Wednesday, September 23, 2020

FYI: 11th Cir Holds Obtaining Consumer Report for ID Verification Is a Permissible Purpose

In a case of first impression for the U.S. Court of Appeals for the Eleventh Circuit, the Court joined the Sixth Circuit in holding that obtaining a consumer report to verify a consumer's identity and eligibility for a service is a "legitimate business need" and therefore a "permissible purpose" under the federal Fair Credit Reporting Act (FCRA).

 

A copy of the opinion is available at:  Link to Opinion

 

In this case, the consumer was previously the victim of identity theft when her personal information was used on several occasions to create accounts with a television provider.  Learning of the accounts after they became delinquent, the consumer brought suit against the provider for alleged violations of the FCRA.  The lawsuit was settled, with the provider agreeing "to flag [the consumer's] social security number in order to preclude any persons from attempting to obtain new [provider] services by utilizing [the consumer's] social security number."

 

The present case ensued when the consumer's personal information was yet again fraudulently used to apply for the provider's services online.  The personal information included the last four digits of the consumer's Social Security number, her first name and her date of birth.  Other information, such as last name, address and telephone number were different from the consumer's.

 

As part of an automated process, the provider sent the application information to a consumer reporting agency that returned a consumer report that included the consumer's full Social Security number.  At that point, based on the full Social Security number, the processes put in place pursuant to the settlement agreement prevented the opening of an account.  In fact, at the provider's request, the consumer reporting agency deleted the inquiry from the consumer's record.

 

Nevertheless, the consumer filed a lawsuit against the provider alleging the consumer report had been obtained without a "permissible purpose" and that the terms of the settlement agreement had been breached. 

 

The trial court granted summary judgment in favor of the provider, finding that it had a "legitimate business need" for obtaining the report and that it fulfilled the terms of the settlement agreement by "flagging" the consumer's Social Security number.  The consumer appealed.

 

Initially, the Eleventh Circuit explained that the "FCRA enumerates an exhaustive list of the 'permissible purposes' for which a person may use or obtain a consumer report. 15 U.S.C. § 1681b(a)(3) . . . One of those permissible purposes is where a person 'has a legitimate business need for the information . . . in connection with a business transaction that is initiated by the consumer.' 15 U.S.C. § 1681b(a)(3)(F)(i)."

 

The Court noted that it had "never weighed in on what constitutes a 'legitimate business need' in connection to a business transaction for FCRA purposes."  However, following the lead of the Sixth Circuit Court of Appeals in Bickley v. Dish Network, LLC, 751 F.3d 724 (6th Cir. 2014), the Eleventh Circuit agreed "that requesting and obtaining a consumer report for verification and eligibility purposes is a 'legitimate business need' under the FCRA."

 

Here, the consumer argued the provider had no "legitimate business need" because it "either knew or should have known that [she] had not initiated the business transaction because of their prior settlement agreement."  Also, she believed that the provider should have done more to verify her identity before requesting the consumer report.

 

These arguments did not sway the Eleventh Circuit. 

 

First, "the FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report."  

 

Second, just because the provider "had the mechanisms in place to verify that the scant information provided by the applicant actually belonged to [the consumer] does not necessarily lead to the conclusion that [the provider] suspected (or was able to verify) the same." 

 

Finally, the provider simply didn't have enough information to act upon until it received the full Social Security number contained in the consumer report.

 

The breach of contract claim was rejected by the Court, because "[t]he only affirmative action [the provider] agreed to take in the settlement agreement was 'to flag [the consumer's] social security number,'" which it did.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, September 21, 2020

FYI: 2nd Cir Holds FDCPA Defendant's "Bona Fide Error" Defense Should Go to Jury

The U.S. Court of Appeals for the Second Circuit recently held that a debt collector did not violate the federal Fair Debt Collection Practices Act (FDCPA) where it unintentionally sent a valid debt collection communication to a non-debtor.

 

However, the Second Circuit also held that the trial court errored in granting summary judgment for the debt collector based on the bona fide error defense relating to additional communications made to the non-debtor because a reasonable jury could find these errors were not bona fide and the debt collector did not maintain procedures reasonably adapted to avoid them.

 

A copy of the opinion is available at:  Link to Opinion

 

A collection firm obtained a default judgment over a debtor named "William J. Wagner, Jr." in 2006 for unpaid rent. Thereafter, the collection firm unsuccessfully attempted to serve various post-judgment subpoenas and summons on the debtor at various addresses over the next few years.

 

In February 2015, the collection firm obtained a new address for William J. Wagner in Hamburg, New York. However, the William J. Wagner who resided at the Hamburg address was not the debtor and did not know the debtor.

 

On February 9, 2015, the collection firm sent a debt collection notice to Wagner at the Hamburg address. Upon receipt, on February 12, 2015, Wagner called the collection firm to notify it that he was not the debtor, did not use the suffix Jr., and had a different Social Security number.

 

A day earlier, the collection firm sent a subpoena and restraining notice by certified mail addressed to the debtor to the Hamburg address. Wagner, knowing that he was not the debtor, did not retrieve the letter.

 

On March 19, 2015, after receiving notifications from the postal service that it was holding certified mail sent to "William J. Wagner, Jr.," Wagner again called the collection firm to advise that he was not the debtor.

 

With the prior subpoena unclaimed, the collection firm sent a special process server to serve the debtor at the Hamburg address with specific instructions to "be sure to serve the correct William J. Wagner" because the collection firm "believe[d] there is a William J. Wagner, Sr. and William J. Wagner, Jr. living at the same address." This instruction was based off a LexisNexis search that indicated that a Senior and Junior William Wagner lived at the Hamburg address.

 

The process server served Wagner who again called the collection firm to reiterate that he was not the debtor and explain that no person using the suffix Jr. resided at the Hamburg address.

On July 15, 2015, Wagner brought suit in against the collection firm, alleging the collection firm's communications violated various provisions of the FDCPA. After discovery, both parties moved for summary judgment.

 

The trial court granted the collection firm's motion for summary judgment on claims relating to the original notice, reasoning that the collection firm had legal authority to pursue the collection of the debt in the precise amount owed, but merely attempted to collect the debt from the wrong person.

 

The trial court also held that the collection firm's conduct was not "unfair or unconscionable" reasoning that Wagner had not actually attended a debtor's examination, and the collection firm adjourned the debtor's examination upon Wagner's attorney's request.

 

In addition, the trial court held that the collection firm did violate portions of the FDCPA by serving Wagner with the subpoena after being informed he was not the debtor. However, the court concluded that the FDCPA's bona fide error defense shielded the collection firm from liability and thus entered judgment on its behalf. This appeal followed.

 

The Second Circuit examined the plaintiff's claim that the collection firm violated the provision of the FDCPA that makes it unlawful for a debt collector to "use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e.

 

On appeal, the plaintiff argued that the trial court erred in granting summary judgment because (1) under New York law the collection firm lacked the right to serve a restraining notice on him without first having "reason to believe" that he was the debtor; and (2) New York case law held that a subpoena duces tecum could not "be used as a fishing expedition for the purpose of discovery."

 

The Second Circuit rejected the plaintiff's arguments noting that he misconstrued both the statute and case law cited.  The Second Circuit also held the trial court did not err as the collection firm sought to collect on a valid judgment against the debtor by explicitly instructing the process server to serve the subpoena on "Wagner, Jr.", not "Wagner, Sr."

 

The Appellate Court also agreed with the trial court that the collection firm did not violate section 1692f of the FDCPA which provides a debt collector "may not use unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f.

 

Here, the Second Circuit noted, the plaintiff was never forced to attend a debtor's examination or to respond to the subpoena, and the collection firm ultimately agreed to hold it in abeyance.

Accordingly, the collections firm's conduct did not constitute "unfair or unconscionable means" of debt collection for purposes of section 1692f, and the collection firm was entitled to summary judgment on this claim.

 

Next, the Appellate Court examined the application of the bona fide error defense under the FDCPA which provides a "debt collector asserting the bona fide error defense must show by a preponderance of the evidence that its violation of the Act: (1) was not intentional; (2) was a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to avoid any such error." Edwards v. Niagara Credit Sols., Inc., 584 F.3d 1350, 1352-53 (11th Cir. 2009).

 

The Second Circuit disagreed with the trial court's ruling that the collection firm was entitled to summary judgment pursuant to the bona fide error defense, because a reasonable jury could find that the collection firm's error was not bona fide and that it did not maintain procedures reasonably adapted to avoid its error.

 

In making this holding, the Appellate Court relied on the fact that the plaintiff twice informed the collection firm that he was not the debtor before receiving the subpoena. In addition, the collection firm conceded it had no written policies for situations when it is uncertain where a debtor resides based on conflicting information.

 

In sum, the Second Circuit concluded that a reasonable jury could find that the collection firm did not make a "bona fide error" within the meaning of the FDCPA, and accordingly held that the trial court erred in granting summary judgment to the collection firm.

 

Accordingly, the Appellate Court affirmed in part and vacated in part, and remanded the judgment of the trial court for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars