Milberg FCRA Lawsuit Claims Navient Debt Collection Unlawful

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July 21, 2022

by Brian Eckert

Student loan company Navient Solutions LLC has been hit with a class action lawsuit alleging that it intentionally violated the Fair Credit Reporting Act (FCRA) and damaged the credit score of borrowers.

Milberg’s lawsuit looks to establish both a national class and a Nevada class made up of people whose loans were discharged in bankruptcy but not recognized as such by Navient. If you meet class member criteria, you may be automatically eligible to join the lawsuit, at no cost to you, and recover compensation.

Navient, Credit Scores, and FCRA

Navient was created when Sallie Mae split its business into two separate companies in 2014. Until 2021, Navient participated in federal student servicing. Today, the company offers private student loan servicing as well as consumer lending and business processing solutions. It says it has provided $300 billion worth of loans to 12 million student borrowers.

Loan servicing affects a consumer’s credit score, which is created from information in their credit report. Credit scores and credit reports have a wide-ranging impact on a consumer’s finances and life, including whether a company will offer them a loan or credit product, loan interest rates, credit limits, renting an apartment, and employment.

Companies that provide credit information—such as loan repayment history—to credit reporting agencies are known as credit furnishers. The information they provide can affect credit scores. Given the importance of credit scores in our society, accurate reporting of credit information is a grave responsibility. The Fair Credit Reporting Act (FCRA) requires furnishers to investigate disputes concerning inaccurate information on consumers’ credit reports and correct erroneous data. Navient is a furnisher under the FCRA.

Plaintiff Says That Navient Did Not Recognize Discharged Loans

The widespread belief that student loan debt cannot be discharged through bankruptcy is untrue. Certain private loans for educational purposes may be discharged in a typical bankruptcy proceeding like other consumer debts, notes the Consumer Financial Protection Bureau (CFPB).

In 2005, the lead plaintiff in Milberg’s class action lawsuit, a resident of Nevada, enrolled in the Art Institute of Colorado. She borrowed approximately $74,000 in private loans. Navient was the loan creditor. In 2015, the plaintiff filed for Chapter 13 bankruptcy and her student loan debts were discharged, thus ending her payment obligations to Navient.

Navient has adopted a systematic pattern and practice of failing and refusing to update credit information with regard to debts discharged in bankruptcy because it sells those debts and profits by the sale, according to Milberg’s lawsuit.

However, Navient continued to contact the plaintiff in an effort to collect on the discharged student loan debt. In addition, her credit report continued to show—incorrectly—that she was indebted to Navient. Plaintiff says that these unlawful collection attempts have caused her fear of credit denials, out-of-pocket costs from challenging the inaccurate credit reporting, damage to her creditworthiness, emotional distress, loss of privacy, and other economic and non-economic harm. Milberg’s complaint also alleges that Navient profited from this unlawful behavior.

“Navient has adopted a systematic pattern and practice of failing and refusing to update credit information with regard to debts discharged in bankruptcy because it sells those debts and profits by the sale,” states the lawsuit complaint.

“Navient knows that if the credit information is not updated, then many Class Members will feel compelled to pay off the debt even though it is discharged in bankruptcy. Thus, buyers of Navient debt know, and are willing to pay more for the fact that, they will be able to collect portions of Navient debt despite the discharge of that debt in bankruptcy. Navient receives a percentage fee of the proceeds of each debt repaid to Navient and forwarded to the buyer of Navient debt. Navient therefore has a clear economic incentive to violate the FCRA.”

National Class and Nevada Class Sought

The plaintiff brings this class action on behalf of all other similarly situated Navient borrowers. Two distinct plaintiff classes—a national class and a Nevada class—are defined in the lawsuit:

  • All persons/all residents of Nevada whose “private student loans” were incurred prior to them filing bankruptcy and then these loans were subsequently discharged in their bankruptcy, but Navient has continued to collect on these debts as if the “student loans” were not discharged in bankruptcy.

This is not the first time that Navient has been accused of unlawful lending practices. Earlier this year, the student loan servicer agreed to a $1.86 billion settlement with 39 state attorneys general to resolve claims that it took advantage of student borrowers to enrich itself.

Milberg has a history of representing students and other consumers against companies that put profits ahead of people. The firm that pioneered federal class action lawsuits remains a national leader in defending the rights of victims of corporate and other large-scale wrongdoing. Our class action lawyers have achieved settlements worth tens of millions, hundreds of millions, and billions of dollars across practice areas that include defective consumer products, pharmaceutical drugs, insurance, securitiesantitrustenvironmental and toxic torts, and consumer protection.