A District Court judge in Illinois has refused to dismiss Fair Credit Reporting Act claims against a student loan furnisher, even after previously dismissing nearly identical claims against a credit reporting agency in the same case, creating an important distinction for furnishers responding to bankruptcy-related disputes involving student loans.
The background: The plaintiff alleged that a private student loan account should have been discharged through Chapter 7 bankruptcy proceedings filed in 2022. The plaintiff later discovered the account was still being reported as active and delinquent on his credit report and disputed the reporting through the credit reporting agency.
- The dispute triggered Automated Consumer Dispute Verification requests to the defendant furnisher, which allegedly verified the account as accurate and failed to correct or delete the disputed information despite repeated disputes.
- Earlier in the litigation, the court dismissed FCRA claims against the credit reporting agency, finding that determining whether a student loan was discharged in bankruptcy would require the agency to make a legal determination outside its role as a CRA. The court emphasized that most student loans are not automatically discharged in Chapter 7 proceedings absent a finding of undue hardship.
The ruling: This time, however, Judge Mary M. Rowland of the District Court for the Northern District of Illinois reached a different conclusion when analyzing the claims against the furnisher itself.
- The judge acknowledged that student loan dischargeability is often a legal issue, but emphasized that furnishers stand in a different position than credit reporting agencies because they may have direct knowledge of the bankruptcy proceedings and the status of the debt. “Unlike [the credit reporting agency], [the defendant furnisher] would have had the opportunity to participate in the bankruptcy proceedings and would know whether the debt was discharged or not in bankruptcy,” Judge Rowland wrote. That distinction mattered.
- Judge Rowland pointed to Seventh Circuit language suggesting that consumers are “not left without recourse” because they can pursue creditors “who are in the best position to respond to assertions that they do not own the plaintiffs’ debts.”
- Importantly, the judge declined to adopt what it described as a heightened pleading standard for student loan disputes under the FCRA. The defendant had argued the plaintiff failed to allege facts rebutting the presumption that student loans are generally nondischargeable in bankruptcy.
