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Archive for April, 2014

New series: on a reseller’s duty under 1681e(b)

April 4, 2014 2 comments

One recent trend in FCRA litigation involves claims against one particular type of credit reporting agency:  resellers.  Per 15 U.S.C. Sec. 1681a(u), a reseller is a consumer reporting agency that:

(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.

The classic example of a reseller is a company that creates “tri-merge” reports which combine data from Experian, Equifax, and Trans Union into one report.  This enables a reseller’s clients, typically heavy users of credit reports like mortgage brokers or auto dealers, to quickly assess what sort of credit a person has.  The key aspect of being a reseller, as noted above, is that resellers don’t compile credit information into a big database and then use that database to create a report about someone.  Instead, they simply buy one or more reports about someone and then relay that information to a client.

Recent litigation against resellers alleges that they could and should do more than simply relay information from a bureau (say Experian) to a client (say Quicken Loans).  Plaintiffs in these cases allege that at least some of the time, a reseller’s report will contain an error that stands out – say one bureau reports a person as dead where the other two don’t, or one bureau reports a person as having a dozen past due accounts (and a terrible credit score to match) where the other two aren’t reporting any such accounts (and show good credit scores as a result).  In these cases – so the argument goes – a reseller needs to do something to reconcile the obviously “off” information coming from the one bureau before sending that information to its client.  The FCRA requires all consumer reporting agencies – resellers included – to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”  15 U.S.C. Sec. 1681e(b).  This must include reconciling obvious errors, say plaintiffs.

In the next few posts, we will look at the cases to date in which this argument has been addressed.  Full disclosure:  I was involved in the first two, both from some years ago.

The first case in our series will be Perez v. Trans Union, LLC, 526 F. Supp. 2d 504 (E.D. Pa. 2007).  The plaintiff went to a car dealer and asked for information about financing.  The dealer pulled his tri-merge report from a reseller in an effort to see what kind of credit he had and match him with a bank that would offer him a car loan.  The report stated that plaintiff was deceased, because one or more of the three bureaus, whose information was merged into the report, was reporting the plaintiff as deceased.  The car dealer tried six banks and only found one that would offer plaintiff a loan.  He sued the reseller that provided the tri-merge report to the car dealer and alleged that by reporting him as “deceased,” the reseller violated its duty to follow reasonable procedures under 15 U.S.C. Sec. 1681e(b).

The reseller made two arguments at summary judgment, one of which prevailed and one of which didn’t.  The unsuccessful argument cited every FCRA defense lawyer’s favorite case – Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994).  In Henson, a credit reporting agency correctly reported that according to a public court docket, the plaintiff had lost a civil lawsuit.  In fact, the plaintiff had won that lawsuit, but the CRA didn’t read the underlying court order – it just relied on the court docket entry and reported that.  The Seventh Circuit found that because court dockets are presumptively reliable sources, it was reasonable for the CRA to rely on one – it wasn’t required to go further and check and see if the court docket and the court order matched up.  Pointing to that opinion, the reseller in Perez argued that because a reseller gathers information from just three sources (the three bureaus), it should be allowed to treat them as presumptively reliable and simply relay what they say.  The district court disagreed.  It noted that unlike the case of the CRA looking to a court docket and reporting what it said, the reseller here knew that something was amiss – a car dealer was asking for a report about someone who, according to at least one bureau, was dead.  In that situation, the court found that a reseller might have a duty to do more than simply relay information, or it might not.

The reseller’s second argument was that even if it had a potential obligation to do something when a report said that a consumer was deceased, there was no evidence showing that its failure to do anything special here caused the plaintiff before it any harm.  After all, the car dealer knew that the plaintiff was alive, and the car lenders who denied him credit were getting their reports from other sources (not the reseller).  The court accepted this argument and granted summary judgment to the reseller on the issue of whether the reseller’s alleged FCRA violation caused the plaintiff any harm.

The Perez case tells us two things:  1) a reseller probably cannot avoid a claim under 15 U.S.C. Sec. 1681e(b) by arguing that the credit bureaus are inherently reliable and it was reasonable for the reseller to rely on them; but 2) a reseller may be able to show that its clients don’t actually use its reports to make final decisions about a consumer’s credit, such that the reseller reports don’t cause the plaintiff any harm.

Categories: 1681e(b), reseller