A plaintiff claimed MOHELA and PHEAA violated the FCRA by inaccurately reporting his credit information. MOHELA argued it was an “arm of the state” and entitled to immunity; however, the court disagreed.
01/23/2024 1:10 P.M.
3 minute read
In a legal complaint (PDF) filed early in 2024, a plaintiff, Francis Pellegrino, alleged that the Higher Education Loan Authority of the State of Missouri (MOHELA) and the Pennsylvania Higher Education Assistance Agency (PHEAA) violated the Fair Credit Reporting Act by inaccurately reporting information and failing to conduct reasonable investigations of credit bureau disputes.
In response, MOHELA claimed it had sovereign immunity due to the fact that it worked for the state. However, the court held that under the 4th Circuit’s four-factor test, MOHELA was not an “arm of the state,” and denied the defendants’ motion for summary judgment.
Background
According to the complaint, between August 2013 and August 2017, Pellegrino obtained 13 federal student loans in the form of subsidized and unsubsidized Direct Stafford loans. In September 2014, the Pennsylvania Higher Education Assistance Agency (PHEAA), operating as FedLoan Servicing, began servicing the plaintiff’s loans.
In 2016, the plaintiff entered a full-time graduate program, putting his loans into an in-school and post-enrollment deferred status, which continued until Dec. 1, 2019. In May 2022, pursuant to the termination of its federal student loan servicing contract with the U.S. Department of Education, PHEAA transferred the plaintiff’s loans to Higher Education Loan Authority of the State of Missouri (MOHELA) for servicing.
On Aug. 2, 2022, the DOE granted the plaintiff a discharge of all his student loans based on “a determination of Total and Permanent Disability.”
Pellegrino’s grievances arose when he alleged that MOHELA inaccurately reported a delinquency to the credit bureaus, leading to disputes.
He filed a two-count complaint, targeting both MOHELA and PHEAA for FCRA violations. Additionally, he included Equifax, Experian, and TransUnion in his claims, accusing them of not ensuring the maximum possible accuracy of information in the consumer reports.
Court Decision
MOHELA’s attempt to secure judgment based on sovereign immunity rested on its assertion that it was “part of” the state of Missouri under Supreme Court precedent and that it was an “arm of the state” of Missouri under the 4th Circuit. The court, however, dismantled these claims.
First, the court dismissed MOHELA’s reliance on the Supreme Court’s decision in Biden v. Nebraska, highlighting that the Biden case did not address sovereign immunity under the 11th Amendment. The court emphasized that MOHELA’s standing determination in Biden did not resolve the issue of 11th Amendment immunity.
The court then applied the Oberg factors, a four-factor test used in the 4th Circuit to determine arm-of-the-state status. These factors included judgment liability, degree of autonomy, involvement in state concerns, and treatment under state law.
Regarding judgment liability, the court found that MOHELA’s financial independence weighed against immunity. Unlike entities directly tied to the state treasury, MOHELA generates its own revenue, and a judgment against it would not necessarily be paid by the state of Missouri.
Assessing the degree of autonomy, the court concluded that MOHELA operated autonomously. Factors such as board appointment and funding demonstrated MOHELA’s independence, with limited interference from the state.
Examining involvement in state concerns, the court acknowledged MOHELA’s statewide educational mission but noted its national reach and revenue derived from nationwide loan servicing. This distinction further weakened MOHELA’s claim to be an “arm of the state.”
Finally, the court considered MOHELA’s treatment under state law. While MOHELA pointed to a statute defining it as a state instrumentality, the court emphasized MOHELA’s structural independence, contributing to the denial of sovereign immunity.
The court’s denial of MOHELA’s motion for judgment on the pleadings allowed Pellegrino’s FCRA lawsuit to proceed.
ACA’s Take
This decision opens the door for further examination of the FCRA violations alleged by Pellegrino, setting the stage for a significant legal precedent in the realm of fair credit reporting.
Read the complaint here (PDF).
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