Mader v. Experian Info. Sols., Inc., 56 F.4th 264 (2d Cir. 2023)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:

SUMMARY

The Second Circuit Court of Appeals (the Court) held that when the question of whether student debt has been discharged in a prior bankruptcy is subject to a legal, not factual, dispute, a credit reporting agency that shows the debt as outstanding and past due on a credit report is not in violation of 15 U.S.C. § 1681e(b) of the Fair Credit Reporting Act (“FCRA). Mader v. Experian Info. Sols., Inc., 56 F.4th 264 (2d Cir. 2023).

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FACTS

In 2008, Michael Mader took out an $18,000 educational loan from Sallie Mae, Inc., a private, for-profit corporation, to attend a seminary in Florida.  Sallie Mae issued the private loan under its “Excel Grad” loan program.  Sallie Mae’s student loan portfolio was later assigned to Navient Solutions, LLC. In 2012, Mader filed a chapter 7 bankruptcy in the Southern District of New York, listing the Excel Grad loan on his schedules.  The bankruptcy court issued a standard discharge in 2013, releasing Mader from “all dischargeable debt.”  Neither Navient nor Mader treated the Excel Grad loan as discharged, executing a loan modification agreement under which Mader made payments between 2013 and 2017.  This agreement and payments were communicated to Experian Information Solutions (Experian), a credit reporting agency, which reflected the debt on a 2019 credit report as outstanding with a past-due balance.

In April 2019, Mader filed an action against Experian in the district court under FCRA, alleging a violation of 15 U.S.C. § 1681e(b), which requires reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information” in a consumer credit report.  Experian moved for summary judgment, asserting in conclusionary fashion that his loan was not dischargeable in bankruptcy because the promissory note was issued under a program “that includes Stafford Loans and other loans and which is funded in part by non-profit organizations, including governmental units.”  Experian relied on an employee declaration saying much the same.  Mader opposed by submitting a 2014 investor prospectus from Navient which described the Excel Grad loan program as privately funded.  The district court concluded that the loan was nondischargeable and granted judgment for Experian.  Mader appealed to the Court, which affirmed but did so on alternative grounds.

REASONING

Mader asserted that the district court had erred in concluding that a private loan was nondischargeable under 11 U.S.C. § 523(a)(8).  The Court acknowledged that if the inquiry turned on whether the loan was discharged, the district court would have erred because Mader demonstrated a factual dispute regarding the funding of the loan, which would prevent summary judgment.  However, the Court found that the district court’s inquiry on the issue of dischargeability was misplaced.  The question on appeal instead turned on whether the kind of inaccuracy alleged by Mader was cognizable under the FCRA.  It held that it was not.

To determine whether Mader’s loan was discharged required an interpretation of § 523(a)(8)(A)(i), specifically the clause “made under any program funded in whole or in part by” the government or a non-profit.  The Court noted that the answer to this question regarding Navient loans was in dispute under its own recent caselaw and the district court’s conclusion might be deemed erroneous under that authority.  However, the Court found the current caselaw controversy inapplicable, because the inquiry instead should be whether Experian followed reasonable procedures to assure accuracy of its reporting, not whether the debt was discharged as a matter of law.  The Court ruled that the inaccuracy that Mader alleged did not meet the dictionary definition of “accuracy,” which focuses on objectively and readily verifiable information.  Here, whether the debt was discharged could not be determined by objectively verifiable facts, but rather turned on “legal reasoning”.  As noted, the application of this legal reasoning has led to differing court decisions regarding the dischargeability of Navient loans.

The accuracy which FCRA requires pertains to factual matters; only factual inaccuracies are actionable.  The court observed that every other circuit has ruled that “inaccuracies that turn on legal disputes are not cognizable under the FCRA.” The Court reached that same conclusion, ruling that the potential legal inaccuracy asserted by Mader was not actionable.  

AUTHOR’S COMMENTS

With this decision, the Second Circuit joins the First, Seventh, Ninth, and Tenth in holding that credit reporting agencies are not required to resolve legal disputes to comply with the “reasonable procedures” requirements of the FRCA.  If the facts reported are objectively verifiable, then the agencies have met their duties. In the insolvency community, those following the student loan dischargeability issues are aware that whether Navient loans were funded by non-profits and therefore nondischargeable under § 523(a)(8)(A)(i) is a question winding its way through the appellate courts.  It remains unresolved, at least universally.  Without a definitive legal ruling (perhaps from the Supreme Court to end controversy), a credit reporting agency which lists a Navient student debt as due and owing is not violating the FCRA unless a factual inaccuracy can be shown. 

This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.