Debt buyers could face hurdles on consumer credit reports

September 7, 2016

Report reviewA recent ruling by an 11th U.S. Circuit Court of Appeals could impose additional duties on debt buyers to verify disputed information in consumer credit reports, in order to comply with the “reasonable investigation” requirements of the Fair Credit Reporting Act.

Christopher P. Hahn of Maurice Wutscher LLP discussed the ruling in this analysis for the Consumer Financial Services Law Report.

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The 11th Circuit reversed summary judgment in favor of a debt buyer, its affiliated debt collector and their parent company. The panel said a reasonable jury could find the defendants willfully violated section 1681s-2(b) of the FCRA when they reported two charged-off debt accounts as “verified” without obtaining sufficient documentation that the debts in fact belonged to the plaintiff consumer. (Hinkle v. Midland Credit Management Inc., et al., No . 15-10398, 2016 WL 3672112 (11th Cir. July 11, 2016).

At issue in Hinkle were two charged-off or “junk debts” acquired by debt buyer Midland Funding LLC in September 2008 and December 2011. Midland received only electronic files at the time of purchase, which provided the amount of the debt, the name of the original creditor, the charge off date, and the consumer’s personal information.  However, it also retained the right to seek account-level documentation through agreements with the previous owners of the debts.

The plaintiff disputed the accounts with the consumer reporting agencies as erroneously attributed to her.  The CRAs subsequently notified Midland about the dispute. After failing to take action on Hinkle’s dispute of the first account, and continuing to report the debt underlying the second dispute as “assigned to internal or external collections” through March 2013, the consumer filed suit pro se.

The trial court entered summary judgment against Hinkle, who appealed.

The 11th Circuit examined the “’reasonableness” of the credit dispute investigation conducted by the debt buyer furnisher under § 1681s-2(b).

Here, the evidence showed the debt buyer “verified the debt by double-checking the information it had reported to the CRAs against its own internal records [which] consisted of the same electronically-stored information [it] received from the [seller] when it purchased the debt,” but did not request “account-level documentation” from the seller or original creditor.

The appeals court agreed with Hinkle that the debt buyer’s electronic records “were insufficient to verify the accounts and that, absent additional proof, [the debt buyer] should have reported the accounts as ‘cannot be verified.’”

The panel concluded that while what the “results of the reinvestigation” will require depends on the “nature of the disputed information,” when a furnisher is unable to verify the identity of an alleged debtor, “the appropriate response will be to delete the account or cease reporting it entirely.”

The 11th Circuit reversed the District Court’s summary judgment ruling as to the § 1681s-2(b) claim, affirmed as to the other claims, and remanded.

Christopher P. Hahn, a principal of Maurice Wutscher LLP resident in the firm’s Miami office, practices in the firm’s commercial litigation, consumer credit litigation, and insurance recovery and advisory groups. He can be reached at