Just Asking for Confirmation from a Data Furnisher Won’t Bar an FCRA Suit, Circuit Says

Handing down an important decision on the federal Fair Credit Reporting Act, the Eleventh Circuit ruled that asking a data furnisher to confirm the existence of a debt does not by itself absolve the credit-reporting agency of liability if it turns out that the confirmed information was wrong.

Through an atypical process, a homeowner’s personal liability on his home mortgage was discharged in chapter 7.

After discharge, the debtor discovered that his credit report showed him owing almost $140,000 on the mortgage with a past-due balance of over $10,000. The April 28 opinion by Eleventh Circuit Judge Kevin C. Newsom said that the debtor gave the credit agency a “sufficiently detailed notice” about the inaccuracy of the report. In his communications with the credit agency, the debtor explained how the atypical discharge of the personal liability had occurred.

After receiving notice of the dispute, the credit agency sent an automated verification form to the furnisher, the servicer on the mortgage. The servicer responded by saying that the information about continued liability on the debt was accurate.

The credit-reporting agency relayed the information to the debtor and took no further steps to verify the debt.

The debtor sued both the servicer and the credit-reporting agency under the FCRA, 15 U.S.C. § 1681 et seq. The agency finally removed the erroneous information after the suit began. Judge Newsom said that the servicer settled, but the agency filed a motion for summary judgment.

The district court granted the agency’s motion, holding that the agency had conducted a reasonable inquiry. The district court believed that the FCRA does not require an agency to examine court orders to determine the effect on a debt.

The debtor appealed and won reinstatement of the suit, although Judge Newsom gave no assurance that the debtor will prevail after a jury trial.

The Two FCRA Provisions

The appeal involved two provisions in the FCRA. Under 15 U.S.C. § 1681e(b), the agency must employ “reasonable procedures to assure maximum possible accuracy of the information concerning the individual” when preparing a credit report. Under Section 1681i, the agency must conduct a “reasonable reinvestigation” of disputed information after being notified of a potential inaccuracy.

Like the district court, the agency argued that seeking confirmation from the data furnisher was reasonable as a matter of law and required dismissal of the suit.

Standing

Judge Newsom first decided that the debtor had standing under the principles laid down by the Supreme Court in Spokeo Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). To read ABI’s report on Spokeo, click here.

To establish standing under Spokeo, Judge Newsom relied on Eleventh Circuit precedent in Pedro v. Equifax, Inc., 868 F.3d 1275, 1279–80 (11th Cir. 2017). There, the appeals court had said that the harm caused by an alleged violation of the FCRA arising from inaccurate information bore a close relationship to the tort of defamation, which is actionable per se.

Under Pedro, Judge Newsom said that the debtor “needn’t show that the false reporting caused his credit score to plummet; the false reporting itself was the injury.” The injury, he said, was not from the debtor’s credit score but from false reporting about the debt.

Judge Newsom held that the debtor had standing because he alleged a “concrete injury” resulting from emotional distress and spending some 400 hours attempting to correct the misinformation.

The Merits

Did the credit-reporting agency employ “reasonable procedures to assure maximum possible accuracy of the information” about the debtor, and did the agency conduct a “reasonable reinvestigation” after being notified of a potential inaccuracy?

The credit-reporting agency contended there was no inaccuracy because discharge does not eradicate the debt, it only bars collection. Judge Newsom said that the agency “didn’t just report the existence of a debt but also the balance that [the debtor] owed, the amount that . . . was past due, and how long [the debtor] was past due.”

Next, Judge Newsom asked whether the agency “reasonably” discharged its FCRA obligations by seeking confirmation from the data furnisher.

The agency argued that the effect of discharge was a legal question that it was neither qualified nor obligated to answer.

In response, Judge Newsom said there was “no doubt that [the debtor’s] mortgage was discharged. Thus, this case doesn’t involve a legal dispute about the validity of the underlying debt.”

The agency “did nothing,” Judge Newsom said, “although it easily could have done something with the information” provided by the debtor. [Emphasis in original.]

Because the agency “didn’t even check the bankruptcy docket,” Judge Newsom said that “a jury could find that it was negligent in discharging its obligations to conduct a reasonable investigation and reinvestigation into the disputed information.”

Judge Newsom clarified the holding, which he said was “narrow.” Although he could not hold that the procedures were per se reasonable, he could not hold that they were per se unreasonable, either. That’s a question for the jury.

Similarly, Judge Newsom said the court was not holding that a credit-reporting agency must always examine court records “to independently discern the status of a debt.” For instance, he said, there may be no jury question where the debtor provides “insufficient detail.”

The debtor did provide “sufficiently detailed notice,” and the agency “did nothing other than forward the letter to its data furnisher.” Judge Newsom therefore could not “say that [the agency’s] procedures were reasonable as a matter of law, such that it was entitled to summary judgment” on the debtor’s claim of negligence.

Willfulness

The debtor also made a claim that the FCRA violation was willful, giving rise to punitive damages.

Judge Newsom upheld dismissal of the claim for willfulness or recklessness. He said that only contacting the data furnisher could be negligent but did not rise to the “higher standard” of willfulness or recklessness.

In short, the appeals court reinstated the claim for negligence but not for willful violations of the FCRA.

Observations

The Eleventh Circuit gave the debtor community half a loaf. Debtors were hoping the appeals court would rule that verifying a disputed debt with the creditor would always make the agency liable if verification by the creditor was erroneous.

On the other hand, debtors still won a signal victory because reporting agencies cannot always fob off liability by seeking verification of the debt from the creditor. If the accuracy of the debtor’s dispute can be resolved by consulting the bankruptcy court’s docket, the agency must review the docket.

In other words, the opinion by Judge Newsom raises the agency’s cost of doing business.

As it stands after the opinion, erroneous confirmation of the debt by the creditor means the agency must face a jury, assuming the debtor laid out the dispute in sufficient detail. The prospect of facing a jury suggests that agencies should consider settlement in similar situations.