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Reseller liability: series summary

October 3, 2014 1 comment

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.

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Categories: 1681e(b), reseller

Reseller liability: reseller’s report is not automatically “accurate” if bureau data is inaccurate

September 5, 2014 1 comment

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.

Categories: 1681e(b), reseller

Reseller liability: resellers still not exempt from 1681e(b)

August 1, 2014 2 comments

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.

Categories: 1681e(b), reseller

Reseller Liability: Resellers are not exempt from 1681e(b)

July 4, 2014 1 comment

This month’s post is the fourth in our series on cases which address whether resellers, who create tri-merge credit reports that contain information from all three credit bureaus, can be liable when one of the bureaus posts information that is both inaccurate and inconsistent with the other two bureaus.  This month, we focus on the next case in chronological order:  Waterman v. Experian Info. Solutions, Inc., No. 12-1400, 2013 U.S. Dist. LEXIS 35455 (C.D. Cal. Feb. 25, 2013).

In Waterman, DataQuick – the same reseller defendant whose motion to dismiss was denied in the Dively case that we discussed last month – again moved to dismiss a plaintiff’s claim against it.  This time, DataQuick made a different argument than it had in Dively.  DataQuick’s motion started out by asking the court to read the FCRA in its entirety and to find that a reseller’s duties under 15 USC 1681e(b) were different than a credit bureau’s duties under that statute, because the FCRA elsewhere makes distinctions between resellers and credit bureaus.  So far, so good:  this is the argument that RELS used successfully in the Stublaski case which we covered a few months back.  But then DataQuick – to my mind at least – took an odd turn:  it argued that a consumer reporting agency is only liable under 1681e(b) if it “prepares” a consumer report, but 1681e(e) suggests that resellers only “procure” consumer reports, so resellers are only liable if they fail to comply with 1681e(e).

The court disagreed.  In a short opinion, it found that if Congress had wanted to relieve resellers from a duty to assure maximum possible accuracy under 1681e(b), it would have done so; it reviewed the statutory definitions to see if Congress had done so; and it concluded that “Nowhere in these definitions is there a distinction between an agency that “prepares” a consumer report and one that does not.”  Id. at **5-6.

Reading over the briefs, I think part of the problem here was that DataQuick seemed to mush two arguments together – first, the argument that a reseller’s duty under 1681e(b) should be construed differently than a credit bureau’s duty under that provision, and second, the notion that a reseller’s duty is limited to 1681e(e).  The court focused on the second argument and, finding that it wasn’t supported by the text of the FCRA, dismissed both arguments.

Another part of the problem might have been that DataQuick’s cited some case law that, in my view, didn’t support its arguments at all.  For example, DataQuick argued that:

[I] order for Plaintiff to state a claim against DataQuick as a reseller, Plaintiff must allege that DataQuick “prepared the consumer report.” See Johnson v. Experian, No. 12-230, [2012 U.S. Dist. LEXIS 186870], (C.D. Cal. June 7, 2012) (dismissing a similar complaint against DataQuick because Plaintiff failed to allege that DataQuick “prepared” the consumer report at issue).

In fact, Johnson dismissed a complaint without prejudice for failing to make specific enough allegations; it didn’t discuss the “prepared” phrase at all.

Also, DataQuick took a simple distinction – between a credit bureau which under statute “assembles or evaluates” information (1681a(f)), and a reseller which by statute “assembles and merges” it (1681a(u)) – and muddled it, as follows:

The FCRA clearly distinguishes a credit reporting agency’s role in “preparing” a consumer report (§ 1681e(b)) from a reseller’s role in “assembling or merging” (§ 1681a(u)) of information that was contained in a previously prepared consumer credit report.  Courts have recognized this distinction. “Several courts that have reviewed the phrase have determined that it ‘implies a function which involves more than receipt and retransmission of information identifying a particular debt.’” Knechtel v. Choicepoint, Inc., Case No. 08-5018, 2009 U.S. Dist. LEXIS 109521, * 10-11 (D. N.J., November 23, 2009) [string cite omitted; emphasis added].

There are several of problems with this passage.  First, the motion refers to the phrase “assembling or merging” at 1681a(u) when in fact the statutory language is “assembling and merging.”  Second, the motion uses two separate phrases – “preparing,” and “assembling or merging” – and then cites to a case (Knechtel) which refers to “the phrase.”  This begs the question: to which of the two phrases was the Knechtel court referring?  The answer, perhaps surprisingly, is “neither”:  Knechtel was not referring to 1681e(b) or 1681a(u), but rather to the phrase “assembling or evaluating” from 1681a(f).  In short, the passage above is confusing, even to someone like me who focuses a lot of time on the FCRA.  It would doubtless be more confusing to a judge who is only occasionally given the opportunity to resolve an FCRA dispute.

In addition, the Knechtel case, and a number of other cases that it cited (and which DataQuick cited too) all held that companies which furnish information to credit reporting agencies are not themselves credit reporting agencies and are not therefore liable under the FCRA.   That is not at all the same thing as holding that a reseller is not a consumer reporting agency or that a reseller is not liable under the FCRA.  DataQuick’s motion thus seemed to suggest that cases have for years been holding that resellers aren’t liable under 1681e(b), when in fact cases haven’t really addressed that question at all until recently.

Finally, it appears that DataQuick was trying to argue that if furnishers are not liable under the FCRA because they simply pass data from A to B, then other companies that likewise simply pass data from A to B should not be liable under the FCRA for doing so.  In Knechtel, a criminal background reporting company which seems to have included credit information from one bureau on its report to an end user, was held not to be liable for errors in that information.  DataQuick could have more clearly pointed this out and then argued that, by extension, resellers – which likewise include credit information from the bureaus on their reports to end users – should not be liable for errors in that information.  But that didn’t happen.

 

Categories: 1681e(b), reseller

Reseller Liability, Part III: motion to dismiss held premature in Dively v. Trans Union

June 6, 2014 2 comments

We continue our series on whether a reseller – a type of consumer reporting agency that obtains information from the credit bureaus and merges it into a single report – can be liable under 15 USC 1681e(b) (requiring it to “follow reasonable procedures to assure maximum possible accuracy”) if one of the bureaus reports inaccurate information which is contradicted by or inconsistent with what the other bureaus are reporting.

In the past two posts, I have discussed cases in which a court held that a reseller was not liable in these sorts of situations.  Going forward, I will be discussing cases that came out the other way.  I am not taking this approach intentionally; I am just taking the cases in chronological order.

The next case in the series is Dively v. Trans Union LLC, No. 11-cv-3607, 2012 U.S. Dist. LEXIS 9314 (E.D. Pa. Jan. 26, 2012), in which plaintiff claimed that:  i) Trans Union reported two tax liens that belonged to one of plaintiff’s relatives as if they belonged to him; and ii) a reseller, DataQuick, included that information on a tri-merge report without questioning why Trans Union was reporting the liens when the other two bureaus were not. 

DataQuick filed a motion to dismiss and asked the court to conclude that a reseller is not required to reconcile inconsistent information which it receives from the credit bureaus.  DataQuick’s position (drawn from its briefs) was that:  i) because Congress exempted resellers from the duty to reinvestigate at 15 USC 1681e(b), it intended to exempt them from any initial investigation requirement under 1681e(b); ii) DataQuick was entitled to rely on Trans Union’s report, because the costs of checking it would be “astronomical”; iii) plaintiff’s claim that because one credit bureau was reporting something that the others were not, it was reporting inaccurately, is speculation; and iv) no reasonable procedure would have caught Trans Union’s alleged error.  In response, plaintiff argued essentially that:  a) Third Circuit case law indicates that if a report is allegedly inaccurate, a plaintiff need not prove much to make a valid claim under 1681e(b); and b) DataQuick’s “scattershot” arguments about costs, speculation, and reasonable procedures are inappropriate at the motion to dismiss stage because they are undeveloped and unsupported by any factual evidence.

The Eastern District of Pennsylvania agreed with plaintiff and denied DataQuick’s motion to dismiss.  It began by noting that:  i) while it is true that Congress exempted resellers from the reinvestigation duty under 1681i, Congress did not exempt resellers from the “reasonable procedures” duty under 1681e(b), and ii) under Third Circuit case law, it is easy for a plaintiff to survive a motion to dismiss a claim under 1681e(b).  However, the court pointed out that this conclusion was non-binding dicta, saying that “Much of this discussion is largely moot, at any rate, because in order to accept DataQuick’s position at this stage of the case, the Court would need to make several factual assumptions before any discovery has even been accomplished.”  Id. at *12.  The court went on to hold that:  i) DataQuick was not entitled to assume that Trans Union was an inherently reliable source; and ii) DataQuick’s arguments about the costs of reviewing Trans Union’s report and the likely outcome of doing so were “premature” at the motion to dismiss stage.  Id. at **12-13.

The decision in Dively is obviously a good one for plaintiffs that wish to sue resellers, and not a good one for resellers that do not wish to be sued.  But in reading the decision and the briefs from my perspective as a defense lawyer, I think that DataQuick missed two opportunities that might have led to a different outcome.

First, DataQuick’s argument regarding 1681i and 1681e(b) seemed to ask the court to give resellers a “get out of jail free” card, on the basis that because resellers are not required to reinvestigate under 1681i, they are likewise not required to investigate under 1681e(b).  I think that courts are wary of this argument because they do not want to give resellers a free pass on liability under a statute that does not explicitly exempt them.  A better approach might be to note that while resellers can be and have been liable under 1681e(b) for garbling the bureaus’ data (which is something that they as resellers can control), they should not be liable under 1681e(b) for correctly telling an end user what each bureau is reporting (which is ultimately what the end user wants to know and what the FCRA’s definition of “reseller” anticipates that a reseller will do).

Second, DataQuick’s argument that it was entitled to rely on Trans Union’s report was a non-starter.  The Dively court rejected it for the same reasons that the Perez court rejected it – the case law says that consumer reporting agencies are entitled to rely on court dockets, not on the bureaus.  And when DataQuick suggested that the costs of checking Trans Union’s report would be “astronomical,” that was a signal to the court that discovery was needed, and the motion to dismiss should be denied – how can the court know what something costs, when all it has to go on is the plaintiff’s complaint and then DataQuick’s allegation about costs?

Categories: 1681e(b), reseller

Reseller Liability, Part II: District of Minnesota grants reseller’s motion to dismiss

May 2, 2014 1 comment

As I explained last month, this blog is doing a series of posts about cases that discuss whether a reseller, whose reports contain inconsistent information from the three credit bureaus about the same person (e.g., one bureau says he went bankrupt and the other two don’t), has violated its duty to “follow reasonable procedures to assure maximum possible accuracy.”  15 USC Sec. 1681e(b).

The second case in the series is Stublaski v. RELS, Case No. 0:09-cv-01635-PAM-JJK, slip op. at ECF No. 28 (D. Minn. 2009).  Plaintiff Stublaski applied for a mortgage from Wells Fargo, which obtained a tri-merge credit report about her from RELS.  That report showed that Experian was reporting a great deal of negative credit information about her which the other two bureaus were not reporting.  She disputed the information with Experian and got it corrected, and then sued both Experian and RELS for failing to use “reasonable procedures” as required by the FCRA.

RELS moved to dismiss, arguing that as a reseller, it was not responsible for reconciling inconsistent information from the three bureaus, but rather was only required to accurately report what each bureau was saying about Plaintiff (which it did).  Careful to avoid the mistake in Perez, which we discussed last month, RELS did not argue that the bureau reports were inherently reliable and that RELS was therefore justified in taking them at face value.  Rather, RELS argued that resellers, which by definition don’t have a database of credit information that they can check for accuracy, are simply not in a position to do what plaintiffs like Stublaski want them to do (i.e., to compare information from the three bureaus and decide that some of it is wrong).  RELS noted that the FCRA recognizes this at 15 USC Sec. 1681i(f), which governs what a credit reporting agency must do when a consumer disputes information in a report.  If a consumer contacts a reseller and disputes information, the reseller is not required to correct the information itself (again, it has no database, so it can’t); rather, the reseller is simply required to tell the bureau which gave it the disputed information, and the bureau is then required to do an investigation and correct the report if need be.

The District of Minnesota accepted this argument and granted RELS’ motion to dismiss.  It stated:

[Plaintiff] asks the Court to infer that RELS did not follow reasonable procedures from the
fact that the March 2009 report contained information that RELS knew was inaccurate.
The FCRA is not a strict liability statute, however, and a violation of § 1681e(b)
requires more than Stublaski has alleged here …. The duties Stublaski
attempts to impose on RELS under § 1681e(b) are simply not supported by the FCRA.
Absent some allegation that RELS inaccurately reported the information given to it by
Experian, Stublaski has failed to make out a claim under § 1681e(b).

This is not a published opinion, and it is not precedential.  But it suggests that at least one court has found that the common theory in all recent 1681e(b) cases against resellers – which is that resellers must review and reconcile inconsistent information that they receive from the three bureaus before reporting any of it to a mortgage lender or other creditor – is not supported by the FCRA, given its definition of resellers at 15 USC 1681a(u) and its special treatment of them at 1681i(f).

Again, full disclosure: I represented the reseller defendants in Perez and in Stublaski.

Categories: 1681e(b), reseller

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