Mader v. Experian Information Soultions, LLC

Background

Michael Mader brought a proposed class action against Experian Information Solutions, LLC. He alleged that Experian, a consumer reporting agency, violated the federal Fair Credit Reporting Act (FCRA) and New York’s credit-reporting law by failing to use reasonable procedures to ensure that his credit report was as accurate as possible.

Mader took out a loan to attend Reformed Theological Seminary. After he filed for bankruptcy, the bankruptcy court entered an order discharging his pre-bankruptcy debts. Mader alleged that his loan was one of the student loans eligible for discharge because the school was not a Title IV institution. Despite the discharge order, Experian reported the loan as charged off, with an outstanding balance and a past-due balance.

Mader alleged that the report lowered his credit score and harmed his reputation. He also alleged that at least eight potential creditors reviewed the report and were incorrectly told that he was still in default.

Legal standard

Experian moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether a complaint states a legally sufficient claim. At this stage, the court accepted well-pleaded factual allegations as true and viewed reasonable inferences in Mader’s favor.

A negligence claim under the FCRA requires alleged inaccuracy, failure to use reasonable procedures, actual damages, and causation. A willfulness claim also requires facts showing that the failure was knowing or reckless. The court treated the federal and New York credit-reporting laws alike because their relevant language is nearly identical.

Court’s analysis

Inaccuracy. The court found that Mader adequately alleged an inaccurate report. The complaint alleged that the loan was dischargeable and that the bankruptcy court’s order released Mader from all dischargeable debts. The court concluded that the complaint sufficiently alleged that Experian’s description of the loan as outstanding and past due was inaccurate.

The court rejected Experian’s argument that the complaint involved only a dispute about the legal effect of the bankruptcy order. It also rejected the argument that Mader had to bring the matter through a bankruptcy-court proceeding or first ask Experian to investigate the information. Those possibilities did not eliminate the alleged duty to prepare an accurate credit report.

Reasonable procedures. The court found that Mader adequately alleged negligent failure to use reasonable procedures. He alleged that Experian treated all student loans alike after a general bankruptcy discharge, rather than distinguishing between loans that were dischargeable and those that were not. He also alleged that Experian could have required lenders to identify whether student loans were dischargeable.

The court declined at this stage to decide whether that alternative procedure was actually reasonable. It also rejected the idea that Experian’s reliance on information from a lender automatically made its procedures reasonable.

Willfulness. The court dismissed the willfulness claims. Mader’s allegation that Experian knew the loan had been discharged but reported otherwise was conclusory and did not provide enough supporting facts. The court noted that the complaint did not show that it was plainly evident that Reformed Theological Seminary was not a Title IV institution or that the loan was therefore discharged. The bankruptcy order also recognized that many student loans are not discharged, and student-loan dischargeability is generally presumed against.

Damages and causation. The court found that Mader adequately alleged actual damages and causation. The complaint alleged that Experian’s report falsely suggested that the loan survived the bankruptcy, that Mader continued to default afterward, and that the loan was later written off. The alleged reputational injury and the fact that potential creditors saw the inaccurate information were sufficient at the motion-to-dismiss stage.

Disposition

The court granted in part and denied in part Experian’s motion to dismiss. The federal and New York negligence claims survived dismissal. The federal and New York willfulness claims were dismissed.