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Credit Agencies Sued Again for Lowering Student Borrowers' Credit Scores Despite CARES Act

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By Joseph Fawbush, Esq. on July 23, 2020 10:04 AM

A proposed class action filed in U.S. District Court in New Jersey claims TransUnion and Equifax violated the Fair Credit Reporting Act by lowering student borrowers' credit scores for missed payments, despite borrowers getting relief from payments after Congress passed the CARES Act. The CARES Act paused federal student loans from March 13, 2020 until September 30, 2020.

The CARES Act mandates that credit reporting agencies cannot lower credit scores for student debt relief passed to offset the economic impacts of the pandemic, instead treating these skipped payments as on time payments. Despite this, the lawsuit claims, Equifax and TransUnion negligently or willfully lowered credit scores incorrectly reported to them as in forbearance.

A Mistake That Could Have Impacted Millions

According to the complaint, Navient “improperly reported thousands of federally owned student loans as being in forbearance or accruing interest. This resulted in thousands of borrowers suffering a decrease in their credit score." The complaint alleges that credit bureaus could have implemented procedures to ensure accurate reporting, and they negligently failed to notice and respond to these thousands of mistaken reports from Navient.

This is the second class action lawsuit filed against credit bureaus relating to the CARES Act. The first, filed in May, made similar allegations against Experian, Equifax, and TransUnion. That lawsuit alleged up to five million student loan borrowers had their credit score negatively impacted. After the first lawsuit was filed, Great Lakes, a subsidiary of Nelnet, admitted to mistakenly reporting loans as in forbearance and said it would retroactively correct the error.

The lawsuits are seeking punitive damages in addition to the financial impact associated with a lowered credit score. The lawsuit seeks to file claims on behalf of any borrower “about whom Navient furnished credit information to Equifax, Trans Union, or Vantage Score pertaining to federal student loans held in suspension due to the COVID-19 Pandemic."

So far, student loan borrowers have submitted hundreds of similar complaints with the Consumer Financial Protection Bureau. Under the Fair Credit Reporting Act, credit bureaus must investigate mistakes when notified and respond within 30 days. The Federal Trade Commission has information for consumers on how to correct mistakes in credit reports.

Related Resources

Collection Letter Falsely Implying Immediate Legal Action Doesn't Violate FDCPA (FindLaw's U.S. Second Circuit)

Federal Student Loan Default and the Fair Credit Reporting Act (FindLaw's U.S. Third Circuit)

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