The FCRA requires that every consumer reporting agency follow “reasonable procedures to assure maximum possible accuracy” of the information that it reports. 15 U.S.C. Sec. 1681e(b). If a plaintiff can prove that a CRA didn’t follow reasonable procedures, then he or she can obtain actual damages and/or punitive damages, plus costs and fees. Id. at Secs. 1681n, 1681o.
In general, the federal courts have never been very clear about what evidence the plaintiff must have to show that a CRA didn’t follow reasonable procedures. Most of them say that it varies depending on the circumstances and is therefore usually a question for juries to decide. See, e.g., Philbin v. Trans Union Corp., 101 F.3d 957 (3d Cir. 1996).
The Seventh Circuit is a notable exception to this general reluctance to tell parties what sort of evidence is sufficient to show a “reasonable procedures” violation. In Sarver v. Experian Info. Solutions, 390 F.3d 969 (7th Cir. 2004), the plaintiff argued that Experian didn’t use reasonable procedures, because it reported that one of his credit accounts had been listed in bankruptcy, while at the same time showing that he had no public record of having filed for bankruptcy. The plaintiff suggested that a reasonable procedure would have been for “each computer-generated report [to] be examined for anomalous information,” such as a conflict between an account in bankruptcy and an absence of a bankruptcy filing “and, if it is found, an investigation be launched.” Id. at 972. The Seventh Circuit rejected this position and said that the plaintiff had to present evidence “of prevalent unreliable information from a reporting lender, which would put Experian on notice that problems exist.” Id. at 972. In other words, merely saying that a computer process might allow inaccurate reports to be created is not enough: the plaintiff must go further and show that the defendant had notice of a problem with the computer process but hadn’t taken steps to correct it.
Recently, the Seventh Circuit followed (but didn’t cite) Sarver in Childress v. Experian Information Solutions, Inc., 790 F.3d 745 (7th Cir. 2015). In Childress, the plaintiff argued that Experian’s practice of tracking bankruptcy court filings was unreasonable. Experian used a computer to track electronic court records which showed when a person filed for bankruptcy, and later, what the outcome of that filing was (e.g., the petition for bankruptcy was dismissed or granted). The plaintiff argued that this process was unreasonable because it didn’t show whether, when a bankruptcy petition was dismissed, that happened because the consumer withdrew it, or because the court deemed it insufficient. The plaintiff argued for a manual system in which every time a bankruptcy petition was dismissed, someone would look at it and record whether that dismissal was voluntary or not.
The Seventh Circuit rejected this argument and stated that requiring a manual review of every court record “would put an enormous burden on the consumer credit-reporting agencies. Or so it seems; it was the plaintiff’s burden to establish the reasonableness of her proposed procedure.” 790 F. 3d at 747.
This decision is helpful to FCRA defense lawyers in two ways. First, it suggests that CRAs are not required across the board to manually review the information they report before they report it. Second, it reiterates that plaintiffs have the burden to prove that a different procedure would be reasonable, especially where the procedure seems like one that would impose “enormous costs” on the CRAs for little if any gains in accuracy.
The mayor of New York City recently signed a bill that will preclude public or private employers from using a credit report to help them decide whether or not to hire someone. This month’s blog post will ask whether this kind of ban is a good idea. LIke most of my blog posts, it will present the question but won’t leave you with a firm answer.
On the one side, any number of consumer advocates say that there is no evidence to suggest that a person with a poor credit history will also be a bad worker. One group in NYC lists five reasons why credit reports shed no light whatsoever on a person’s job performance. One of them is the fact that someone at Trans Union allegedly admitted, under oath, that “we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.” (I haven’t been able to find a copy of this transcript and would invite readers to let me know if they do.) Senator Elizabeth Warren has introduced federal legislation that would extend NYC’s upcoming ban nationwide; she says that “research has shown that an individual’s credit rating has little to no correlation with his or her ability to be successful in the workplace” but, again, doesn’t cite the research.
On the other side, some employers claim that “there is abundant research suggesting that financial stress has a negative impact on job performance.” I was able to find some of the research that they are referring to, including this study which found that a large minority of employees had found personal financial issues to be a distraction at work, and this study which found that 20% of employees said they had skipped at least one day of work to deal with a financial problem. However, these studies are not peer reviewed; they may be based on small or aberrational samples; they may be biased due to bad survey questions; and even if they show that financial issues can distract workers, they don’t take the next step and show that an employer, given access to a credit report, will be able to pick these people out in advance and hire workers with a better ability to focus.
Long story short, lots of people are making lots of claims about whether employers should be able to use credit reports when they hire people. There is some evidence to suggest that they should, but both sides seem to be making arguments that outrun their evidence.
Last month, I discussed a difference of opinion between a New York trial court and a Southern appellate court, on the issue of whether a plaintiff who didn’t suffer any actual damages can sue a credit bureau under 15 U.S.C. Sec. 1681i. This month, I write to call your attention to yet another (potentially) interesting difference between these two cases.
This month, the question before us is whether a bureau, when it gets a dispute from a consumer who explains in some detail why the bureau has incorrectly reported some aspect of his credit history, acts recklessly insofar as it relies on the ACDV process – that is, is it a reckless violation of 1681i for the bureau to simply send a summary of the dispute to the creditor and then take its word over the consumer’s for whatever the status of the debt might be? Put differently, if Jack Stack tells Experian that he doesn’t have the Capital One account that is listed in an Experian report or disclosure, because Stack’s wife opened the account and he never signed off on it, and if Experian’s response is to send Capital One an ACDV and then report whatever Capital One tells it to report – has Experian violated 1681i in such a reckless way that Experian can be asked to pay punitive damages?
The two courts that we looked at last month answered this question in two different ways. A New York trial court held that when a consumer makes a detailed dispute, and the credit bureau relies solely on the ACDV process to respond to that dispute, then there is enough evidence for a jury to find that the bureau recklessly violated 1681i, such that it could be liable for punitive damages. Gorman v. Experian Info. Solutions, Inc., 2008 U.S. Dist. LEXIS 94083 (S.D.N.Y. Nov. 18, 2008). However, the Eleventh Circuit Court of Appeals recently went the other way, by holding that when a consumer submitted a detailed dispute of the information in his credit file, and the bureau relied solely on the ACDV process, this was NOT a reckless violation of 1681i. Collins v. Experian Info. Solutions, Inc., 775 F.3d 1330, 1336 (11th Cir. 2015) (“Taking no steps other than contacting only Equable with an ACDV form regarding the disputed entry might have been negligent, but willfulness or recklessness is a higher standard that has not been met in this case”).
This is the kind of disagreement that keeps lawyers like me busy. The Gorman court appears to think that because the ACDV process involves “merely parroting” whatever a creditor says is true – conduct which was condemned by the Third Circuit in Cushman v. Trans Union Corp., 115 F.3d 220, 225 (3d Cir. 1997) – then a bureau which continues to use the ACDV process, almost two decades after Cushman, is acting reckless enough to be tagged with punitive damages. But the Collins court thinks – perhaps because there are some occasions when courts (other than Cushman) have found the ACDV process to be acceptable – that using the ADCV process can be negligent, but it is never reckless.
In last month’s post, I discussed how a consumer can claim that a bureau violated the FCRA by failing to conduct a “reasonable reinvestigation” of a dispute, as required by 15 U.S.C. Sec. 1681i.
This month, I want to discuss an interesting (perhaps!) split of authority on when a consumer can be harmed by a bureau’s failure to conduct a “reasonable reinvestigation” of his dispute.
Up until recently, the law appeared to be that if you disputed something with a credit bureau, and it failed to conduct a “reasonable reinvestigation” and thus failed to resolve the dispute in your favor, then you had only gone part of the way toward making out a viable claim under 1681i. To get all the way there, you also needed to show that the bureau’s failure to fix its error, in response to your dispute, either caused you actual harm or was so reckless that it entitled you to seek punitive damages. See Gorman v. Experian Info. Solutions, Inc., 2008 U.S. Dist. LEXIS 94083 (S.D.N.Y. Nov. 19, 2008) (holding that plaintiff had no claim for actual damages, because he failed to prove that any creditors relied on information he unsuccessfully disputed when they allegedly denied him loans, but that he did have a claim for punitive damages, because he gave Experian plenty of reason to uphold his dispute, but it relied on the ACDV process and took the creditor’s word over his).
However, the Eleventh Circuit released an opinion earlier this year which raises questions about whether the law is what I just described it as being. In Collins v. Experian Info. Solutions, Inc., 775 F.3d 1330 (11th Cir. 2015), the plaintiff showed that after a debt collector sued him in court and lost, he checked his “credit file” and found that the debt was listed there. He disputed it with Experian – telling it to check the court docket to see that he won the case and thus showed that he didn’t owe any debt – but it relied on the ACDV system and took the debt collector’s word over his. When the plaintiff sued Experian for failing to check the docket and update his report, the trial court found in favor of Experian, on the ground that the plaintiff hadn’t suffered any actual harm because nobody had ever seen a “consumer report” with the disputed debt on it (remember, he disputed what was in his “credit file” and not what appeared on a “consumer report” based on that file).
The plaintiff appealed this decision, and the Eleventh Circuit reversed the trial court’s ruling: it stated that “the plain language of the FCRA contains no requirement that the disputed information be published to a third party in order for a consumer to recover actual damages under 1681i.” Id. at 1335.
I can see both sides of this one. One the one hand, if a consumer has to jump through multiple hoops to get a bureau to correct his “credit file” so that any future consumer reports will be accurate, that seems to be something that he should be able to win damages for – which is what the Eleventh Circuit just said. On the other hand, there is an age-old rule that many people live by – “no harm, no foul.” It suggests that if a consumer never gets denied for a loan or otherwise suffers real harm – if all that he does is correct an entry in a database that nobody other than him and the credit bureau have ever seen – then why should he be able to hit a credit bureau for damages plus costs and attorney fees? Isn’t that just going to induce plaintiffs’ lawyers to encourage people to dispute entries in their file, so that if they are unsuccessful, the lawyers can sue and reap a reward?
Because this question has two sides, and because only one circuit has as of yet directly addressed it, it will be interesting to see what happens if and when it gets taken up by other judges down the road.
Sometimes consumers find what they think are errors on their credit reports, either after the information has been reported to a lender (via a “consumer report”) or before that has happened (via a consumer’s request to see his “consumer file”). If a consumer contacts a bureau to dispute these errors, the bureau has a duty under 15 U.S.C. Sec. 1681i to conduct a “reasonable reinvestigation” of the dispute, and to correct any actual errors.
Typically, a bureau responds to a dispute by sending an Automated Consumer Dispute Verification form – an ACDV – to the creditor that furnished the information which is being disputed. So if Jack Stack disputes a Capital One account that as reported by Trans Union, then TU will send an ACDV to Capital One and ask how the account should have been reported. If Capital One doesn’t timely respond, or if it does respond and confirms that the account should not have been reported as it was, then TU will make a change. However, if – as often happens – Capital One simply confirms that the account had been reported correctly, then TU will continue to report it that way.
Consumers have long had a problem with this process, as it seems to involve taking the creditors’ word over the consumers’ word. In the example above, if Jack Stack says that he never had an account with Capital One, but Capital One says that he did, the ACDV process will see TU resolve the dispute in Capital One’s favor. When this happens, consumers have a right to place a written dispute on future reports (e.g., any future reports about Jack Stack that said he had a Capital One account, would also note that he said otherwise). But consumers often decide not to bother making any written disputes, and even when they do, they typically have no effect on the consumer’s credit score. For these reasons, consumers and their lawyers often challenge the ACDV process as not being the “reasonable reinvestigation” that 1681i requires.
This brings us to the question presented in this month’s blog post: when, if ever, is simply sending an ACDV to a creditor, and reporting whatever comes back, a “reasonable reinvestigation?” Case law answers the question as follows.
First, the Third Circuit has categorically rejected the proposition that a bureau can simply send an ACDV to a creditor, report whatever comes back, and meet its duty under 1681i. Cushman v. Trans Union Corp., 115 F.3d 220, 225 (3d Cir. 1997) (stating that “The “grave responsibility” imposed by 1681i(a) must consist of something more than merely parroting information received from other sources”).
Next, the First Circuit, in an opinion that collected cases from around the country, stated that if the consumer is disputing not a factual but a legal aspect of the debt – such as whether he failed to ratify the debt such that he doesn’t owe it – then no process that the bureau could have used would have resolved the issue, so if the bureau only used the ACDV process, it is still not liable for an unreasonable investigation. DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008).
Finally, some courts have suggested that if the consumer simply denies owing the debt without explaining why, or if the consumer otherwise makes a broad dispute without any detail, then the ACDV process may be sufficient as a matter of law. Compare Okocha v. Trans Union LLC, 2011 U.S. Dist. LEXIS 39998 (E.D.N.Y. Mar. 31, 2011) (granting summary judgment to bureau that used ACDV process because “Plaintiff’s dispute letters sent during the relevant time period contained little more than categorical disputes as to the validity of the debt”), aff’d per curiam, 488 Fed. Appx. 535 (2d Cir. 2012) with Gorman v. Experian Info. Solutions, Inc., 2008 U.S. Dist. LEXIS 94083 (S.D.N.Y. Nov. 19, 2008) (finding material dispute of fact as to whether a bureau violated 1681i, where “Plaintiff sent a copy of his Grant Deed in Lieu of Foreclosure, as well as a detailed letter explaining the inaccuracies, to Experian” and it relied on the ACDV process).
This month’s post will be a follow-up to my post on January 9, regarding when a debt collector must tell a consumer reporting agency (CRA) that a consumer has disputed a debt. In that post, I discussed cases which say that if a debt collector knows that a debt is disputed, and subsequently reports the debt to a CRA, then the collector must tell the CRA about the dispute; but that if the debt collector reports first, and learns about the dispute afterward, it need not tell the CRA about the dispute.
I then suggested that the rule might be as follows:
[I]f a debt collector tries to collect a debt in Year 1; reports the debt to the CRAs in Year 2, and only afterward receives notice of the dispute in Year 3, then the collector need not report the dispute to the CRAs. [But], if the debt collector later updates its reporting in Year 4, then its update must mention that the debt was disputed in Year 3.
Questions about that statement have caused me to look into whether my suggestion had any direct support in case law. It turns out that my suggestion may not actually be the law. Here’s the story:
A. Nearly every case that discusses this issue involves facts which are a little bit different than the one in my hypothetical. For example, the cases that I cited in my initial post, Rogers and Wilhelm, both involved situations where a debt collector reported a debt to a CRA on date 1; received notice of a dispute on date 2; and never updated the report after that. So those cases don’t answer the question of whether a debt collector who reports a debt; receives a dispute; and then updates its report, must mention the dispute in the update.
B. Both Wilhelm and the FTC commentary on which it relied contain statements that could be taken in support of either position. They say that:
1. Disputed debt. If a debt collector knows that a debt is disputed by the consumer . . . and reports it to a credit bureau, he must report it as disputed.
2. Post-report dispute. When a debt collector learns of a dispute after reporting the debt to a credit bureau, the dispute need not also be reported.
The first of these two statements suggests that if a debt collector reports a debt, learns of a dispute, and updates the report, it must mention the dispute in the update. But the second of these two statements does not.
C. There is very little case law on the precise question at issue here. I found two cases, and they give conflicting answers. In O’Fay v. Sessoms & Rogers, P.A., No. 5:08-CV-615-D, 2010 U.S. Dist. LEXIS 104307 (E.D.N.C Feb. 9, 2010), a debt collector reported a debt to the CRAs in 2007 or earlier; the plaintiff disputed the debt with the collector in February 2008; the debt collector updated the report in March 2008 and May 2008 but did not note the dispute; and then the debt collector updated it a third time in July 2008 and did note the dispute. Plaintiff filed suit six months later, in December 2008, and the court found that the March and May updates were violations of the FDCPA (i.e., the debt collector was required to mention the dispute whenever it updated its report after receiving the dispute). But in Hinds v. AR Resources, Inc., No. 12-2567, 2013 U.S. Dist. LEXIS 61200 (D. Minn. Apr. 30, 2013), a debt collector reported a debt to the CRAs before April 2012; the plaintiff disputed the debt with the CRAs in April 2012; the debt collector updated the report in July 2012 and did not note the dispute; and the plaintiff filed suit in October 2012. The court held that the plaintiff did not plead facts to indicate that the debt collector had notice of the July 2012 dispute and dismissed the plaintiff’s claim.
D. The courts that have addressed the broader question of whether a debt collector must update its report to the CRAs after receiving notice of a consumer’s dispute, have all suggested that there is no “continuing duty” to do this, and that any failure to update or related mistake would be subject to the FDCPA’s one year statute of limitations. In Rogers, the district court refused “to interpret [15 U.S.C.] Section 1692e(8) as imposing a continuing duty on debt collectors to advise consumer reporting agencies that a debt has been disputed.” And in Wilhelm, the Tenth Circuit stated that in the absence of any evidence that the debt collector “communicated any credit information about [plaintiff] to any person within the one-year limitations period,” a claim based on updates made prior to that period “is clearly time barred.”
In summary, there is some authority for the proposition whenever a debt collector gets notice of a consumer’s dispute, the FDCPA requires it to make sure that any updates to the CRAs mention that dispute. However, there is some authority that goes the other way, and there is also some authority that any mistake only subjects the debt collector to liability if the consumer files suit within a year of an update that fails to mention the consumer’s dispute.
The ECOA is a federal law,15 U.S.C. § 1601 et seq., that prevents banks and other creditors from discriminating against people for pretty much the same reasons that employers are prohibited from discriminating against employees. The ECOA provides that “It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— on the basis of race, color, religion, national origin, sex or marital status, or age ….” 15 U.S.C. § 1601(a)(1).
Regulation B permits federal agencies to make rules related to ECOA. The Federal Reserve Board initially made such rules, pursuant to 12 CFR 202.1 et seq. Since 2012, the new Consumer Financial Protection Bureau (CFPB) has made such rules, pursuant to 12 CFR 1002.1 et seq. A creditor that fails to comply with these rules can face examination and enforcement from its primary regulator (e.g., FDIC, FRB, NCUA, OCC, CFPB, etc.).
Historically, a great deal of private litigation related to ECOA has been about allegations that a creditor discriminated against women due to their marital status (e.g., by preventing married women from obtaining credit on their own without having their husbands act as co-signers). More recently, private litigation has asked whether women who agree to co-sign their husbands’ applications for credit can avoid paying those loans due to an alleged ECOA violation. The Supreme Court will be hearing argument on this issue this fall, in Hawkins v. Community Bank of Raymore (cert. granted March 2, 2015). The Court will be resolving a disagreement, or split, between the Sixth and Eighth Circuit Courts of Appeals on this issue. The question is whether women who co-sign their husbands’ applications for credit (and, by doing so, become personal guarantors on the loan) are “applicants” and therefore protected by ECOA.
The Eighth Circuit addressed this question in Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014), which is the case that will be heard by the Supreme Court on appeal. This case arose out of loans that banks made to corporations run by married men. The banks required the men to personally guarantee the loans (i.e., if the corporations defaulted, the bank could sue the owners for the debt). To prevent the men from giving all of their property to their wives (which would mean that there was nothing for the bank to collect), the banks also required the mens’ wives to co-sign these loan guarantees.
The corporations defaulted; the banks sued the owners and their wives for the debt; and the wives raised ECOA as an affirmative defense (i.e., they argued that by making them co-sign on their husbands’ corporate loans, and then suing them, the banks were discriminating against them, which is prohibited under ECOA, such that the wives’ guarantees should be void and the suits dismissed). The trial court granted summary judgment to the bank, and the Eighth Circuit affirmed. The reason was this: ECOA prohibits discrimination against credit “applicants,” 15 U.S.C. § 1691(a), and the agencies have defined “applicants” to include guarantors. See 12 CFR 202.2(e); 12 CFR 1002.2(e). The Eighth Circuit rejected that definition: “A guarantor engages in different conduct, receives different benefits, and exposes herself to different legal consequences than does a credit applicant.” 761 F.3d at 942. This meant that the guarantor-wives were not “applicants” and that they were therefore unprotected by ECOA (and unable to raise it as a defense).
The Sixth Circuit reached a different result in BB Acquisition, LLC v. Bridgemill Commons Dev. Group, LLC, 754 F.3d 380 (6th Cir. 2014). This case involved another real estate loan guarantee executed by the wife of a real estate developer, and her attempt to raise ECOA as a defense to the bank’s collection of the debt she helped guarantee. The trial court found for the bank on this issue, but the Sixth Circuit reversed. It held that the agency definition of “applicant” to include guarantors deserved deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Specifically, the Sixth Circuit found that: i) the text of ECOA was ambiguous on whether a guarantor was an “applicant” who was protected by the statute; and ii) the agency’s decision to include guarantors as protected applicants was reasonable. The Sixth Circuit recognized that this decision had the potential to cause creditors to lose a significant sum, but stated that “We will not strike down a valid regulation to salvage bad underwriting.” 754 F.3d at 386.
The same issue also came up in RL REGI N.C., LLC v. Lighthouse Cove, LLC, 762 S.E.2d 188 (N.C. 2014). Regions Bank lent roughly $4.2 million to real estate developers who defaulted. The loans were guaranteed by the developers and their wives, whom the bank sued. One of the wives asserted, as an affirmative defense, that her guarantee had been obtained in violation of ECOA. The bank’s position was that it asked each spouse to sign, and he or she did sign, a waiver of all defenses including any ECOA defense. This raised the question of whether a person could waive her ECOA rights. A jury found for the wife at trial; the trial court entered judgment for her; and the intermediate appellate court affirmed; but the North Carolina Supreme Court reversed. “There is nothing facially illegal about this loan relationship in which a lender provided a loan upon certain conditions; moreover, parties routinely forego claims in settlement agreements.” 762 S.E.2d at 191.
So, interesting question. It will be interesting to see which position the Supreme Court takes.