A District Court judge in Illinois has partially granted a defendant’s motion to dismiss claims it violated the Fair Credit Reporting Act over how student loans were reported by a creditor after the plaintiff filed for bankruptcy protection, allowing the core FCRA allegations to move forward while dismissing a request for declaratory relief.
The background: The plaintiff had eight student loans serviced by the defendant, six of which were private loans. After filing for Chapter 13 protection in 2019, the defendant submitted Proofs of Claim for all eight loans. Years later, the Department of Education notified the plaintiff that his federal ITT Technical Institute loans were eligible for discharge under a borrower-defense program, but emphasized that “borrower defense to repayment does not apply to any private student loans.”
- The defendant withdrew its claims for the federal loans but not the private ones. The plaintiff then objected to the remaining claims in bankruptcy court, arguing that ITT Tech’s misconduct should relieve him of repayment obligations.
- When the defendant did not respond, the bankruptcy court sustained the objections, allowing the claims only in the amount already paid by the trustee and disallowing the remainder.
- Despite that outcome, the defendant continued reporting the private loans as charged off with outstanding balances. After the plaintiff disputed the reporting with the credit bureaus, the defendant verified the information as accurate, prompting the FCRA lawsuit.
The ruling: Judge Nancy J. Rosenstengel of the District Court for the Southern District of Illinois held that the plaintiff plausibly alleged that the defendant supplied inaccurate or incomplete information by continuing to report outstanding balances despite the bankruptcy court’s orders and the ultimate discharge.
- Judge Rosenstengel emphasized that the defendant never objected to the Chapter 13 plan, its amendments, or the objections to its claims.
- Because the plaintiff made a showing of inaccurate reporting, the FCRA claims against both the furnisher and the credit bureau will proceed.
- However, Judge Rosenstengel dismissed the plaintiff’s request for a declaratory judgment that the loans are unenforceable under the FTC Holder Rule, finding no justiciable controversy and noting that the claim sought an improper advisory opinion.
