Class Action: Great Lakes, Credit Reporting Agencies Mishandled Student Loan Reporting Under CARES Act

A proposed class action claims Great Lakes Educational Loan Services and the three main credit reporting agencies have inaccurately reported information regarding student loan payments that were suspended through September 2020 under the CARES Act.

In addition to Great Lakes, the 28-page lawsuit out of California’s Northern District alleges Equifax Information Services, Trans Union, Experian Information Solutions and VantageScore Solutions all played a role in misreporting the status of millions of borrowers’ student loans as deferred rather than current at a time of unprecedented economic precarity.

According to the lawsuit, Great Lakes and its co-defendants have unnecessarily jeopardized student loan borrowers’ credit scores and access to lines of credit despite the government’s explicit intention that this would not happen while monthly payments were suspended under the CARES Act.

“Even cursory attention to the information they reported on millions of borrowers should have alerted Defendants to the gross and sweeping nature of their misreporting, and to the devastating and predictable impact their erroneous reporting would have,” the plaintiffs scathe. “Rather than implementing reasonable procedures to ensure that they would not compound the financial impact of COVID-19 on millions of Americans, Defendants instead continued with business as usual, relying on antiquated systems and automated processes which completely failed to account for the changes made by the CARES Act.”

Repayment relief for student loan borrowers?

Recognizing that student loan borrowers face a particularly heightened financial burden amid the COVID-19 pandemic, Congress incorporated into the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) the suspension of payments, interest accrual and collections on student loans held by the U.S. Department of Education from March 13 through September 30, 2020. Essentially, the case reads, the federal government hit “pause” on federal student loans in order to give borrowers time to weather the pandemic-induced financial crisis.

The complaint stresses that the relief afforded by the CARES Act extended automatically to all federal loan borrowers, meaning no requirement existed for borrowers to make any request or otherwise demonstrate that they were adversely impacted by the COVID-19 crisis to have their monthly payments suspended. In line with this, Congress, in passing the CARES Act, aimed to ensure that its student loan relief would in no way jeopardize borrowers’ credit scores or access to credit, the complaint says.

Despite the unilateral relief afforded by the CARES Act, Congress recognized that changes to federal student loan repayment requirements and interest rates could lead to inaccurate credit reporting, the complaint says. With that in mind, the government explicitly required through the Act that the Secretary of Education ensure that, for the purpose of reporting loan information to credit reporting agencies, any suspended payment be treated “as if it were a regularly scheduled payment made by the borrower,” the case states.

“Under any reasonable reading of the CARES Act, student loan borrowers who do not pay amounts which the government has instructed them not to pay are of course ‘current’ on their obligations,” the suit reads. “It would be inaccurate to say that borrowers are subject to the ‘deferral’ of those obligations to some point in the future.”

Notwithstanding the government’s plain directives, however, Great Lakes, Equifax and their co-defendants have treated millions of Department of Education-held student loans as “deferred,” the lawsuit claims.

The plaintiffs say Great Lakes reported their student loans as “deferred” in both the “terms frequency” and “comments” field of the information the company furnished to Equifax, Trans Union and Experian. Indeed, when the plaintiffs checked their credit with Equifax, including as recently as May 18, the reports stated that their deferred payment start date is September 1, 2020, the complaint says.

The case claims that the impact of reporting a loan as deferred rather than current is devastating to a borrower:

In the realm of consumer debt and consumer reporting, a ‘deferred’ notation is a scarlet letter. Deferred payment arrangements imply that the borrower is unable to meet the terms of the loan as originally agreed, has requested that payments be deferred to a time in the future, and that the borrower, as a result, has a diminished present capacity to make payments and will face those deferred obligations on an ongoing basis in the future. The impact of Defendant Equifax’s and Great Lakes’ reporting of millions of student loans as deferred’ instead of reporting the loans as paid on time, was immediate, sweeping, and devastating.”

VantageScore’s algorithm

Generally speaking, credit scoring models are algorithms that generate a numeric score based on the data contained in a consumer’s credit report, the case explains. Defendant VantageScore’s algorithm is a shared, proprietary consumer credit-scoring model operated jointly by Equifax, Trans Union and Experian and used to determine an individual’s “Vantage Score” and to track how it has changed over time, according to the suit.

In order to implement and continue developing and modifying Vantage Score algorithms—of which multiple versions can be in use at the same time—Equifax, Trans Union and Experian share consumer credit data amongst themselves while agreeing to abide by certain policies to ensure consistent data sets and a consistent score, the lawsuit says. The uniform cooperation between the credit reporting agencies is especially crucial given Vantage Scores are used by financial institutions, creditors and other entities to evaluate consumers for credit, housing, insurance and employment, among other purposes.

As the lawsuit tells it, the credit reporting agency defendants failed to adjust the Vantage Score algorithm to account for relief automatically afforded by the CARES Act for federally held student loans. Rather than treat suspended monthly payment obligations as score-neutral or score-positive events, the case alleges, Equifax, Trans Union and Experian handled CARES Act relief for student loans as a negative event on borrowers’ credit reports.

“The Vantage Score scoring algorithm therefore causes a precipitous, sudden, and predictable drop in the Vantage Scores of student loan borrowers whose loans are held by the Department of Education,” the complaint reads.

Essentially, absent the defendants’ conduct, the sharp credit score drop experienced by millions of student loan borrowers would never have occurred at all, the plaintiffs argue. From the complaint:

This drop was unjustified. Defendants had zero (literally none) factual support for the drop in Vantage Scores. The borrowers whose scores dropped had done nothing differently than they had in the past and, if anything, were in a better financial situation (and presented a better credit risk) than they would have been had the relief afforded by the CARES Act never come to fruition.”

Had Equifax, Trans Union and Experian’s Vantage scoring model been properly adjusted to account for the CARES Act, borrowers would have experienced either no change in their credit scores or, to the contrary, an increase.

To date, the case says, Great Lakes has acknowledged the inaccuracy of its reporting and apologized (on Twitter) yet will not fix the issue until the end of May. According to a May 13 Tweet from Great Lakes, the company will change the way it reports COVID-19 student loan forbearance to credit bureaus and will retroactively change the reporting for April.

The lawsuit states that Great Lakes, along with its parent company, services 50% of all student loans in the United States.

Who’s covered by the lawsuit?

The case looks to cover U.S. residents who had Great Lakes furnish their credit information to Equifax or any other consumer reporting agency with regard to the April 2020 status of Great Lakes-serviced student loans.

How can I join?

For most class actions, there’s nothing you need to do to join or be considered part of a lawsuit. Once it’s filed, a class action takes a while to work its way through the legal system. At the end of that tunnel, a case will usually be dismissed or end in a settlement, all of which is to say we still have a long way to go before student loan borrowers may be able to submit claims.

For now, it’s best to stay informed. We’ll update this page with any new developments, so check back.

ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.  

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