations is impossible, Guerra, 479 U.S. at 280-81, 107 S.Ct. at 688-89, and (2) whether state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Id. See also California v. ARC America Corp., 490 U.S. 93, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86 (1989). (2) Whether state law conflicts with federal law on the basis that compliance with both federal and state regulations is an impossibility. a. Exclusivity of Discharge Remedy As to the availability of state law defenses against the enforceability of GSLP loan obligations generally, the bank defendants and HEAF contend, in essence, that Congress has precisely stated those remedies available to a borrower under the GSLP, and that, no matter how deficient the underlying obligation would be under state law, a student’s loan obligation may be forgiven only in cases of death, disability, or discharge in bankruptcy. See, e.g., Brief of HEAF, p. 22. The statutory provision upon which they rely states: (a) Repayment in full If a student borrower who has received a loan described in subparagraph (A) or (B) of section 1078(a)(1) of this title dies or becomes permanently disabled (as determined in accordance with regulations of the Secretary), then the Secretary shall discharge the borrower’s liability on the loan by repaying the amount owed on the loan. (b) Repayment of amount discharged If a student borrower who has received a loan described in subparagraph (A) or (B) of section 1078(a)(1) of this title is relieved of his obligation to repay such loan, in whole or in part, through a discharge in bankruptcy, the Secretary shall repay the amount of the loan so discharged. 20 U.S.C. § 1087(a) & (b). Based upon the argument that Congress has precisely stated those remedies available to a borrower under the GSLP within the confines of this provision, HEAF and the bank defendants assert that state-based common law defenses including, inter alia, inadequacy of educational services and lack of consideration, cannot furnish a proper basis upon which a defaulting student may avoid repayment of his GSLP loan obligation. Whether state based common law defenses to the enforceability of a guaranteed student loan are preempted by the HEA and implementing regulations was recently considered in Graham v. Security Savings & Loan, 125 F.R.D. 687 (N.D.Ind.1989), aff'd, Veal v. Savings Bank, 914 F.2d 909 (7th Cir.1990). Under factual circumstances nearly identical to the case at bar, the Graham court held that federal law preempts the rights of business students to rescind their student loans on the basis of allegedly fraudulent misrepresentations made to them by the representatives of the college. In Graham, the named plaintiffs initiated a class action on behalf of students who had enrolled at Adelphi Business College in Gary, Indiana, and who received guaranteed student loans from a private lending institution. The plaintiffs alleged that Adelphi representatives had made fraudulent oral misrepresentations regarding the school’s classes, teachers, programs, and placement opportunities. Ultimately, and prior to satisfaction of the students’ loan obligations, Adelphi filed for bankruptcy and ceased its operations. 125 F.R.D. 687, 689. Although the thrust of the Graham plaintiffs’ arguments was directed toward Adelphi, the school was not a named defendant in the action. Rather, plaintiffs brought suit against the private lender, certain holders of the notes, HEAF as insurer, and the United States as guarantor. The plaintiffs theorized, like the plaintiffs here, that “these defendants were closely connected by a mutually beneficial, continuous business arrangement,” which they contended “subjects the defendants to claims and defenses that the plaintiffs could assert against Adelphi.” 125 F.R.D. at 689. In resolving the students’ claims, the Graham district court held that the state law remedy of rescission sought by the plaintiffs as against the lenders, holders, guarantor and insurer was preempted inasmuch as federal law provides for the discharge of their loans “only if the borrower dies, becomes permanently and completely disabled, or is relieved of his obligation to repay such a loan by a discharge in bankruptcy.” 125 F.R.D. at 692, citing 20 U.S.C. § 1087(a), (b), and 34 C.F.R. § 682.102(c). The Graham court stated: There is no dispute that the plaintiffs received guaranteed student loans to help finance their education through the guaranteed student loan program which is governed by the Higher Education Act. They now seek to have their loans rescinded on the basis of a violation of state and federal law. It is true that federal law governs the remedies available upon default of federally held loans. The application of federal law to remedies upon default of these federal loans is warranted by the “overriding federal interests in protecting the funds of the United States and securing federal investments.” Since there is a detailed and extensive body of federal law governing the guaranteed student loan program pursuant to 20 U.S.C. § 1071 et seq. and their regulations issued pursuant to 34 C.F.R. § 682 et seq., federal law governs these remedies upon default of these guaranteed student loans and rescission based on fraud is not a permissible remedy. 125 F.R.D. at 692 (citations and footnote omitted). After determining that plaintiffs’ state law claims were preempted by the HEA and implementing regulations, the Graham court proceeded to hold that, even assuming federal law did not preempt state law, the plaintiffs had failed to allege any fraudulent activity on the part of any of the named defendants, and had not alleged that any of the named defendants had any knowledge or reason to know of any alleged fraud by the school. On appeal of the Graham decision, the Seventh Circuit recognized, in Veal v. First American Savings Bank, that the district court’s dismissal of the students’ cause of action had been predicated on three separate grounds: (1) on the basis that the plaintiffs failed to state a claim against the named defendants on the fraud and “close connection” argument; (2) on the basis that the remedies under the HEA were limited to those enumerated in the statute; and (3) on the basis that the HEA preempted the students’ state law remedies. 914 F.2d at 911. In affirming the district court’s decision, however, the appellate court did so on the first ground only, expressly declining to affirm the district court’s decision on the preemption issue and on the issue of whether the remedies enumerated within the HEA are exclusive. Id. Importantly, however, the Seventh Circuit unequivocally stated in its last footnote to the Veal opinion that “if sued by a Lender in state court for collection of one of these loans, each of these plaintiff students would be entitled to assert any defenses available under state law that are applicable to his or her particular loan.” 914 F.2d at 914-15, n. 7. Thus, the Seventh Circuit indicated rather unambiguously its position that state based defenses to the underlying loan obligation itself would not be preempted. Like the Veal court, this court is unable to conclude that, by setting forth certain enumerated circumstances in which a GSLP loan obligation may be discharged, Congress intended to infer preemption of any other state based defenses to the validity and enforceability of the underlying loan obligation. Indeed, given Congress express reference to a binding obligation under the applicable law in 20 U.S.C. § 1077 as a condition precedent to governmental insurability of a GSLP loan, it seems rather apparent that the overall scheme of the HEA presupposes the existence of a validly enforceable loan obligation under state law notwithstanding the extensive regulatory framework within which the program functions. In American Bank of San Antonio v. United States, the United States Court of Claims recognized the fundamental prerequisite of a valid and enforceable loan obligation as a condition precedent to the effective functioning of the student loan program. 633 F.2d 543, 224 Ct.Cl. 482 (1980). In that case, the court noted that a lender’s use of altered promissory notes and application forms would render the instrument unenforceable under general legal principles and would be inconsistent with “the government’s legitimate request for a fully enforceable contract on which to recoup its losses.” 633 F.2d at 548. The court stated: The government’s right of subrogation contemplates that the bank’s assigned claim against the student will be valid to the extent that it is enforceable on its face. Unless the bank’s claim against the student is enforceable at the time of assignment, the subrogation rights the government receives in exchange for the insurance payments would be worthless. One of the basic responsibilities placed on lenders is to use reasonable care in conducting their part of the program. A major reason for this requirement is to protect the financial integrity of the program by minimizing the potential governmental liability under it. Lender practices that diminish the enforceability of the promissory notes increase the government’s losses as insurer by limiting its ability to collect from the defaulting students. 633 F.2d at 547 (citations omitted). It is noted that several other courts have, in collection actions brought by the Secretary against defaulting students, rejected state law defenses such as lack of consideration and inadequate educational services asserted by students to avoid repayment of their GSLP debts. United States v. Olavarrieta, 632 F.Supp. 895, 902 (S.D.Fla.1986), aff'd, 812 F.2d 640 (11th Cir.), cert. denied, 484 U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 107 (1987); United States v. Whitesell, 563 F.Supp. 1355 n. 1 (D.S.D.1983); United States v. Lujan, 520 F.Supp. 282, 283 (D.N.M.1980). None of those decisions, however, were premised as a matter of law upon a finding of state law preemption, but rather were decided upon their own individual facts and circumstances. See Olavarrieta, 632 F.Supp. at 902 (no lack of consideration where debtor received educational benefits from loan proceeds); Whitesell, 563 F.Supp. at 1355 n. 1 (claimed of lack of consideration “mer-itless and frivolous”); Lujan, 520 F.Supp. at 283 (no lack of consideration where loan proceeds “applied directly to pay the tuition of a course of study”). Congress’ reference to a binding obligation under the applicable law within 20 U.S.C. § 1077 clearly supports the conclusion that the existence of state law defenses to the enforceability of a student’s loan obligation does not conflict with the statutory provisions of the HEA, but is instead indicative of congressional recognition that the underlying loan obligation must itself be an enforceable one under state law. Moreover, the court finds that Congress’ enumeration of three specific instances in which an otherwise validly enforceable loan may be discharged does not warrant the inference that Congress intended to implicitly preempt all other state law defenses to enforceability of a GSLP loan. b. Lender Liability for School Related Defenses Having concluded that the state law defenses to the enforceability of a GSLP loan are not implicitly preempted by the existence of a discharge remedy in the case of death, disability or discharge in bankruptcy, the court must next consider whether the statutory basis asserted by the plaintiffs to subject the lenders to those defenses is preempted as being in conflict with the Act or its objectives. In reviewing the West Virginia consumer statute relied upon by plaintiffs, the court finds that, with the exception of subparts (iv) and (v) of W.Va.Code § 46A-2-103(1)(a), none of the bases upon which a lender may be held subject to the defenses of a buyer under state law would appear to conflict with federal law embodied in the HEA to the extent that “compliance with both federal and state regulations is a physical impossibility.” Guerra, 479 U.S. at 280-81, 107 S.Ct. at 689. Application of subparts (iv) and (v) of § 46A-2-103(1)(a) would, however, appear to be preempted by the HEA inasmuch as compliance with the mandates of the federal act and regulations would, perforce, automatically render a lender subject to a student’s defenses under state law even in cases in which a close relationship between the lender and school is not otherwise present. Specifically, subpart (iv) of 46A-2-103(1)(a) would render a participating lender subject to a student’s defenses if the lender directly provides the school, or the school provides the lender, with the documents used by the borrower to evidence the transaction, an action which is a required element of the HEA. See 20 U.S.C. § 1078(a)(2)(A). Similarly, subpart (v) of § 46A-2-103(1)(a) would render a participating lender subject to a student’s defenses any time the student’s loan “is conditioned upon the borrower’s purchase of the ... services from a particular seller,” an action which is a requisite element of the HEA, 20 U.S.C. § 1078(a)(2). Consequently, plaintiff’s cause of action against the bank defendants must fail to the extent that it is predicated on an assert-edly close connection with NBC, which connection allegedly results from actions taken by the banks which are expressly dictated by the terms of the federal act and regulations. See W.Va Code § 46A-2-103(1)(a)(iv) and § 46A-2-103(1)(a)(v). Not preempted, however, is plaintiffs’ cause of action against the defendant Charleston National Bank under W.Va.Code § 46A-2-103(1)(a)(i), inasmuch as that defendant allegedly paid to NBC finders fees for GSLP loans issued by that institution. Nor is plaintiffs’ cause of action preempted against the other bank defendants under the remaining portion of the statute which is applicable to plaintiffs’ allegations, namely § 46A-2-103(1)(a)(vi), inasmuch as plaintiffs have alleged the existence of “business arrangements” between such banks and NBC, and inasmuch as plaintiffs contend that NBC “routinely referred” prospective students to those banks. See Amended Complaint, ¶¶ 151, 152. c. HEAF Liability under the West Virginia statute HEAF argues that, even if West Virginia law is not preempted, the plaintiffs have still failed to state a claim against HEAF under the state consumer statute at issue, W.Va.Code § 46A-2-103, inasmuch as there is no allegation in the amended complaint that plaintiffs have preserved their claims and defenses against HEAF. In this regard, HEAF contends that the consumer debtor must provide to the holder, assignee or lender a notice of claims and defenses arising from a specific consumer sale, and that, without such notice of claims and defenses having been given to HEAF, it has taken the subject notes free of the students’ claims and defenses. See Brief of HEAF at p. 35, n. 16. In resolving this argument, it is observed that the West Virginia Consumer Protection Act in question became effective on September 1,1974. See W.Va.Code § 46A-8-101(1). Each of the three code sections, W.Va.Code § 46A-2-101 through § 46A-2-103, pertaining to the conditions under which a holder, assignee, and lender will be subject to a consumer borrower’s claims and defenses, originally contained a prefatory subsection which set forth that the consumer must have given a 180 day notice to a holder, assignee or lender in order to subject any one of those entities to the consumer’s claims and defenses. See W.Va.Code §§ 46A-2-101(1), 46A-2-102(1), and 46A-2-103(1). However, the express provisions of each of those subsections clearly provides that such notice was a necessary predicate to holder, assignee or lender liability only during the Act’s one year phase-in period. For example, § 46A-2-103(1) pertaining to lender liability specifically states: (1) The following limitations shall be applicable to claims and defenses of borrowers, arising from consumer sales, with respect to consumer loans made on the date this chapter becomes operative or within a period of one year thereafter. (a) A lender ... who, with respect to a particular transaction, makes a consumer loan ... is subject to all claims and defenses of the borrower against the seller arising from that specific sale of goods or services if such lender participates in or is connected with the sales transaction, and if such claims and defenses are asserted by the borrower by written notice given to the lender within a period of one hundred eighty days after the lender has delivered or mailed to the borrower a written notice complying with the requirements of subdivision (b) of this subsection (1). W.Va.Code § 46A-2-103(1). Thus, during the one year phase-in period, subsection (1)(a) did, in fact, require the notice referenced by HEAF. By its own terms, however, the Act specifically restricted the applicability of (1)(a) to loans “made on the date [the] chapter be[came] operative or within a period of one year thereafter" W.Va.Code § 46A-2-103(1)(a). Subsection (2) of § 46A-2-103, the provision which is applicable to claims and defenses of borrowers on consumer loans “made after the expiration of one year after the date this chapter becomes effective,” does not contain any such notice requirements and, in fact, provides that a lender will be subject to all claims and defenses of the borrower against the seller if the lender “participates in or is connected with the sales transaction ... without regard to the provisions therein as to notices.” See W.Va.Code § 46A-2-103(2). Having thus found HEAF’s notice argument unavailing, the court next considers the argume