The U.S. Court of Appeals for the Sixth Circuit recently held that a furnisher could have violated the federal Fair Credit Reporting Act by requiring a consumer to provide a police report or fraud affidavit as a pre-condition to investigating the consumer's allegations of forgery, where the furnisher received proper notice of the consumer's dispute from a credit reporting agency.
A copy of the opinion is available at http://www.ca6.uscourts.gov/opinions.pdf/12a0350p-06.pdf.
The plaintiff-appellant, a consumer ("consumer") was in the process of obtaining a divorce from his wife. He moved out-of-state before the divorce was finalized. The consumer alleged that during this period, his wife purchased a car without his knowledge. The car was paid for with a loan from the defendant-appellee, a lender (the "lender"). The consumer further alleged that his wife forged his name on the check from the lender to the car dealership.
Later, the consumer experienced credit problems when his former wife fell behind on the car payments. He disputed the loan with all three major credit reporting agencies (CRAs). The lender reported back to the CRAs that the consumer was a co-obligor to the loan in question. The lender then informed the consumer that it would further investigate the loan only if he submitted a police report, or a fraud affidavit.
Later, the consumer experienced credit problems when his former wife fell behind on the car payments. He disputed the loan with all three major credit reporting agencies (CRAs). The lender reported back to the CRAs that the consumer was a co-obligor to the loan in question. The lender then informed the consumer that it would further investigate the loan only if he submitted a police report, or a fraud affidavit.
The consumer then sued the lender, alleging violations of the Fair Credit Reporting Act ("FCRA"). The lower court granted summary judgment to the lender, and the consumer appealed.
As you may recall, the FCRA provides that after a furnisher of credit information receives notice of a dispute provided to a CRA, it must (a) conduct an investigation; (b) review all relevant information provided by the CRA; (c) report the results of the investigation to the CRA; (d) correct any incomplete or inaccurately reported information to the CRAs; and (e) if a disputed item cannot be verified, that item must be modified, deleted or blocked. FCRA, Sec. 1681s-2(b)(1). Further, the FCRA creates a private right of action where a furnisher "willfully fails to comply with any required imposed, with respect to any consumer..." Id. at Sec. 1681n.
The Sixth Circuit began its analysis by outlining the statutory framework of the FCRA, finding that it "unquestionably creates a private right of action" as to some, but not all, of the FCRA's requirements. Specifically, the Sixth Circuit noted that Sec. 1681s-2(c) expressly precludes consumers from enforcing the "requirement that furnishers...initially provide complete and accurate consumer information to a CRA." Therefore,the Sixth Circuit found that under the FCRA, "consumers may step in to enforce their rights only after a furnisher has received proper notice of a dispute from a CRA."
The Sixth Circuit described the question of which of the requirements outlined in Sec. 1681s-2(b)(1) might give rise to a private remedy as an issue of first impression in that circuit. The Court surveyed the findings of other circuits on the issue, and had little difficulty in concluding that "the investigation an information furnisher undertakes must be a reasonable one," and further that "how thorough the investigation must be to be 'reasonable' turns on what relevant information was provided to the furnisher by the CRA..."
Next, the Sixth Circuit considered each of the requirements laid out in sec. 1681s-2(b)(1), and concluded that the "FCRA expressly creates a private right of action against a furnisher who fails to satisfy" any of the five duties described within that section.
With that standard in place, the Court turned to the specific allegations at issue. It noted that because the lender was put on notice as to the consumer's dispute, a "reasonable investigation" would have to consist of reviewing the "relevant, underlying documentation." As to this issue, the Sixth Circuit held that "the evidence presented is not so one-sided as to mandate that [the lender's] investigation was reasonable as a matter of law."
Although the lender argued that its company policy was to require a police report of fraud affidavit before conducting further inquiry into a claim, the Sixth Circuit found that this policy had little relation to the lender's duties under the FCRA, stating that "the mere existence of such a company policy does not resolve the inquiry into the reasonableness of the investigation."
The Sixth Circuit also considered the lower court's finding that the lender did not "willfully" violate the FCRA, a finding which relied on the consumer's statement that the lender did not do anything to "intentionally" put him in "this situation." The Sixth Circuit disagreed, noting that the Supreme Court has found that "willfulness," as used in Sec. 1681n of the FCRA, encompasses both knowing and reckless violations. Safeco Ins. Co. v. Burr, 551 U.S. 47, 57 (2007).
Accordingly, the Sixth Circuit reversed the lower court's decision granting summary judgment in favor of the lender.
Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: RWutscher@mtwllp.com
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