Outline of Student Loan Reporting

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David A. Szwak
Posts: 4126
Joined: Tue Jul 26, 2005 4:15 am

Outline of Student Loan Reporting

Post by David A. Szwak »

[be5]STUDENT LOANS AND CREDIT REPORTING:

STUDENT LOANS GENERALLY:[/be5]

The student loan area has been wrought with fraudulent and deceptive schemes to lure consumers into debt. Many scams developed to access the federal funding.
- each of benefit to enroller
- poor quality of instruction
- low local demand for employing graduates
- high drop out rates
- low income students trying to break out of poverty
- deferred loan payments
- fragmented supervision of the schools
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REQUIRED CREDIT REPORTING[/be5]:

The Higher Education Act, 20 U.S.C. 1080a, requires that guaranty agencies, lenders and Secretary of Education exchange data with consumer reporting agencies (credit bureaus) with regard to outstanding student loans.

[be5]NOTICE OF DEFAULT BEFORE REPORTING DATA:[/be5]

If a student fails to pay on a loan, the student must be given notice that, unless he/she enters an agreed repayment plan, the matter will be ported to the credit bureaus. If no default notice and warning is provided, then the default must not be reported. If no repayment plan is agreed upon, then the default data must be reported.

[be5]OBSOLESCENCE OF REPORTED DATA:[/be5]

The HEA established special rules to determine obsolescence of reported data. Thus, 15 U.S.C. 1681c has a special reporting provision in the student loan credit reporting area.

[be5]FFEL LOANS:[/be5]

Reports on Federal family Education Loans (FFEL) student loans may be made for seven (7) years from the later of three dates:

1. when the Secretary of Education or the guaranty agency pays a claim to the loan holder on the guaranty;

2. when the Secretary of Education, guaranty agency, lender or any other loan holder first reported the account to the consumer reporting agency; or

3 If a consumer re-enters repayment after defaulting on a loan, from the date the student subsequently goes into default again on the loan.

[be5]PERKINS LOANS[/be5]

On Perkins loans, the seven (7) year reporting clock commences the date on which either the Secretary of Education accepted assignment or referral of the loan from the school or first reported the account to a credit bureau, whichever is later. 20 U.S.C. 1087cc(c)(3).


[be5]CREDIT BUREAU DUTIES:[/be5]

Credit bureaus must maintain reasonable procedures to assure the maximum possible accuracy of consumer reports they compile. 15 U.S.C. 1681e(b). Insuring obsolete data in the databank is deleted and automatically deleted by program is the obligation of the credit bureau. 15 U.S.C. 1681c. Thus, student loans must be property coded to insure deletion of the date in compliance with HEA.

If consumer disputes a student loan as involving fraud, the bureau must refer the dispute back to the subscriber (Secretary, guaranty agency, lender or loan holder). The credit bureau must reinvestigate the dispute and not merely mimic the subscriber. 15 U.S.C. 1681i. A consumer reporting agency must do more than mimic its subscribers. The agency must ask basic questions about adverse data it receives, such as verification of the correct identity of the consumer to whom the data attaches, the relationship of the data to the consumer and investigate any extenuating circumstances concerning the derogatory data. The agency must do more than be a mere post hoc correction of erroneously reported data. Miller v. Credit Bureau, Inc., 4 CCH [Consumer Credit Guide] p.99,173 (D.C. Super. Ct. 1972). A consumer reporting agency is liable where it failed to verify derogatory information after receipt of complaint and dispute by consumer. Agency must do more than mimic subscriber. Bryant v. TRW, Inc., 689 F.2d 72 (6th Cir. 1982)[Mich.]; Dynes v. TRW Credit Data, 652 F.2d 35 (9th Cir. 1981)[Cal.]. Merely contacting subscriber about disputed data is not a reasonable procedure to investigate disputes. Swoager v. Credit Bureau of Greater St. Petersburg, 608 F.Supp. 972 (U.S.D.C. M.D. Fla. 1985). Following reinvestigation, the bureau must report the results to the consumer.

[be5]CURING CREDIT REPORTING WOES

1. PAYING IN FULL[/be5]

If your client pays the loan in full, the status of the loan becomes current but the default status remains in the historical section of the reporting, assuming the subscriber (Secretary, guaranty agency, lender or loan holder) updates prior reportings. In some instances, when the consumer pays, the subscriber will not "update" the prior derogatory reporting automatically as a way to "tighten the screws" to the consumer. If the reporting is not updated, you must file a dispute and allow 30-45 days for the bureau to reinvestigate and update the report.

A mere promise to delete the derogatory history by the subscriber, if paid, will not effect the promised change. The bureau may refuse to update "accurate" data, thus, debt negotiation may fail due to an accuracy defense. The subscriber may renege unless the "settlement" is of an account disputed in good faith.

One of the most sensitive topics involves a credit bureau's obligation to delete information once commanded to do so by the subscriber. This can arise in various settings: [1] the data is actually false and must be deleted; and/or [2] the consumer is negotiating the debt and settles the debt with specific assurances that the bureau reports will no longer report derogatory data. The latter scenario can involve good faith, legitimate disputes or consumers trying to "repair" their accurate, derogatory credit rating[s]. Bureaus, as true adversaries to consumers, do not want to delete data. It is their only stock. They tout their ability to sell and report volume, even if it includes inaccurate data. Bureaus believe they may still report data even if instructed by the settling creditor to delete. Of course, the reporting is no longer "verifiable."

Consumer reporting agency which maintained and followed reasonable procedures to assure maximum possible accuracy of its credit reports on consumer had satisfactorily discharged its duty of reasonable care under FCRA with respect to contents of credit report, which indicated that vehicle purchased by consumer and financed through financing agency was voluntarily repossessed, which consumer conceded was true and accurate, although after settlement of consumer dispute, financing company requested that previously reported voluntary repossession be removed from consumer's credit file. Watson v. Credit Bureau, Inc. of Georgia, 660 F.Supp. 48 (U.S.D.C. S.D. Miss. 1986).

The Watson case hinged on plaintiff's agreement that the reporting was true. Again, most creditors lack principle where they can recover monies. They will promise to remove bad credit ratings in exchange for collection. If the creditor negotiates the point, then it is in contest. The creditor, by contract, has the power to command and cause deletion. If the bureau refuses they are open to an FCRA suit, under 1681i.

Thus, paying the debt in full will result in the derogatory item staying on the consumer's report seven (7) years from payment. The derogatory status will become outdated, but will appear for seven (7) years as outlined above.

[be5]2. CLOSED SCHOOL OR FALSE CERTIFICATION:[/be5]

If consumer obtains a closed school of false certification, consumer will be discharged from responsibility.

Discharge should be reported to all bureaus to which the subscriber previously reported the status of the loan "so as to delete all adverse credit histories assigned to the loan." 34 C.F.R. 682.402(d)(2)(iv), 682.402(e)(2)(iv).

Again, if the subscriber fails to report the discharge to the bureaus, then you must lodge a reinvestigation request. 15 U.S.C. 1681i. The subscriber must update its reporting or be subject to liability. To avoid reporting problems, as soon as discharge is achieved, send a copy of the discharge, by certified mail, to each of the three national consumer reporting agencies with a cover letter explaining the need to update the consumer's records. The subscriber and bureau must insure deletion of the entire reporting, both current and historical portions of the account reporting.

[be5]FORGERY:[/be5]

Forgery is also an absolute defense to the loan. As in closed school and false certification cases, consumer must dispute the forgery to the bureaus and the subscriber (Secretary, guaranty agency, lender or loan holder). As in all types of application and financial fraud, absent authority, the consumer is not liable. The bureau must reinvestigate and delete the entire account. 15 U.S.C. 1681i. The subscriber must cease reporting false date or by subject to suit under various theories.

[be5]CONSOLIDATION LOANS:

REHABILITATION OF THE LOAN:

DISCHARGE DUE TO TOTAL AND PERMANENT DISABILITY OF CONSUMER:

REPAYMENT PLAN DOES NOT IMPROVE RATING AUTOMATICALLY:[/be5]

The loan stays in default even if you enter a repayment plan unless you enter a written agreement that the reporting subscribers will take it out of default status. Be sure and obtain a clear, comprehensive settlement contract. Cover all the bases or it may be a wasted effort.

[be5]DISCHARGE IN BANKRUPTCY:[/be5]

If a student loan is discharged in bankruptcy, you should recall that, while it will be listed as "discharged," a bankruptcy is generally considered to be the most derogatory and damaging type of data which can appear on a credit report. further, under 15 U.S.C. 1681c, a bankruptcy may be reported by the credit bureaus in cases under Title 11 or the Bankruptcy Act, from the ate of entry of the order for relief or the date of adjudication, for a period of ten (10) years. Generally, credit bureaus delete a successful wage earner bankruptcy in seven (7) years from date of final discharge.
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