In a case of first impression, the Third Circuit has ruled in a precedential opinion that the Higher Education Act of 1965 (HEA), 20 U.S.C §§ 1001-155, does not exempt an institution of higher education that furnishes student loan information to a credit reporting agency from the general reporting requirements of the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681-1681x.
In Seamans v. Temple University, F.3d, 2014 WL 6584-01 (3d Cir. 2014), Edward Seamans brought an action against Temple University for negligent and willful violations of the FCRA arising from the university's reporting of certain information concerning an HEA-qualified student loan to various credit reporting agencies (CRA). Seamans obtained an HEA-qualified student loan in 1989 to attend the university. Seamans failed to repay the loan. It was declared delinquent in 1992 and sent out for collection. In 2011, Seamans sought to obtain a Pell Grant to attend Drexel University but was told he could not obtain the grant in light of the prior defaulted student loan. In April 2011, Seamans repaid the prior defaulted loan in full.
In May 2011, Seamans noticed a "trade line" entry on his credit report pertaining to the original loan from 1992. (It was unclear and unnecessary to the court's decision whether or not the trade line previously appeared on his credit report.) In May 2011, Seamans disputed the trade line claiming it had only recently appeared on his credit report, not having appeared for over a decade after the loan was delinquent. Although the trade line showed that the loan had been recently paid, it also indicated prior late payments and failed to indicate that the trade line was being disputed. Seamans claimed that the trade line was negatively impacting his credit scores and should have been removed due to its age.
The FCRA imposes a variety of obligations on both "furnishers" of information and CRAs. In particular, to protect consumers from having their credit forever impaired, CRAs are precluded from reporting delinquent accounts that have been "placed for collection" or "charged or written-off" after a period of seven years from the date of first delinquency. After seven years, the account can no longer be reported by the CRA and is "aged-off" or removed from the consumer's credit report. However, CRAs are exempted by the HEA from the seven-year aging-off provisions of the FCRA for HEA-qualified loans. The reason for this HEA-qualified loan exemption is because there is no statute of limitations to collect a defaulted student loan and, Congress wanted potential lenders to be aware of negative credit information related to HEA-qualified loans. Therefore, an HEA-qualified, defaulted and unpaid student loan can remain on one's credit report indefinitely. The question presented was whether the exemption applied to "furnishers of information" as well as credit reporting agencies.
The Third Circuit looked to the statute itself, which provides that "...a consumer reporting agency may make a report containing information received from ... an institution [of higher education] regarding the status of the borrower's account on a loan... until the loan is paid in full." 20 U.S.C. §1087cc(c)(3). Since the statute did not specifically include furnishers of information in this section, the exemption from the general reporting requirements did not apply to the information it was required to provide. The court concluded that furnishers of consumer credit data remain obligated to report fully and accurately under the FCRA regarding the collection history and date of delinquency for even an HEA-qualifying loan. Although the CRA may still be required to continue to report an unpaid HEA-qualified loan after the seven-year period has run, if the defaulted HEA-qualified loan is subsequently paid, the loan should be aged-off immediately. In effect, the seven-year period runs from the date of first delinquency, whether or not a loan is HEA-qualified. It will only be removed, however, after it has been repaid. Thus, the furnishers are required to comply with all of the reporting requirements, regardless of whether or not the CRAs are required to continue to report the defaulted HEA-qualified loans. It is not the furnisher's obligation to make this distinction on behalf of a CRA.
In another issue of first impression, the Third Circuit interpreted the furnisher's obligation under the FCRA to provide "complete" and "accurate" information concerning a loan. The court applied the same test that has been applied to CRAs with regard to the furnisher's duties. Obviously, information must be technically correct to be accurate. However, the court also held that information that is technically correct may also be "inaccurate," if through omission it creates a materially misleading impression concerning the consumer's creditworthiness. Whether technically accurate information may be otherwise misleading is generally a question to be submitted to the jury.
Finally, the Third Circuit held that there is a private right of action under the FCRA when having received a notice of a consumer's potentially meritorious dispute, a furnisher subsequently fails to report the claim as disputed. This is true although there is no private right of action for the furnisher's failure to affirmatively flag an account as disputed in the first instance.
The Seamans case is a further expansion of the rights of consumers under the FCRA.
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