The FCRA and the Higher Education Act: the HEA is not a hall pass for FCRA reporting requirements.
The Fair Credit Reporting Act (FCRA) imposes separate and distinct duties on “furnishers” of information (persons/entities that provide credit information to credit reporting agencies), on “consumer reporting agencies” (CRA) (companies that collect credit information and organize the material into individual credit reports), and on “users” of credit reports. Seamans v. Temple University
involved the interplay between a furnisher-school’s obligations under the FCRA and whether a different statute, the Higher Education Act (HEA), affected those obligations. The FCRA generally orders that adverse debtor information must be “aged-off” seven years after the initial delinquency. The HEA contains an exception to that rule for federal student loans – the repayment information must remain on the credit report until the loan is paid in full.
In 1989, Seamans began enrollment at Temple University, supported by a Perkins loan. When loan repayment began in 1992, Seamans defaulted and Temple eventually put the loan into collections. However, it does not appear that Temple reported the default or the collection to any CRA. In 2010, Seamans enrolled at Drexel University, but the school told him it would not grant him financial aid until he repaid his outstanding loan to Temple. Seamans immediately paid-off the Temple obligation. Curiously, at that time in 2011 (20 years after the initial default), Temple then reported the facts of default and collections to a CRA. As the Appellate Court noted, “Temple’s incomplete and misleading reporting made it appear as if Seamans had simply made a late repayment on a non-defaulted loan in 2011, which ... could be recorded on his credit report until 2018.” Seamans claimed that his credit score dropped 80 points from Temple’s report.
Under the FCRA, a debtor’s first recourse to dispute a trade line in a credit report is to file a dispute with the CRA. The CRA then notifies the furnisher of the dispute and the furnisher has an obligation to investigate the matter. A furnisher also has an obligation to report to the CRA the month and year of the initial delinquency. The reason for that information is that a CRA is obligated to age-off debts after seven years; without the month and year of initial delinquency, the CRA would not be able to calculate that seven year period. It was undisputed that Temple’s policy was to not
report the month and year of delinquency of student loan defaults.
Temple argued that the HEA exception described above authorized Temple to omit that information. However, that exception expressly exists only for a CRA; the exception does not similarly state that it applies to furnishers of information (like schools) providing
the month and year information to the CRA. The Appellate Court ultimately concluded the HEA exception did not exempt Temple from its typical FCRA reporting obligations. If Temple had properly reported Seaman’s debt, collection, and repayment, the trade-line would have disappeared in 2011 when he paid it in full – not seven years later when the typical aging-off would occur.
The Appellate Court then remanded the case to the trial court to determine whether Temple’s investigation of Seaman’s dispute was “reasonable,” as required by the FCRA. The Court noted its concerns regarding evidence that Temple’s third-party servicer typically only spent 15 minutes on disputed credit reports and that the servicers’ policies were to never flag an account as disputed and to never report the month and year of initial delinquency.
Finally, the Appellate Court rejected Temple’s argument that a debtor lacked a private cause of action relative to a furnisher’s failure to flag a credit report as “disputed.” Typically, only the government has authority to charge a furnisher with failing to flag a disputed report. However, where a furnisher is required to conduct an investigation of its disputed report and still omits that a debt was disputed, then that second omission can be a “material inaccuracy” that permits a debtor’s private cause of action.
Schools should consider Seamans
a teachable moment: higher education institutions (a) have a continuing duty to comply with FCRA obligations and (b) are not privy to the HEA exception.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.