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No good deed goes unpunished? Recent case suggests this may be true for the FCRA.

March 7, 2014 Leave a comment

In recent days, a number of people have called Seamans v. Temple University to my attention and suggested that I blog about it.  Rather than disappoint them, here goes.

In Seamans, the plaintiff owed about $1100 to Temple University for a student loan.  Unlike normal loans, student loans cannot be discharged in bankruptcy, so if you borrow money to go to college, and then don’t pay the money back, the lender can hound you for it literally to your grave.

The plaintiff did not pay his loan back for almost 20 years.  During this time, it stayed on his credit report.  Normally, debts that you don’t pay “age off” after seven years – they are removed from your credit report due to the seven-year rule in 15 U.S.C. Sec. 1681c.*  However, Congress has stated in something called the HEA that precisely because student loans can be collected forever, they should appear on a borrower’s credit report forever; they are exempt from the seven-year rule.  20 U.S.C. § 1087cc(c)(3) (“a consumer reporting agency may make a report containing information received from . . . an institution regarding the status of a borrower’s account on a loan made under this part until the loan is paid in full”).

Temple saw that past-due student loan debt can stay on a borrower’s report indefinitely.  It also saw that it had no obvious way of telling the consumer reporting agencies that plaintiff’s debt was a student debt and should therefore not be allowed to age off.  So, it came up with a work-around to help the bureaus keep reporting the debt:  it never told them the date of delinquency or the collection history, so that the bureaus would have no way of calculating the seven-year period and would thus keep reporting the debt as past due.

Temple argued that this work-around was simply helping the bureaus to comply with the HEA.  The trial court agreed and granted summary judgment in favor of Temple.  The appeals court disagreed and reversed.  It stated that because the HEA provision only allows “a consumer reporting agency” to keep reporting student loans indefinitely, it did not allow Temple – which is not and never claimed to be a CRA – to help the CRAs do this.

This is not the end of the story; not only did the Third Circuit Court of Appeals say more than I have alluded to here, Temple could go to trial if it wanted to (though it probably won’t).  I end here because I have taken two morals from the story so far, and that’s enough for one blog post.  The morals are:

1.  I already knew this, but the Third Circuit is one of the most plaintiff-friendly appeals courts in the country when it comes to FCRA cases; and

2.  Temple’s “good deed” – its attempt to help the CRAs to comply with the HEA – did not go unpunished.

*The idea of forgiving debts after seven years has a Biblical precedent.  I have always wondered if the seven year in 15 U.S.C. Sec. 1681c was motivated by this Biblical rule.  If anybody knows the answer, please email me and let me know.

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