Plaintiffs File Lawsuit Regarding Student Loan Credit Reporting

The CARES Act placed the federal student loans of all borrowers into a suspended status. At present, no payment is due and interest is not accruing. Even though borrowers are not currently paying these debts, it is not supposed to have any effect on their credit score. However, that is not what customers of what particular student loan servicer are learning. Many have been shocked to find out that their credit scores have dropped even though these accounts have automatically been suspended for the present. As a result, plaintiffs have filed a class-action lawsuit against Great Lakes Financial for the damage that has been done to their credit. The lawsuit also named each of the credit bureaus as defendants since they may also be held accountable for inaccurate credit reports for their own process mistakes.

The Fair Credit Reporting Act requires accurate reporting on someone's credit. When there is an incorrect entry, the entity that placed the negative notation along with the credit bureau can be sued and made to pay monetary damages for their improper entry. Even a negligent violation of the act may mean that the responsible party will need to pay for the plaintiff's costs incurred because of their incorrect credit report as well as emotional distress and a loss of reputation.

The CARES Act Suspended Student Loan Payment and did not Defer Them

Here, the CARES Act, passed by Congress to address the coronavirus crisis, gave some relief to those with student loan debts. Specifically, federal loan servicers were to automatically stop collecting payments on accounts. The borrower did not need to make any request for this. At the same time, interest would not accrue during this period. The federal government was not able to make these changes on its own so it issued direction to servicers to implement the changes. One of the directions was that borrowers' accounts be marked as repaid instead of deferred. When an account is in deferral, it is a negative mark on the borrower's credit.

Great Lakes Financial is the largest servicer of student loan debt in the United States. Its portfolio includes virtually half of all the federal student loan debt outstanding. Contrary to what the federal government required, Great Lakes reported millions of accounts as in deferral. Then, all of the credit bureaus allegedly failed to adjust their own scoring models to account for the federal government's relief provided. The scoring models factored in a deferred account and dropped millions of consumers' credit scores.

The Deferral Notation Harmed the Plaintiffs' Credit Scores

However, the drop in credit scores did not occur as a result of anything borrowers did. They did not ask for their accounts to be deferred, let along suspended. Nonetheless, many had a rude surprise in store for them when they checked their credit score. One plaintiff reported a 27-point drop in their score, while another's dropped by 33 points.

The named plaintiff in the lawsuit claims that the harm done to his credit score caused him to stop looking for a new property that he wanted to buy. He did not want to apply for a mortgage with an artificially depressed credit score. One bank had seen that his credit account was in a "deferred" status, which is a red-flag among lenders. He had already rented out his previous property, so he was forced to move his possessions into storage.

Here, the plaintiffs in the case claim that the defendant's conduct was either willful or reckless. The lawsuit states that everyone knew about the CARES Act and what the impact was on student loans. The plaintiffs allege that there would have been no possible way for the defendants to simply make a mistake about something that was so widely known. The only way that the drop in credit scores could have occurred would have been a part of a willful refusal to implement procedures for the suspension of accounts. Otherwise, the plaintiffs claim that even a small amount of effort would have prevented this error.

The reason why the plaintiffs are trying to allege that the violations were willful and reckless is because that greatly increases the penalties that defendants face in FCRA lawsuits. Each willful violation of the FCRA could result in penalties between $100 and $1000. Since each incorrect credit report could be treated as a willful violation, you can see how the penalties for the defendants could add up very quickly.

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