Lawsuit Accuses Agencies of Illegally Lowering Student Loan Borrowers’ Credit Scores During COVID-19 Emergency
In response to the unprecedented economic impact of the COVID-19 pandemic, Congress provided for student debt relief in the recently adopted CARES Act. To be clear, Congress did not cancel any existing student loan debt. But it did order a temporary freeze on payments and interest for anyone who currently owes money on a federally backed loan. Eligible borrowers need not take any special action to obtain this relief.
Credit Score Algorithm Did Not Account for Congressionally Mandated Relief
According to the CARES Act, a non-payment up through September 30, 2020, should not affect a borrower’s credit score. Unfortunately, it seems the credit reporting companies are not following Congress’ instructions. At least that is what a recently filed class action complaint has alleged.
The lawsuit, filed in California federal court on May 20, names the three major U.S. credit reporting agencies–Equifax, TransUnion, and Experian–as defendants, along with a major student loan servicer and VantageScore Solutions, a separate entity setup by the agencies to determine consumer credit scores.
The complaint maintains that although the CARES Act provides “explicit” instructions “requiring student loans to be treated as paid during the time when the federal government is not requiring any payments,” Equifax and the loan servicer “misreported” the status of millions of loans as “deferred.” More to the point, the algorithm used by VantageScore–which all three credit agencies rely upon in their reporting–failed to “account for relief that was automatically provided” under the CARES Act. In effect, the lawsuit said VantageScore’s algorithm treated non-payments authorized by Congress as “negative effects,” which in turn caused a “precipitous, sudden, and predictable drop” in the credit scores of millions of borrowers.
The lawsuit argues these actions violated the law in at least three ways:
- The loan servicer violated federal credit reporting laws “by furnishing inaccurate information about consumers” to Equifax and the other agencies.
- Equifax also violated federal credit reporting laws “by failing to employ reasonable procedures to ensure [the] maximum possible accuracy” of student loan borrowers’ information.
- All three agencies and VantageScore violated California Unfair Competition Law by implementing a “wholesale reduction” in consumers’ credit scores, in direct contravention of Congress’ instructions in the CARES Act.
In addition to seeking class certification, the complaint seeks a jury trial and unspecified monetary relief from all defendants.
Speak with a Florida Student Loan Debt Relief Attorney Today
If you have an outstanding student loan, it is a good idea to check your credit report as soon as possible to see if this issue has affected you. To reiterate, if you have a federally backed student loan, you are not required to make any payments up until September 30, 2020, and your failure to make payments during this time cannot be used to lower your credit score.
And should you have additional questions or concerns about student loan relief during the COVID-19 emergency, please contact Miami student loan debt lawyer Julia Kefalinos at 305-676-9545. Our office remains open for consultations and we can meet with you in-person, or via Skype, FaceTime, WhatsApp and other such video conferencing means while following all safety precautions recommended by the CDC.