Consumer advocates are suing federal student loan servicer Great Lakes, VantageScore Solutions, and three credit reporting agencies over failure to stop reporting borrowers’ credit despite the federal government announcing that it would suspend credit reporting.
“During a national pandemic, these companies illegally damaged the credit of millions of people,” SBPC Executive Director Seth Frotman said in a statement. “For too long, the student loan system has crushed borrowers when they slip up, while industry has received a free pass when it harms millions. Borrowers deserve justice.”
The class action suit was filed on Wednesday evening by law firm Towards Justice, Berger Montague, with support from the Student Borrower Protection Center, against Great Lakes (NNI), Equifax (EFX), TransUnion (TRU), Experian (EXPN.L), and agencies owned by VantageScore Solutions in the United States District Court’s Northern District of California.
The suit accuses the companies of “inaccurately reporting information about student loan payments that were suspended under the CARES Act.” Consequently, “Plaintiffs and other Class members will suffer long lasting credit stigma, including inaccurate and lower credit scores resulting in no, limited or more costly access to credit.”
As of 2017, when student loan giant Nelnet bought Great Lakes, the servicer handled nearly $240 billion in student loans for more than 8 million borrowers and is now responsible for roughly 14% of student loans originated in the 2018-2019 school year.
“These companies have admitted they made a mistake harming millions of student loan borrowers,” Towards Justice Director David Seligman said in a statement. “They say they’ll fix it soon, but for many the damage has been done.”
Seligman added that “large financial institutions like the defendants here rarely allow borrowers the kind of lenience they seem to be expecting from the American public now.”
Allegedly ‘mishandled the implementation of this relief’
The CARES Act, which was passed in March, had specifically suspended payments, interest, and stopped debt collection on federally-held student loans from March 13 to September 30.
Student loan accounts were placed into forbearance automatically, and billing was suspended. Those actions were not meant to hurt borrowers’ credit scores.
But Great Lakes allegedly “mishandled the implementation of this relief,” the lawsuit argued, “by illegally providing inaccurate information about millions of it is customers to Equifax, TransUnion, and Experian.”
The credit reporting agencies then “illegally reported this information to third parties,” the lawsuit continued, and “each of these companies, in their capacities as the joint owners of VantageScore Solutions, LLC … treated this inaccurate information as derogatory and sold borrowers’ improperly damaged credit scores to third parties.”
The lawsuit demanded that Great Lakes and the credit reporting agencies stop misreporting the payments. Great Lakes recently told borrowers that the misreporting was due to a coding issue, and that they would correct credit reports retroactively for April.
Advocates say that the fix isn’t going to be enough.
“Congress cared enough to change the law and spend billions of dollars,” Berger Montague Attorney E. Michelle Drake stated. “Defendants should have cared enough to change a couple lines of computer code.”
CARES Act runs into implementation problems
Over the past few weeks, student loan borrowers had taken to Twitter when they noticed that Great Lakes had dinged their credit despite being on penalty-free forbearance.
Y’all I checked my credit score today and was SHOCKED to see it dropped over 50 (almost 60 points) because my student loan servicer told me my loan payment wasn’t due until September 1. 10/10 do NOT recommend My Great Lakes.
— am. (@amberbraves) May 10, 2020
It’s absolutely irresponsible that Great Lakes(@MyGreatLakes) my student loan provider knocked my credit score 20 points because they reported the 4 month forebearance period to the Credit Bureaus. This is in direct violation of the C.A.R.E.S act section 3513(d).
— Izzak Mireles (@izzak_mireles) May 13, 2020
I’m pissed! I didn’t ask Great Lakes to change my student loans to deferment but they did and it made my credit score drop (even though everything I’m reading says that deferment won’t effect credit scores).
— BFH🏁 (@_HEEZY_) May 10, 2020
This isn’t the first time the implementation of the CARES Act has fallen apart.
Earlier this month, consumer advocates sued Education Secretary Betsy DeVos for her department’s failure to stop garnishing borrowers’ wages despite declaring that it would suspend wage garnishment.
It turned out that even though the department had told employers to stop garnishing employees’ wages to recoup the debt they owed on their federal student loans, the emloyers did not stop.
On Wednesday, House Education and Labor Committee Chairman Bobby Scott sent a letter to DeVos, demanding an explanation for why the department wasn’t able to stop that process effectively.
Aarthi is a reporter for Yahoo Finance covering consumer finance and education.