Congress Should Take Corrective Action
A new report from the Student Borrower Protection Center (SBPC) notes that millions of consumers with student loan debt are or have experienced significant credit score drops as a result of errors in reporting by loan servicing companies.
John Albanese explains the impact in a blog post:
In May 2020, the student loan servicer Great Lakes Educational Loan Servicing Inc. provided inaccurate information to the credit bureaus for millions of borrowers, incorrectly indicating that they had chosen to stop paying on their loans (an arrangement known as a “deferment”), rather than indicating these borrowers were current. As many as five million consumers immediately saw an alarming and unexplained drop in their credit scores in the middle of the pandemic, when millions could least-afford the consequences of an error.
Great Lakes is far from alone in misreporting credit information. Despite the passage of the Fair Credit Reporting Act (FCRA) in 1970, credit reporting errors have been a significant and persistent problem for over 50 years. It is well documented that the credit bureaus and furnishers — the companies that provide consumer credit information to the credit bureaus — engage in largely automated processes that are designed more to put up a façade of compliance with the FCRA rather than ensure accuracy in reporting. This report examines the continued problems within the credit reporting system with a focus on widespread inaccuracies by companies that furnish credit information, including student loan servicers.
Congressional Action Needed
While Congress should restore FCRA’s original vision, preserving states’ right to regulate furnishing, this report recommends steps that can be taken without a new Act of Congress to increase accountability for furnishers and protect borrowers from inaccurate credit reporting. These recommendations include:
- The CFPB should require through regulation that when furnishers are made aware of a credit reporting error, the furnisher must conduct a root cause of analysis to ensure that the issue is not systematic.
- The CFPB or FTC should explain through rulemaking, guidance, or amicus practice that injunctive relief is available for private litigants under the FCRA.
- The CFPB or FTC should clarify through rulemaking or guidance that a consumer may submit a dispute regarding a credit reporting error not only on their behalf, but for systemic issues, on behalf of all similarly situated consumers.
- The Department of Education should vest borrowers with private enforcement rights via its contracts with student loan servicers.
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