Experian Not Required under FCRA to Know Legal Validity of Debt

Posted by NCBRC - January 11, 2023

Where it was not clear whether the debtor’s educational loan was included in his discharge, Experian did not violate the FCRA by reporting it as an outstanding debt. Mader v. Experian Information Solutions, Inc., No. 20-3073 (2d Cir. Jan. 4, 2023).

In 2013, the debtor received a chapter 7 discharge, covering “all dischargeable debts.” After his bankruptcy was closed, he continued to repay his pre-bankruptcy private educational loan to Navient, and Navient continued to report to Experian that the debt was outstanding. After a time, the debtor changed course and sued Experian in district court under the Federal Credit Reporting Act for issuing a false report with respect to that loan, alleging that the debt had been discharged in his bankruptcy. Experian moved for summary judgment.

The district court focused on whether the loan had been discharged under section 523(a)(8)(A)(i) which provides that an educational loan is typically not dischargeable in bankruptcy if it was “made under any program funded in whole or in part by a governmental unit or nonprofit institution.” The parties offered conflicting evidence as to whether the private educational loan was issued under a “program” covered by section 523(a)(8)(A)(i). Without addressing the evidence presented by the debtor, the district court found the loan was nondischargeable and granted summary judgment in Experian’s favor.

The debtor appealed to the Second Circuit.

The circuit court found the district court erred in two respects: first, it incorrectly concluded that no issue of material fact remained as to whether the educational loan had been discharged; second, and more importantly, it erred in finding that it had to resolve the issue of whether the debt had been discharged in order to reach a conclusion as to the FCRA claim against Experian.

Section 1681e(b) of the FCRA provides that credit reporting agencies must “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The court found that “accuracy” for purposes of the reporting agency mandate required that the agency’s report be based on “objectively and readily verifiable information.” Reporting agencies are not required to resolve open legal questions as to the validity of the underlying debt, and “inaccuracies that turn on legal disputes are not cognizable under the FCRA.”

In this case, the court found that there was no “objectively and readily verifiable information” which would have alerted Experian that the underlying educational loan had been discharged. The bankruptcy discharge order did not specifically include the debt and, in fact, both the debtor and Navient continued to treat the debt as ongoing even after the bankruptcy discharge.

Nor was the status of the debt clear based on settled case law. Courts have taken differing views as to whether the type of private educational loan at issue in this case is dischargeable under section 523(a)(8), and final determination of the issue involved a factual dispute as to the funding and structure of the lending program. The court reiterated that the district court’s resolution of the issue on summary judgment was in error. Finally, the court noted that other courts addressing similar cases have disapproved use of the FCRA to make collateral attacks on the validity of debts.

The court concluded that the “unresolved legal question regarding the application of section 523(a)(8)(A)(i) to [the debtor’s] educational loan renders his claim non-cognizable under the FCRA.” It observed that the proper avenue for relief would have been for the debtor to dispute the debt directly with Navient.

Mader 2d Cir Jan 2023

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