District Court Refuses to Dismiss FCRA Class Action Lawsuit For Negligent Incorrect Credit Reporting On Discharged Student Loan Subtitle: Court finds CRA’s failure to have a procedure in place to distinguish which student loans are discharged is negligence.

District Court Refuses to Dismiss FCRA Class Action Lawsuit For Negligent Incorrect Credit Reporting On Discharged Student Loan Subtitle: Court finds CRA’s failure to have a procedure in place to distinguish which student loans are discharged is negligence.

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Prior to filing for bankruptcy, the Debtor incurred a student loan (ultimately held by Navient)  to attend the Reformed Theological Seminary.  The seminary was not a Title IV accredited institution.

The Debtor filed bankruptcy, listed this loan and received an order of discharge.  Both Navient and Experian Information Solutions LLC. (“Experian”) received notice of the discharge order.  Experian prepared the Debtor’s credit report and described the Navient Loan as “account charged off,” with an outstanding balance and a past due balance.

On April 29, 2019, the Debtor filed a Complaint against Experian in the District Court for the Southern District of New York alleging violations of the Fair Credit Reporting Act (“FCRA”) found at 15 U.S.C. § 1681 et seq and the New York Fair Credit Reporting Act (“NY FCRA”) which has similar provisions.  The Debtor claimed that Experian negligently (Count I) and intentionally (Count II) violated 15 U.S.C. § 1681e(b) and the companion New York statutes (Counts III and IV).[i] A copy of the Complaint can be found here:  In re Mader Complaint

15 U.S.C. § 1681e(b) states

Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.

The Complaint pled that Experian prepared Debtor’s credit report with an inaccuracy in that Debtor’s debt with Navient should have been reported as discharged in his bankruptcy.  This is because the loan was for a non-Title IV school and therefore was not subject to the exceptions to discharge found at 11 U.S.C. § 523(a)(8)(B).

The Fifth Circuit Court of Appeals recently upheld the determination of a Bankruptcy Court finding that a non-Title IV school debt was dischargeable.  Crocker v Naviant Solutions (In re Crocker), Case No. 18-20254 (5th Cir. October 21, 2019).  A discussion of this case along with the opinion can be found in the NACBA News Case Bites October 25, 2019 post.  Click here.

Experian filed a motion to dismiss.  Experian first argued that the Complaint pled only a dispute about the legal effect of the discharge, not a factual inaccuracy.  The Court disagreed.

The Complaint alleges that that the Navient Loan is dischargeable in bankruptcy because the Reformed Theological Seminary is not a Title IV institution, and student loans for non-Title IV accredited institutions are dischargeable in bankruptcy. See also generally11 U.S.C. § 523(a)(8)(B). The Discharge Order, incorporated by reference in the Complaint, in turn states that “IT IS ORDERED THAT: 1. The Debtor is released from all dischargeable debts.” The Discharge Order accordingly discharged the Navient Loan. The Complaint therefore sufficiently alleges that Defendant’s credit report, which describes the Navient Loan as outstanding and with a past balance due, is inaccurate.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *5 (S.D.N.Y. Jan. 17, 2020).

Next, the Court rejected Experian’s argument that the Debtor should have brought this complaint as an adversary proceeding or through a request for Experian to reinvestigate the status of the loan.

Whether or not Plaintiff could take such approaches does not change that the Complaint still adequately pleads a factual inaccuracy in Defendant’s report and Defendant’s corresponding obligation to use reasonable procedures to ensure maximum possible accuracy of its credit reports.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *6 (S.D.N.Y. Jan. 17, 2020).

The Court also rejected Experian’s argument that the issue of dischargeability of the student loan is a matter of law citing Brunner vNew York State Higher EducServCorp., 831 F.2d 395 (2d Cir. 1987).

In Brunner, the Second Circuit stated that “[w]hether not discharging [plaintiff’s] student loans would impose on her ‘undue hardship’ under [the statute] requires a conclusion regarding the legal effect of the bankruptcy court’s findings as to her circumstances.” Id. at 396. The undue hardship analysis is different from whether federal law defines a student loan as dischargeable or non-dischargeable, so this case is inapposite.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *6 (S.D.N.Y. Jan. 17, 2020).

Finally, the Court rejected Experian’s argument that the Complaint pleads no facts that the discharge actually discharged the loan.

This is also incorrect. The plain language of the Discharge Order states that “IT IS ORDERED THAT: 1. The Debtor is released from all dischargeable debts.” As discussed above, the Complaint pleads facts showing that the Navient Loan was dischargeable, and indeed, discharged. A separate section of the Order acknowledges that “the law is complicated [and the reader] may want to consult an attorney to determine the exact effect of the discharge in this case.” But this language does not affect that “[t]he Debtor is released from all dischargeable debts.” It merely advises that a lay person may have difficulty determining whether a particular debt is discharged.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *6-7 (S.D.N.Y. Jan. 17, 2020).

The Court concluded that Experian failed to follow reasonable procedures to ensure the accuracy of the credit report.

The Complaint sufficiently alleges that Defendant was on notice that the Navient Loan could have been discharged. Therefore, the failure to have a procedure in place to distinguish between the types of student loans that are dischargeable and those that are not is negligent… The Complaint also pleads a facially reasonable procedure that Defendant could have, but failed to undertake, to safeguard against inaccurate reporting about discharged student loans — directing lenders, when they provide credit information to Defendant, to report student loans as either dischargeable or non-dischargeable.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *7 (S.D.N.Y. Jan. 17, 2020).

The Court did find that the Debtor’s federal and state counts alleging an intentional violation were insufficient and dismissed those counts.

In contrast to the negligence claims, the willfulness claims are dismissed because the Complaint does not sufficiently plead that Defendant knowingly or recklessly failed to follow reasonable procedures…”[T]o constitute reckless disregard . . . a CRA’s interpretation of its statutory duties must be ‘objectively unreasonable.'” Frydman vExperian Information SolutionsInc., No. 14 Civ. 9013, 2016 WL 11483839, at *16 (S.D.N.Y. Aug. 11, 2016) (quoting Safeco InsCoof AmvBurr, 551 U.S. 47, 69 (2007)). A complaint pleads objective unreasonableness when it includes facts showing that a CRA failed to follow plainly evident information. See Jones vHalstead Management CoLLC, 81 F. Supp. 3d 324, 333 (S.D.N.Y. 2015) (holding that CRA acted willfully because it failed to follow the plain meaning of the statute).

Here, the Complaint does not plead facts showing that it was “plainly evident” that the Reformed Theological Seminary was not a Title IV institution, or that the Navient Loan was therefore discharged.

Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *8-9 (S.D.N.Y. Jan. 17, 2020).

In conclusion, the Court denied Experian’s motion to dismiss the counts concerning involuntary violations but dismissed the counts of intentional violations.

Practice Pointers

  • First determine whether the school is a Title IV institution. A helpful tool is the Department of Education’s Federal School Code List, which includes all post-secondary schools that are currently eligible for Title IV Schools on the list can be found by using the search function on the Department’s website or by downloading the list in a searchable Excel format. The List for the current calendar year is available at https://ifap.ed.gov. Several bankruptcy courts have taken judicial notice of the Federal School Code List under Federal Rule of Evidence 201 in making findings on whether a school an eligible education institution subject to subsection (B). See In re Nunez, 527 B.R. 410, 416 (Bankr. D. Or. 2015); In re Rumer, 469 B.R. 553, 562 (Bankr. M.D. Pa. 2012). National Consumer Law Center, Consumer Bankruptcy Law and Practice § 15.4.3.8.1 (12th ed. 2020).
  • This case affirmed that a plaintiff can pursue an FCRA claim against a credit reporting agency for negligently failing to institute procedures to determine whether a student loan was discharged in a prior bankruptcy.
  • This case stands for the proposition that it is not necessary to return to the bankruptcy court for a determine of dischargeability when the plain language of the Bankruptcy Code indicates that the debt is discharged.
  • When presenting these arguments to your court, please notify Tara Twomey, Executive Director of the National Consumer Bankruptcy Rights Center (NCBRC) at ncbrc.org. Tara is an invaluable resource to help guide your argument.

A copy of the opinion is here: In re Mader

A copy of the Debtor’s Reply Brief to Experian’s motion to dismiss is here:  In re Mader Response to Experians MTD

[i] “A plaintiff who prevails on a negligence claim is entitled to actual damages and costs, while prevailing on a willfulness claim entitles the plaintiff to either actual or statutory damages, punitive damages and costs. (Citation omitted.)” Mader v. Experian Info. Sols., 19 Civ. 3787 (LGS), at *4 (S.D.N.Y. Jan. 17, 2020).

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