Failure to Report a Consumer’s Dispute of a Debt May Lead to Liability Under the Fair Credit Reporting Act

Furnishers of consumer credit information who report a debt but fail to report that a consumer disputes the debt are subject to liability under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681x (the “FCRA”).

So said the Fourth Circuit in the recent Saunders v. Branch Banking and Trust Company of Virginia, No. 07-1108 (4th Cir. May 14, 2008). In Saunders, a consumer purchased a car in late November 2003, and the dealer thereafter assigned the loan for the car to Branch Banking and Trust Company of Virginia (the “Bank”). After the consumer did not receive a payment book from the Bank in December, he telephoned the Bank and was told that he did not owe any money to the Bank. He subsequently contacted the Bank several more times and was told each time that he did not owe the Bank any money. Then, on March 8, 2004, he received a letter from the Bank informing him that his loan was in default and that he was to pay all principal, interest, late fees, and other charges in the total amount of $20,441.19 within ten days. Upon receipt of the letter, the consumer met with a lending officer of the Bank and informed him that he would pay the principal and interest under the loan but would not pay any of the late fees or other penalties since he had always been willing to make payments under the loan and had not paid only because the Bank repeatedly informed him that he owed no money and could not provide him with an account number. The Bank, however, refused to waive the late fees or penalties, and on April 14, 2004, the Bank repossessed the car. The consumer attempted to obtain a new loan from a credit union to redeem the car from the Bank. However, the Bank had reported the loan to the credit reporting agencies (the “CRAs”) as “in repossession status”, causing the consumer’s credit score to drop over 150 points from 754 to 599 and causing him not to be able to obtain a new loan from the credit union at a favorable interest rate. Pursuant to the FCRA, the consumer contacted the CRAs and disputed the information reported by the Bank. The Bank responded to a dispute verification form sent to it by one of the CRAs by stating that the loan had been written off but did not indicate on the form that the consumer contested the legitimacy of the debt. If the Bank had reported the dispute, the CRAs would have reported both the debt and the dispute but would not have considered the debt in calculating the consumer’s credit score.

The consumer subsequently sued the Bank under the FCRA for violating its duties as a furnisher of credit information by failing to report his dispute of the debt. Upon a verdict of liability in the trial court, the Bank appealed. The Fourth Circuit affirmed the trial court’s verdict, finding that the Bank failed to satisfy its duty under 15 U.S.C. § 1681s-2(b) of updating incomplete or inaccurate information it had previously reported to CRAs upon receipt of a notice from the CRAs that a consumer disputed the accuracy of the previously reported information. According to the court, the Bank’s failure to report that the consumer disputed the debt was a failure to accurately update the information because it was “misleading in such a way and to such an extent that it [could] be expected to have an adverse effect” on the consumer. The Bank learned of its failure to enter the loan into its computer system only because the consumer repeatedly contacted the Bank trying to make a payment and then informed the consumer four days after booking the loan that he owed the entire principal plus interest, late fees, and other penalties. The consumer had a meritorious dispute and, thus, his failure to pay the debt did not reflect financial irresponsibility, as the Bank’s inaccurate report had implied.

Posted by: LeAnders L. Jones

Categories: Bankruptcy & Banking Law