The Central District of California just decided a case which presents an interesting question (to me, anyway): can a debt collector, in an effort to convince people to pay something toward an unpaid debt, offer to cut the following deal: pay me x% of the debt, and I will consider the debt to be paid in full, and I will tell the credit bureaus that it was paid in full.
The question is interesting because, in my experience, this sort of thing happens all the time. Debt collectors routinely settle debts for partial payment: if A owes B $1000, but A doesn’t have that much money, B’s debt collector may let A settle the debt for $500, or $750, or some other figure that A can afford to pay.
The catch is that if A pays $500 to settle a $1000 debt, then technically, the debt was not paid in full. This raises the question of whether the debt collector must tell the credit bureaus that the debt was not paid in full. After all, the FCRA prohibits debt collectors (and everyone else) from providing the credit bureaus with inaccurate information. 15 USCS § 1681s-2(a)(1)(A).
So the question is this: if a debt collector agrees to settle a $1000 debt for $500, is the debt paid in full (because the debt collector agreed to consider it paid), or not (because the debt was settled for something less than the total)?
In Kielty v. Midland Credit Mgmt., No. 3:14-cv-00541, 2015 U.S. Dist. LEXIS 9918 (C.D. Cal. Jan. 28, 2015), the district court found that a debt collector may report a partially-paid debt as “paid in full,” in an effort to get consumers to pay something toward unpaid debts. In Kielty, a debt collector sent letters and brochures which told consumers that if they contacted the debt collector and agreed to make a sufficiently-partial payment on an unpaid debt, the debt collector would cut a deal, consider the debt paid in full, and tell the bureaus that it was paid in full.
The plaintiffs in Kielty argued that the debt collector’s offer to do this violated the FDCPA and the FCRA, because reporting that a partially-paid debt was paid in full would be an inaccurate statement and thus a violation of both statutes. The court disagreed: the court did not find any legal authority which “bars [a debt collector] from reporting debts it settled with consumers as ‘Paid in Full,'” so the court held that “the Complaint fails to make a plausible allegation that [the debt collector’s] representations that Plaintiffs’ accounts will be considered “Paid in Full” and reported as such to the three major credit reporting agencies violates the FDCPA.” 2015 U.S. Dist. LEXIS 9918, at **16-18.
This decision supports the current industry practice of cutting deals with debtors to settle unpaid debts for partial payment. This practice of reporting a partially-paid debt as “paid in full” improves a consumer’s credit history and gives consumers an additional reason to make a partial payment toward a debt. As such, the decision benefits consumers (who now have a permissible way to work on cleaning up their credit reports by cutting deals) and debt collectors (who can make deals that obtain some money on an unpaid debt, which is presumably better for them than no money).
This blog is supposed to be about both the FCRA and also “consumer finance law generally.” This month’s post is about “consumer finance law generally,” specifically about an issue where the FCRA interacts with the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. Sec. 1692 et seq.
The FDCPA provides that a debt collector may not “communicat[e] . . . to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” 15 U.S.C. § 1692e(8) (emphasis added).
This provision, as written, begs the question: when does failing to communicate that a disputed debt is disputed make a debt collector’s communication “false,” such that the debt collector has violated the FDCPA? Always, or just sometimes?
Case law suggests that the answer is “sometimes.” Two scenarios should help illustrate how this works.
First, if a debt collector tries to collect a debt in Year 1; receives notice from the consumer in Year 2 that the debt is disputed; and then reports the debt to the credit bureaus in Year 3, then the debt collector must tell the bureaus, as part of the Year 3 report, that the debt was disputed in Year 2.
But second, if 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.
Under this second scenario, if the debt collector later updates its reporting in Year 4, then its update must mention that the debt was disputed in Year 3. But if the debt collector never updates its reporting – so the only information the bureaus have is the debt collector’s report back in Year 2 – then the debt collector is not required to notify the bureaus of the dispute.
One court framed the issue this way: does the FDCPA “impos[e] a continuing duty on debt collectors to advise consumer reporting agencies that a debt has been disputed, even when the dispute occurs after the debt collector reports the debt and the debt collector has not reported the debt since the dispute?” Rogers v. Virtuoso Sourcing Group, LLC, No. 1:12-cv-01511-JMS-DML, 2013 U.S. Dist. LEXIS 27409, at **8-9 (S.D. Ind. Feb. 28, 2013).
The Rogers court answered that question in the negative, and other courts have done likewise. See Rogers, 2013 U.S. Dist. LEXIS 27409, at *7 (collecting authorities for the proposition that “[w]hen a debt collector learns of a dispute after reporting the debt to a credit bureau, the dispute need not also be reported,” and following Wilhelm v. Credico, Inc., 519 F.3d 416, 418 (8th Cir. 2008)); see also Phillips v. NCO Fin. Sys., No. 12-cv-15482, 2014 U.S. Dist. LEXIS 50089, at **20-21 (E.D. Mich. Apr. 11, 2014) (following Wilhelm); Donatelli v. Warmbrodt, No. 08-1111, 2011 U.S. Dist. LEXIS 69207, *27-28 (W.D. Pa. June 28, 2011) (same).
Class action lawyers tend to copy one another. If one lawyer thinks up a great class action suit, alleging that Company A violated Law X, then before long lots of other lawyers will sue Companies B, C, D, and E, all likewise alleging that they too violated Law X.
That appears to be happening right now in the FCRA ecosystem.
First, this blog noted some two years ago that Domino’s apparently violated 15 U.S.C. Sec. 1681b(b)(2)(A)(i), which states that before an employer conducts a background check, the would-be employee must be given a disclosure form which notifies them “in a document that consists solely of the disclosure,” that the employer may or will be running a background check. Domino’s apparently included a release of liability in its disclosure form, which meant that the form did not “consist solely of the disclosure.”
Now, lawyers are suing lots of other companies, alleging that all of them did what Domino’s allegedly did: namely, put a release of liability in their criminal background disclosure form. Whole Foods was apparently sued by someone in California in March 2014, and again by someone else in Florida last week.
This month’s post will not address a legal question but rather will comment on some FCRA news. It appears that a California congresswoman, Rep. Maxine Waters, has proposed significant changes to the FCRA. One of the proposed changes is a reduction in how long it takes for adverse information to “age off” your credit report. Right now, adverse information is removed from one’s credit report after a Biblically sanctioned seven year period. If Ms. Waters has her way, it will be removed after a four year period.
Putting aside the question of how likely Ms. Waters is to get her way (as a Democrat in a majority-Republican House of Representatives, not very), this news raises the question of what effect removing adverse information from consumers’ credit reports has on the broader economy, and whether the economy would benefit if adverse information came off more quickly than it currently does.
Businessweek puts the question this way:
Say you had a hard time keeping up with your credit card or mortgage payments during the last recession and subsequently defaulted, went delinquent or went bankrupt. Now, thanks to the magic of the Fair Credit Reporting Act, those problems are washed from your credit report and your FICO score rises faster than Vladimir Putin’s blood pressure during an OPEC meeting.
Here’s the hypothetical question: You just got your first credit card in seven years, so what will you do with it? Are you going to tuck it away safely in your wallet and vow only to use it in an absolute emergency or if The Hooters get back together for a tour? Or are you going to head out and ding up some charges in, say, the electronics aisle of the local Wal-Mart and the 12-year-old Scotch aisle of the local liquor store and the Ding Dongs aisle of the local convenience store and the…well, you catch the drift.
In other words, if X has a “bad” credit report with adverse information that limits his ability to borrow money, and if X’s credit report then improves after seven (or four) years, will X go out and borrow and spend money, driving the US economy?
I don’t know the answer to this question. But I like the fact that the question exists, if only because it suggests that the FCRA has repercussions that extend beyond the lawsuits that I typically handle.
Beginning in April, this blog has posted a series on “resellers,” which are companies that obtain data from the three credit bureaus (Experian, Equifax, and Trans Union), and merge it into a single “tri-merge” report for use by a client, typically a mortgage lender or auto lender. A typical tri-merge report will contain at least some inconsistencies – e.g., one bureau may report that X lived in Wisconsin whereas the other two bureaus may report that X only lived in California; or two bureaus may report that Y filed for bankruptcy in 2011 whereas the other bureau may not. The question we’ve been addressing is this: if a reseller simply reports what each bureau is telling it, without making any effort to reconcile inconsistencies of this type, has it violated 15 USC 1681e(b), which requires consumer reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information” in its reports?
In this series, I have reviewed six (6) court opinions that addressed this question: Perez; Stublaski; Dively; Waterman; Willoughby; and Starkey. None of them are published decisions, and all of them were by trial courts as opposed to courts of appeals. For both reasons, none of them are “precedential,” or binding on other courts. However, they nevertheless give some insight into how courts are looking at this question.
The first thing we see is that the courts have, so far, favored plaintiffs and not resellers: of the six opinions, five of them refused to grant a reseller’s motion to dismiss or motion for summary judgment on a plaintiff’s claim.
The second thing we see is that the unsuccessful resellers have made some common “mistakes,” that is, they have each made one or two of the same arguments, which multiple courts have found unpersuasive. These arguments are:
1. In Waterman and Willoughby, the reseller defendants argued that a reseller is not bound by the “reasonable procedures” duty at 1681e(b); a reseller is only bound by the more limited duty at 1681e(e). The courts have rejected this argument, and rightly so: a reseller is by definition a “consumer reporting agency” (1681a(u)); and 1681e(b) applies to consumer reporting agencies, so 1681e(b) applies to resellers.
2. In Perez, Dively, and Starkey, and to a lesser extent in Waterman, the reseller defendants argued that they should be permitted to rely on the data that they receive from each of the three bureaus. There is some precedent for this – in Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994), a court of appeals said that a credit bureau can report what a court docket is saying about a court case, without actually pulling and reading the underlying court files to confirm things. But there are some obvious differences between a bureau’s decision to rely on a court docket, and a reseller’s decision to rely on the credit bureaus: for example, court dockets are widely considered to be accurate, whereas news reports suggest that most bureau reports have at least some inaccuracies; and there is typically only one court docket which says, without contradiction, what happened in a lawsuit, whereas there are three bureaus and (as we’ve seen) they don’t often all report the exact same things. When a reseller poses the question under 1681e(b) like this – “can I rely on a bureau report without doing anything more; even if the bureaus are saying different things” – the courts have been unwilling to say “yes.”
I have some ideas on how a bureau should ask a court to dismiss one of these claims under 1681e(b) against it. I used some of them in Stublaski, and I may use those and others in future cases. I don’t for a minute believe that the question at issue here is settled; it won’t be until multiple courts of appeal, each having had the benefit of better arguments than the two bad ones just listed here, decide the question.
This post will be the last (at least for now) in our series on whether resellers can be liable for violating 15 USC 1681e(b) if they report data from one credit bureau that: i) is inconsistent with what the other bureaus are reporting; and ii) is allegedly inaccurate. I say the last “for now” because I will do a round-up post next month, and because there may be more cases on this issue down the road.
The last case in our series is Starkey v. Experian Info. Solutions, Inc., No. 8:13-cv-59, 2014 U.S. Dist. LEXIS 107917 (C.D. Cal. Jan. 8, 2014). In that case, plaintiff applied for a home loan from Quicken, which obtained a tri-merge credit report from Credco, which showed that Experian was reporting adverse public records about plaintiff, which the other two bureaus (Equifax and Trans Union) were not reporting about her. Quicken denied plaintiff a loan due to the public records. Plaintiff contacted Experian (not Credco) to dispute the public records, and while the court filings don’t tell us what Experian did in response, we do know that: i) Experian contended that its report was accurate (i.e., the public records really did belong to plaintiff, even though she said otherwise, and even though the other bureaus weren’t reporting them); and ii) plaintiff ultimately got a loan for a good interest rate.
Despite ultimately getting the loan she wanted, plaintiff sued Experian and Credco for providing an inaccurate credit report about her. Credco moved for summary judgment on the issue that we’ve been addressing here recently: i.e., it argued that it was not liable under 15 USC Sec. 1681e(b) for providing information from one bureau (Experian) that was inconsistent with the other bureaus.
Credco’s argument was, to my mind, a bit like the unsuccessful arguments that we have addressed in the last three posts: it mixed some good points with some less good ones. Credco argued that: i) Credco’s report was not “inaccurate” because it correctly reported to Quicken what Experian had reported to it; ii) the FCRA at 1681e(b) does not require resellers to reconcile inconsistent information from multiple sources; and iii) plaintiff’s failure to dispute her report with Credco bars her from suing Credco for creating an inaccurate report.
The court rejected these arguments and thus denied Credco’s request for summary judgment. The court took time at the outset to cover case law principles that are plaintiff-friendly and that Credco had not raised and addressed in its initial brief: namely that plaintiffs can sue under 1681e(b) if they contend that a report is inaccurate; that a report is inaccurate if the information is incorrect or just misleading; and questions about whether a defendant like Credco used “reasonable procedures to assure maximum possible accuracy of the information” in its reports should usually be resolved by the jury at trial, not by the court at summary judgment.
The court then specifically addressed two of Credco’s three arguments.
First, the court found that on the issue of whether information is “accurate,” the question is not whether Credco correctly told Quicken what Experian had told Credco, but rather whether the plaintiff had the public records that Experian (and then Credco) said she did. Because Credco hadn’t argued that she didn’t, the court refused to find that Credco’s report was accurate. Another way of putting it would be to say that the court used the common sense of the word “accurate” (i.e., is this information correct?) and not the technical sense that Credco wanted to use (i.e., Credco’s report was technically “accurate” so long as it correctly said what Experian was saying).
Notably, the court never specifically addressed Credco’s second argument, which was that the FCRA does not require resellers to do more than tell their clients what the bureaus are telling it. The court seems to have conflated that with the first argument and addressed it in passing. The court explained its position as follows:
While it is true that the FCRA sets forth different requirements for resellers of information (for example, § 1681 i), nowhere does the FCRA set forth a different standard in § 1681e (b).” Waterman v. Experian Info. Solutions, Inc., No. CV 12-01400 SJO (PLAx), 2013 U.S. Dist. LEXIS 35455, 2013 WL 675764, *2 (C.D. Cal. Feb. 25, 2013). The FCRA, therefore, requires that this Court apply the same the definition of “inaccurate” to a report prepared by reseller that it would apply to a report prepared by any other credit reporting agency. As noted above, a credit reporting agency’s report is “inaccurate” if it contains information that is “patently incorrect.” Gorman, 584 F.3d at 1163. No matter how many times “patently incorrect” information is accurately reproduced, it remains incorrect, and therefore “inaccurate” under the FCRA.
Starkey, 2014 U.S. Dist. LEXIS 107917 , at **7-8.
In short, it seems that the court saw Credco’s first two arguments – that its report was “accurate” because it correctly stated what Experian was reporting, and that the FCRA requires no more – as being contradicted by the traditional definition of “inaccurate.”
Finally, the court addressed and rejected Credco’s third argument – that plaintiff’s failure to contact Credco and dispute her report before filing suit, precluded her from successfully suing Credco under 15 USC 1681e(b). The court noted that if plaintiff had contacted Credco to dispute her report, any claim for its failure to handle her dispute would have been under 1681i, which requires that a plaintiff give the defendant prior notice of the dispute before suing, not 1681e(b), which does not require such notice. The court then held that if a defendant shows the court that it was following “reasonable procedures” to create its reports, the fact that a plaintiff never gave prior notice that she disputed the report may help convince a court to grant the defendant summary judgment. But here, Credco never argued that its procedures were reasonable, so the court rejected Credco’s notice argument on the basis that 1681e(b) does not require a plaintiff to give a defendant notice of an inaccuracy before filing suit. Id. at **11-12.
Once again, I will use my position as Monday-morning quarterback to suggest that the court might have decided this case differently if Credco had made its arguments differently. From my perspective, Credco’s first and third arguments were very weak. It is hard to convince a court that the word “accurate” should be understood in a special technical sense and not in the way that most people and most courts have used it; and it is hard to convince a court hat a statute (1681e(b)) which says nothing about notice in the text, nevertheless requires a plaintiff to give notice of a problem before filing suit.
Credco’s second argument was stronger, but the court largely ignored it because it was so unimpressed by the first and third arguments. The second argument wasn’t perfect – Credco argued at one point that 1681e(b) “requires” resellers to simply tell clients what the bureaus are telling it, when in fact it doesn’t “require” that at all. You can (and probably should) find that if a reseller correctly tells its clients what the bureaus were telling it, then the reseller has met its duty under 1681e(b), but meeting one’s duty under a statute by doing X is not the same as the statute “requiring” you to do X. The FCRA at 1681e(b) never uses the word “require,” and the court might have seen Credco’s argument that 1681e(b) imposes a requirement – when the text says no such thing – as another sign that Credco was making a weak argument.
Last month, as part of our ongoing series about cases in which a plaintiff seeks to hold a reseller liable for inconsistent information in a tri-merge credit report, we discussed Waterman v. Experian Info. Solutions, Inc., No. 12-1400, 2013 U.S. Dist. LEXIS 35455 (C.D. Cal. Feb. 25, 2013). In that case, a reseller named DataQuick argued that it was not bound to the duty of maximum possible accuracy at 15 USC 1681e(b); it was rather only required to meet the much more limited duties at 1681e(e)(2) (which essentially require resellers not to sell tri-merge reports to just anyone).
The Waterman court rejected that argument, but that didn’t stop another reseller – Credit Tech – from trying the same argument in a different court. It met with the same result, however: in Willoughby v. Equifax Info. Servs. LLC, No. 2:13-cv-788, 2013 U.S. Dist. LEXIS 187279 (N.D. Ala. Aug. 12, 2013), the court denied Credit Tech’s motion to dismiss.
Credit Tech had argued, in its brief, that:
Plaintiff’s claim is fatally flawed for two reasons: (1) Credit Tech did not “prepare” the credit report at issue; and therefore (2) section 1681e(b) is inapplicable to Credit Tech.
Chapter 15 U.S.C. §1681e(b) provides that “[w]henever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” (Emphasis added).
In comparison, a Reseller under the FCRA:
(1) assembles and merges information contained in
the database of another consumer reporting agency
or multiple consumer reporting agencies concerning
any consumer for purposes of furnishing such
information to any third party, to the extent of such
activities; and (2) does not maintain a database of
the assembled or merged information from which new
consumer reports are produced.
15 U.S.C. §1681a(u) (emphasis added).
The problem with this passage is that Credit Tech simply omitted an important sentence in 1681a(u) which completely undercuts this argument. Credit Tech is arguing that “consumer reporting agencies” are bound by 1681e(b), but that “resellers” are different from “consumer reporting agencies,” so resellers are not bound by 1681e(b). The problem with this argument is the sentence which Credit Tech does not mention. The statute at 1681a(u) begins by saying: “The term “reseller” means a consumer reporting agency….” If a reseller is a consumer reporting agency, and if 1681e(b) applies to all consumer reporting agencies, than 1681e(b) applies to resellers, and Credit Tech’s argument collapses.
The court quickly picked up on this. It held that Credit Tech’s argument might have made sense before a series of amendments to the FCRA, in 2003, included the statute at 1681a(u) and its clear statement that resellers are consumer reporting agencies. However, after the amendment, it became impossible for a reseller to credibly argue that it wasn’t a consumer reporting agency and wasn’t bound by 1681e(b) (which applies to all CRAs). The court stated that: “The cases decided after the 2003 amendments to the Act have held that resellers are CRAs for purposes of liability under Section 1681e(b). Waterman, 2013 U.S. Dist. LEXIS 35455, 2013 WL 675764 at * 3; Dively, 2012 U.S. Dist. LEXIS 9314, 2012 WL 246095 at * 5; Poore, 410 F.Supp.2d at 567. The court concludes those cases are well-reasoned, and correctly state the law.”
As I’ve said in past months, I think that there is a valid distinction between credit bureaus and resellers: they are both different types of consumer reporting agency that each have a separate definition in the FCRA. Credit bureaus are defined at 1681a(p); resellers are defined at 1681a(u). That difference, along with the different duties imposed on each at 1681i, does indeed suggest, to my mind, that courts should apply 1681e(b) to resellers in a different way than courts apply it to credit bureaus.
But rather than arguing that nuance, Credit Tech’s motion in Willoughby simply argued that resellers were not bound by 1681e(b) at all. That is obviously not correct, and the court in Willoughby dismissed Credit Tech’s motion to dismiss accordingly.