Bank That Made Student Loans Now Subject Of Appeal Hearing

A lawsuit that stemmed from the bankruptcy of Las Vegas-based Silver State Helicopter could have implications for the banking industry as it continues to move through the Ninth Circuit of the U.S. Court of Appeals in California.

Last Friday, an 11-judge panel heard arguments that Cleveland, Ohio-based Keybank should have known that the flight school was teetering on the edge of insolvency when it made loans to about 100 Silver State students. When the school closed and entered bankruptcy in 2008, some of those students had just written tuition checks of up to $23,000 towards the $70,000 charged by the school per year. While many banks forgave the debts, Keybank, one of the nation's 20 largest, did not.

According to the Riverside, CA, Press-Enterprise, the Ninth Circuit declined to hear the case two years ago, saying the students should abide by arbitration ... which often favors corporation. But the court decided two months ago that it would hear the case, and arguments were made last Friday. At issue is whether forcing the students to accept the decision of an arbitrator is detrimental to consumer protection. Either way, it could be a decision with far-reaching implications.

There is no timeline for when the court might rule on the case.

FMI: www.ca9.uscourts.gov