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Dave Gettings is an attorney in the Financial Services Litigation practice, representing national and multinational clients in both federal and state court.

On February 12, the White House released its budget proposal for Fiscal Year 2018, a document that calls for numerous changes to the repayment and forgiveness of federal student loans taken out after July 1, 2019. While Congress, of course, retains responsibility for any appropriations legislation, this document’s wish-list reflects the apparent priorities of the Trump Administration: the complete overhaul of the federal student loan program and cuts of $3.8 billion to the budget for the Department of Education.

Some prominent changes include:

  • Public Service Loan Forgiveness Program (“PSLFP”): The budget eliminates this program. As it is presently constituted, borrowers who are eligible for PSLFP can apply to receive loan forgiveness for working in certain types of public service jobs, after making 120 months of consecutive payments. Nearly two-thirds of student loan borrowers interested in PSLFP earn less than $50,000 a year.
  • Income-Drive Repayment (“IDR”) Plans: The federal government’s four income-driven repayment plans would be consolidated into one universal income-driven plan that caps payments at 12.5% of a borrower’s annual discretionary income. Under the new rules, undergraduate borrowers could win forgiveness after fifteen years of payments, while graduate students would need to make thirty years of consecutive payments before gaining such an opportunity. Presently, the DOE’s regulations allow borrowers to receive forgiveness after twenty years of payments for undergraduate school loans and twenty-five years for graduate school loans. In support of this change, the budget plan says: “[T]he numerous IDR plans currently offered to borrowers overly complicate choosing and enrolling in the right plan.”
  • Subsidized Student Loans: As with the PSLFP, the budget abolishes all subsidized federal student loans. These loans, which do not accumulate interest during a borrower’s schooling, were used by approximately 5.7 million students in the 2016-17 school year.
  • Pell Grant Program: If this budget is enacted, Pell Grants would be expanded to cover short-term, training programs. Currently, Pell Grants cannot be used for academic programs shorter than fifteen weeks or that include fewer than 600 hours of instruction.
  • Consequences of Delinquency: The budget would subject delinquent borrowers to far more stringent enforcement and calls for “streamlin[ing] the Department of Education’s ability to verify applicants’ income data held by the Internal Revenue Service.”
  • Elimination of Various Programs: Some 30 programs would also lose funding, including the Supporting Effective Instruction State Grants, 21st Century Community Learning Centers, and Federal Supplemental Educational Opportunity Grant programs.

In support of these proposals, the Trump Administration stressed their potential to save $143 billion over the next decade. Secretary of Education Betsy DeVos stated that the budget “expands education freedom for America’s families while protecting our nation’s most vulnerable students” and “reflects our commitment to spending taxpayer dollars wisely and efficiently by consolidating and eliminating duplicative and ineffective federal programs that are better handled at the state or local level.” Notably, some of these suggestions appear in draft legislation already being considered by federal lawmakers.

As summarized in the March 2018 issue of the American Bankruptcy Institute Journal, ABI’s Consumer Bankruptcy Committee has recently issued several recommendations and made several observations regarding the treatment of student loans under the Bankruptcy Code, codified in Title 11 of the United States Code.

First, the Committee intends to fashion a program that would address possible ways of securing greater access for consumers owing student loans to the bankruptcy process and competent legal counsel. The Committee praised what they called consumer attorneys’ “very creative litigation to obtain relief for student loan debtors.” However, it noted that “[m]any debtors . . . cannot afford or have no access to attorneys who are willing and able to bring dischargeability [(i.e., elimination)] actions for student loan debt.”

Second, the Committee endorsed procedures, pioneered by the United States Bankruptcy Courts for the Middle District of North Carolina and the Western District of Texas (Austin Division), to allow for the repayment of student loans through a Chapter 13 plan. In general, a Chapter 13 bankruptcy is also called a “wage earner’s” plan and enables individuals with regular income to develop a plan to repay all or part of their debts. The prototype plans so far formulated are limited to loans paid through an income-based repayment plan and thus require debtors to apply for such a plan prior to filing for bankruptcy protection.

Third, the Committee expressed its support for the creation and adoption of court-sponsored student loan debt mediation programs. As currently envisioned, such a program would resemble many bankruptcy courts’ mortgage mediation programs, praised for their effectiveness and efficiency by debtors, creditors, and courts during the financial crisis of 2007-08. As the Committee observed, “a local rule requiring mandatory mediation for student loan dischargeability actions” would do better than the otherwise informal encouragement of such efforts voiced by many bankruptcy judges.

Fourth, the Committee endorsed statutory amendments to Code § 523(a)(8), which governs the discharge of student loans, and § 1322(b), which dictates the permissible content of a Chapter 13 plan.

With respect to § 523(a)(8), the Committee announced its opposition to any wholesale deletion of § 523(a)(8) as urged by some advocates. Instead, it recommends that the following statutory changes be enacted:

(1)   that its coverage of private student loans, a change made by Congress in 2005, be rolled back;

(2)    that “undue” be struck from this subsection’s “undue hardship” standard, thereby lowering the bar for securing a student loan’s nullification;

(3)    that Congress should adopt some guidance as to the appropriate construction of the term “hardship”; and

(4)    that the current test for “undue hardship” be replaced by the totality-of-circumstances test favored in the Eighth and First circuits (but not by a majority of bankruptcy courts).

The Committee favored “an amendment to the statute” because, in its words, “[i]t has become all too clear that . . . [Department of Education] policies can be changed with the stroke of a pen and a change in administrations.”

As to § 1322(b), the Committee favors a revision that would allow separate classification and treatment of student loan debt for a debtor enrolled in an income-driven repayment plan, as defined under the Higher Education Act of 1965.

“With the high default rate on this debt and the need to preserve this important resource for future students, it is time to explore options for dealing suc­cessfully with student loan debt in bankruptcy proceedings,” the Committee concluded.

More information on the Committee and its work can be found here.


In the student loan market, servicers play a critical role. These entities maintain account records regarding borrowers, send periodic statements advising borrowers about amounts due and outstanding balances, receive payments from borrowers, allocate those payments among various loans and loan holders, answer borrowers’ questions, report to creditors and investors, and strive to prevent default by delinquent borrowers via so-called “diversion aversion assistance.”

For each loan it backs, the Department of Education selects a servicer, to be changed only upon the occurrence of certain specified conditions. Currently, the DOE contracts with eight private servicers.

As the conduits between borrowers and lenders, servicers often are the most visible targets for overburdened borrowers and zealous regulators. Bills come under their letterheads and collection calls originate in their offices. As such, in recent years, servicers have increasingly become the subject of lawsuits based on state consumer protection laws as well as regulatory action by state actors.

On March 12, in order to address the concerns of servicers, lenders, borrowers, and state regulators, the DOE posted a formal notice contending that, under its interpretation of federal statutory and regulatory law, the DOE alone possesses the power to regulate student loan servicers.

The DOE acknowledged the notice was motivated by the fact that several states recently had “enacted regulatory regimes that impose new regulatory requirements on servicers of loans” under the DOE’s Direct Loan Program. Other states had imposed disclosure requirements on loan servicers for loans made under the Higher Education Act of 1965 (“HEA”), and some states had adopted regulations addressing servicing for the Federal Family Education Loan (“FFEL”) Program.

In the DOE’s view, such regulations – and claims based thereon – “are preempted because . . . state[s have] sought to proscribe conduct Federal law requires and to require conduct Federal law prohibits.” “This is not a new position,” the DOE argues in the notice.

This position echoes the DOE’s interpretation of regulations governing the FEFL Program, issued on October 1, 1990, as well as its stated position in Chae v. SLM Corporation, 593 F.3d 936 (9th Cir. 2010). (SLM Corporation, more commonly known as Sallie Mae, spun off its loan servicing operation and most of its loan portfolio into a separate, publicly traded entity called Navient Corporation on April 30, 2014. Navient is the largest servicer of federal student loans and acts as a collector on behalf of the DOE.)

In Chae, the Ninth Circuit reaffirmed its earlier conclusion that “field preemption does not apply to the HEA.”  In other words, federal education policy regarding private lending to students was deemed not so extensive as to occupy the entire regulatory field.

The Ninth Circuit also concluded, however, that (1) the HEA expressly preempted the plaintiffs’ allegations that a student loan servicer made fraudulent misrepresentations in its billing statements and coupon books, and (2) conflict preemption prohibited the plaintiffs from bringing their remaining business, contract, and consumer-protection law claims because, if successful, they would create an obstacle to the achievement of congressional purpose.

Apparently, “[t]he statutory design, its detailed provisions for the FFELP’s operation, and its focus on the relationship between borrowers and lenders persuade[d]” the appellate panel in Chae “that Congress intended to subject FFELP participants to uniform federal law and regulations,” a conclusion from which conflict preemption naturally followed.

With such precedents in mind, the DOE is now seemingly preparing to take on the more activist states on behalf of the servicers that it fought during the Obama Administration.

The Republican Congress’ ongoing effort to overhaul the Dodd-Frank Wall Street Reform and Consumer Protection Act, as embodied in the Economic Growth, Regulatory Relief and Consumer Protection Act, may yet extend a helping hand to struggling student loan borrowers. On March 8, Sen. Richard (“Dick”) Durbin (D-Ill.), the Democratic Minority Whip, introduced an amendment to this act specifically directed at aiding individuals encumbered by private student loans, or PSLs. As it now stands, the measure boasts support from several of Durbin’s Democratic colleagues, including Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Patty Murray (D-Wash.), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Tammy Baldwin (D-Wis.), Tammy Duckworth (D-Ill.), Sheldon Whitehouse (D-R.I.), Maggie Hassan (D-N.H.), and Chris Van Hollen (D-Md.).

Expansively written and broadly reaching, Durbin’s bill adds numerous consumer protections for PSL borrowers. It includes a Student Loan Borrower Bill of Rights, which establishes disclosure requirements and protections for borrowers when a student loan is sold, transferred, or reassigned, and requires servicers to respond in a timely manner to inquiries and provide online access to information related to the borrowers’ loans. It eliminates wage garnishment for borrowers making less than 185% of the federal poverty level and limits garnishment on private and federal student loans to 10% of discretionary income for those who make more than 185% of the federal poverty level. It compels lenders to disclose benefits that may be forfeited upon refinancing of a federal student loan into a private loan and bars them from denying credit to individuals who qualify for protections under the Servicemember Civil Relief Act. Echoing provisions already approved by the Senate’s Banking, Housing, and Urban Affairs Committee, the bill further ensures that private education loans are dismissed upon a borrower’s death or disability and bars acceleration in certain defined cases. Lastly, it codifies the Know Before You Owe Private Student Loan Act, which requires that borrowers be notified of any remaining federal financial aid before taking on necessary private student loan debt.

The bill further modifies the treatment of student loans under the United States Bankruptcy Code. In particular, it creates a rebuttable presumption that certain debtors—those receiving Social Security disability benefits or acting as caregivers for veterans or elderly or chronically ill family members, or those making less than 200 percent of the poverty guidelines—face an “undue hardship” sufficient to render their debts eligible for discharge (i.e., elimination or nullification) through bankruptcy. The new amendment further restores dischargeability of private student loans that Congress effectively barred even for borrowers who face extreme financial problems via the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

In defending his amendment, Durbin stated, “If we can take up the issue to make it easier for banks in America, we can spare a few minutes to debate whether or not we can make it easier for student borrowers to survive when the student debts that they face are stopping them from moving forward in their lives – massive debt that stops them from getting married, buying a home, a car, starting a family, that’s the reality for many families across America.” Bankruptcy judges already wield the power to cancel loans borrowed for homes, boats and other property, Durbin maintained, but their power unnecessarily stops at student loans. Supporting his colleague, Sen. Reed contended, “Strengthening student loan servicing and protections for private student loan borrowers, including in the growing refinancing market, and providing greater transparency and accountability for campus-based banking products beyond just credit cards are important steps that will ensure that the many abuses that have taken place against student loan borrowers won’t happen again.” Within hours, the amendment received strong support from the National Consumer Law Center, Center for Responsible Lending, National Association of College Admissions Counseling, American Federation of Teachers, National Education Association, and Young Invincibles.

A full summary of Durbin’s student loan amendment and videos of his remarks on the Senate floor can be found here.

The Senate’s latest banking bill primarily focuses on overturning large chunks of the DoddFrank Wall Street Reform and Consumer Protection Act. Somewhat unexpectedly, on March 8, the Senate’s Banking, Housing, and Urban Affairs Committee approved the addition of two bipartisan proposals that provide help to some of the nation’s forty-four million student loan borrowers to this larger package. Mirroring legislation previously introduced by Senators Gary Peters (D-Mich.) and Shelley M. Capito (R-W.Va.) (and once more sponsored by these two congresspersons), these proposals would adjust how private student loan lenders treat a co-signer’s death or bankruptcy and how they report defaults to the big three credit bureaus. Due to the support of senators from both sides of the aisle, one observer reckoned that “this legislation is probably going to move.” In fact, the two proposals, as incorporated into the Senate’s banking bill, now head for consideration by the entire Senate.

The first proposal bars a lender from declaring a default or accelerating a private education loan when a co-signer dies or declares bankruptcy and obligates a private lender to release the co-signer from a student loan debt, if any remained, upon a student’s death. Per the second proposal, if a financial institution offers a loan rehabilitation program in which a borrower demonstrates the ability to make timely monthly payments and the ability to repay the relevant loan, the borrower may compel the lender to remove any default from their credit report. In a notable constriction, a borrower would only be able to use this option once per loan. As to the latter, one observer, Betsy Mayotte, founder and president of the Institute of Student Loan Advisors, commented: “From a fairness perspective, it makes sense to make this no longer an option for future private student loans.” In defending these bills, Sen. Peters observed that [d]efaulting on a private student loan can have long-term economic effects, making it harder for a borrower to find a job, rent an apartment, or buy a car.” Sen. Capito added, “It is essential students are able to recover from defaulted student loans without permanently harming their financial future.” If left untouched, both changes would only apply to private student loans (PSLs) or agreements struck at least 180 days after the bill’s passage.

Both of these proposals would award borrowers of PSLs with greater protections than they currently enjoy as a matter of law. Yet, even if Congress enacts these changes, federal student loans, defined as those educational loans for which the federal government serves as the sole lender rather than merely the guarantor, would still boast more mitigatory features and allow for more flexibility than most PSLs. Although 90% of higher education loans are public and therefore eligible for loan rehabilitation, this private market remains substantial, currently totaling $9.9 billion and encompassing more 850,000 defaulted loans.


State in the House: Bill Passed Committee, but Vote Not Scheduled

Introduced by Rep. Virginia Foxx (R-N.C.), the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act cleared the Committee on Education and the Workforce of the United States House of Representatives on December 13, 2017. It did so despite claims by Democrats—and the Association of Public and Land-grant Universities—that they had been shut out of the process.

Among other pertinent provisions, the PROSPER Act:

  • adopts a single definition of “institution of higher education,” eliminating for most purposes the distinctions between public and private nonprofit institutions and proprietary institutions;
  • effectively requires the Department of Education to treat programs that are not correspondence courses and that satisfy the current definition of “distance education” programs the same as traditional brick-and-mortar programs;
  • prohibits the DOE from defining any term in the Higher Education Act of 1965 (“HEA”), through regulation or otherwise;
  • repeals the borrower defense regulations promulgated by the DOE on November 1, 2016;
  • bars the DOE from developing, administering, or creating a ratings system for institutions of higher education;
  • expands the ways by which institutions may show that they are financially responsible for purposes of Title IV program participation;
  • forbids the DOE from prescribing the specific standards that an accreditor is required to implement and defers such standards to the discretion of each accrediting agency;
  • simplifies the Free Application for Federal Student Aid (“FAFSA”);
  • eliminates loan origination fees for all student borrowers;
  • eliminates the Public Service Loan Forgiveness Program for new borrowers; and
  • caps annual loan limits for various categories of students.

According to its supporters, the PROSPECT Act would improve higher education in at least two major ways. First, it focuses resources on helping Americans with the greatest financial need. Second, it expands the choices for students who need financial aid rather than steering them overwhelmingly towards community colleges.

While opponents have praised certain aspects of the bill, from its simplification of the FAFSA and linking of accreditation with outcomes for students, they have also criticized its limitations on student financial aid, removal of protections for students, and failure to incorporate rigorous data collecting requirements. Opponents also cite a February 7 report by the Congressional Budget Office that claimed that college students would lose $15 billion in federal student aid over the next decade if the PROSPER Act becomes law.

As of March 8, the full House has not voted on the PROSPER Act.

The text, as well as other legislative resources, including speeches from both sides, can be found here.

State in the Senate: Hearings and Debates

In contrast to the House, the process in the Senate has involved somewhat more give-and-take in considering the companion bill to the PROSPER Act. The Senate version was proposed by Health, Education, Labor and Pensions Committee Chairman Sen. Lamar Alexander (R-Tenn.), a former Secretary of Education. By February 6, his Committee had held four hearings on the problems posed by the rising cost of higher education and the nation’s increasingly troubled borrowers.

As in the House, partisan fault lines quickly emerged. However, unlike the House committee, a more robust debate has occurred. Like his House colleagues, Alexander has endorsed the “Bennett hypothesis” (named after former Secretary of Education William Bennett), which faults growing federal student aid for mounting college costs. For Alexander, the bottom line is simply, “How can we get the Federal Government out of the way so that we can meet our students’ needs?”

Alexander has urged his colleagues to focus on revisions to simplify the student aid process and redirect money to Pell Grants for low-income students.

In response, Committee Democrats expressed approval of streamlining grants and loans, but with the caveats that the total amount of aid must be preserved and that quality protections must be put in place for students and taxpayers.

Alexander, who has long worked with the Committee’s Democratic leader, Sen. Patty Murray (D-Wash.), saw a consensus emerging over the need for “simpler, more effective regulations to make it easier for students to pay for college and to pay back their loans; reducing red tape so administrators can spend more time and money on students; making sure a degree is worth the time and money students spend to earn it; and helping colleges keep students safe on campus.”

While Alexander is aiming for an April markup of the bill, which would allow Senate Majority Leader Mitch McConnell (R-Ky.) to bring legislation to the Senate floor in the first part of the year, observers are less optimistic. “The likelihood of it passing before 2020, I would put at very minimal,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. “I’d put it as close to zero as I would any likelihood.”

Nassirian’s viewpoint is representative of that of many observers: Although everyone seems to agree that the current state of student lending is a problem, no one can agree on a solution. Meanwhile, disagreements about gatekeeping, costs, and quality continue to fester.

Two major groups within the financial industry began the month of March with renewed advocacy for structural modifications to the student loan program managed by the U.S. Department of Education, which currently issues about 90% of student loans. 

First, in early March, the Consumer Bankers Association, a trade organization representing financial institutions offering retail lending products and services, issued a press release renewing a campaign for the institution of student loan caps on individual graduate students and parents of undergraduates. 

This position was not a novel one. In fact, in critiquing the Higher Education Act reauthorization bill introduced last December, the CBA had pushed for the same elimination of graduate PLUS loans and caps on parent loans. Only such removal, the CBA argued, would check college tuition costs by controlling colleges’ access to federal funds through student loans, as these caps too often “crowd out the private market and limit options for families.” 

The Federal Reserve Bank of New York agreed that there was a correlation between federal lending and the cost of college. In one study, that institution concluded that every dollar increase in federal loans adds between $0.25 and $0.63 to the price of tuition. Additionally, in a 2016 working paper, researchers from the National Bureau of Economic Research similarly faulted tuition increases based on the belief that students could cover rising costs through more federally-backed borrowing. 

Second, around the same time, a group of investors began lobbying for legislation to provide a clearer legal framework for “income-share agreements. Conceived by Milton Friedman in 1955, Oregon legislators first codified ISAs in 2013 when they passed “Pay It Forward,” a bill authorizing a state-funded ISA for students attending Oregon public universities. ISAs were further popularized in 2016 by former Indiana governor and current Purdue University president Mitch Daniels. A description of the Purdue program can be found here and here. 

The typical ISA allows private investors to provide money upfront to cover tuition in exchange for a portion of a student’s income following completion of their studies. In effect, ISAs allow students to sell “shares” of their future earnings. Because ISA contracts are by definition income-based, they can be an attractive alternative to other forms of student loans, especially private loans. 

With student loan debt now exceeding $1.4 trillion, dethroning auto loans and credit cards as the second largest source of household debt in the United States this year, the marketplace for ISAs had grown increasingly crowded. Providers like Lumni, Upstart, and Venmo have begun to pitch their own take on these arrangements. Some of these entities offer aid for non-institutional providers, such as coding boot camps, while others focus on students in traditional higher education programs. For example, Lumni, a for-profit firm that offers ISAs throughout South America, has inked contracts with over 7,000 students since 2002 and realizes a 10-15% rate of return. 

Though supported by the New America Foundation and the American Enterprise Institute, the two bills introduced in 2017 in Congress to formally recognize and regulate ISAs did not make it out of committee. The same was true for predecessor bills in 2014 and 2015.

On February 21, the United States Department of Education, led by Secretary Elizabeth Dee DeVos, issued a memorandum indicating it was considering stepping into the debate over the standard used to determine whether a student loan can be discharged under the Bankruptcy Code.  The request for public comment appears aimed in part at revisiting allowing the discharge of debts when they create “undue hardship” for the debtor.

Public Input Requested by Department of Education

In the memorandum, the DOE asked for public input on:

  • who typically requests elimination of student loan debt in Chapter 7 (liquidation) proceedings;
  • factors to be considered in evaluating “undue hardship” claims asserted by student loan borrowers in bankruptcy;
  • the weight to be given to the undue hardship factors;
  • whether the existence of two tests to evaluate undue hardship claims results in inequities among borrowers seeking discharge; and
  • how all of these considerations (and possibly others) should weigh into whether loan holders should discharge debts for undue hardship.

The “Brunner Test” for Undue Hardship

Since 1978, § 523(a)(8) of the Bankruptcy Code has exempted any student loan debt from discharge unless its repayment would “impose an undue hardship on the debtor and the debtor’s dependents.”

This standard is applied using a test adopted by the U.S. Court of Appeals for the Second Circuit in 1987, in Brunner v. New York State Higher Education Services Corp.  Under Brunner, once a creditor establishes the existence of an educational debt, a debtor can only prove an “undue hardship” by demonstrating:  (1) an inability to maintain, based on current income and expenses, a “minimal” standard of living for themselves and their dependents if forced to repay the loans; (2) additional circumstances indicating that this state of affairs is likely to persist for a significant portion of the relevant loans’ repayment period; and (3) their good faith efforts to repay the loans. If a debtor fails to establish all of the factors under the test, the court will deny a request for discharge due to undue hardship under § 523(a)(8).

Arguments on Changing the Brunner Test

Critics of the Brunner test assert that it was developed during a radically different era.

In 1987, under the Bankruptcy Code, the relevant time period for examining whether a debtor had made good faith efforts to repay a student loan was limited to seven years, and the number and kinds of student loan debts covered by § 523(a)(8) were relatively few. In 1998, Congress removed the seven-year look-back time limit, and in 2005 redefined “educational debt” to include many more private student loans.

In light of these changes over the years, critics say continued use of the Brunner test is unduly harsh, essentially requiring proof of unending poverty and barring discharge of numerous types of private loans that were not in the court’s mind when Brunner was decided. On the other hand, opponents of a change to the standard say that Congress could easily incorporate a less harsh and rigid definition of “undue hardship,” but no such change has ever been made.

Likely Responses to Any Change in Discharge Standards

If the comments elicited by this memorandum prompt the Trump Administration to support a revision of § 523(a)(8)’s “undue hardship” test, borrowers who meet the new standard (which is likely to be less onerous than the Brunner test) will rejoice.

At the same time, basic theories of economics suggest that a change to the discharge standard may result in an increase in interest rates for student loans and heightened standards for issuance of such loans, as lenders respond to an increase in uncollectable debt. Lenders also will need to prepare to fend off new challenges in the country’s 94 bankruptcy courts, with little jurisprudence for guidance in determining how any new standard should be applied.

Interested parties may submit comments through the Department of Education’s website.

Can the United States Government be liable for reporting inaccurate credit information on a consumer and then failing to investigate the consumer’s dispute?  Many courts are divided as to whether the Fair Credit Reporting Act (“FCRA”) applies to the United States Government.  In Jones v. United States Department of Agriculture, the District Court for the Eastern District of Michigan recently waded into the dispute, concluding that the Government could be on the hook for such actions and failures.

In Jones, consumer plaintiff Kyisha Jones initially owed the United States Department of Agriculture for unpaid medical insurance bills.  Eventually, however, she paid the entire outstanding balance.  Despite paying the balance, Jones alleged that the Government continued to inaccurately report information regarding the debt to the three major credit reporting agencies.  Jones claims that when she disputed the reporting, the USDA failed to conduct a reasonable investigation into its reporting.  Jones subsequently sued the USDA for violating the FCRA.

The USDA moved to dismiss Jones’ complaint, arguing that the FCRA does not waive sovereign immunity for claims against United States Government entities.  The court disagreed.  According to the Court, when the United States waives sovereign immunity by statute, the waiver must be unequivocal.  With this standard in mind, the Court focused on the FCRA’s liability scheme.  In the Court’s view, the FCRA allows a consumer to hold any “person” liable, which the statute defines to include “any … government or government subdivision or agency.”  This was sufficient for the Court to find a waiver of sovereign immunity.

The Court’s conclusion is consistent with the Seventh Circuit’s 2014 Bormes decision.  There are other district court opinions, however, that go the other way.  In its decision, the Jones court recognized that other courts have declined to find a waiver of sovereign immunity in the FCRA because to do so would expose the United States to punitive damages or subject government employees to criminal penalties.  The court reasoned, though, that those considerations do not change the FCRA’s express waiver language.

With the developing split of authority nationwide, perhaps the Supreme Court will eventually be forced to decide whether it too can be held liable for alleged FCRA violations.  Until that time, we will continue to track the crossroads of the FCRA and governmental sovereign immunity.

The Seventh Circuit recently heard argument in Robertson v. Allied Solutions LLC after the U.S. District Court for the Southern District of Indiana dismissed a class action while the plaintiff’s motion for preliminary approval of class settlement was pending.  Although the motion was pending, the district court dismissed the case against Allied Solutions in light of the ruling in Spokeo Inc. v. Robins in October 2017.  We previously reported on the case here.

In the underlying action, plaintiff Shameca Robertson claimed she and other class members were injured when they failed to receive proper FCRA disclosures informing them that reports had been requested on them and were used to make decisions against them.  She also argued that other adverse actions had been taken against certain applicants without giving those applicants the opportunity to discuss with the decision makers the findings in the reports.

The district court found the errors alleged were procedural and insufficient to establish Article III standing.  On appeal, Robertson argued her class action should be revived and that she should be able to pursue her adverse action claim even if her procedural claim had been dismissed.  During argument, class counsel argued that even though the accuracy of the reports may not have been a problem, the applicants were owed the chance to explain items on background checks before the adverse action was taken.

The appeal also seeks to enforce the agreement the parties entered into before dismissal.

The case is Robertson v. Allied Solutions LLC, Case No. 17-3196, in the U.S. Court of Appeals for the Seventh Circuit.  Troutman Sanders LLP will continue to report on developments in this case.