The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), analyzing a recent decision of interest:
The Eleventh Circuit Court of Appeals (the “Court”) recently reversed summary judgment in favor of a credit reporting agency in a case arising under the Fair Credit Reporting Act (FCRA) where the agency had reported a mortgage delinquency, was notified by the borrower that the mortgage had been discharged in bankruptcy, yet did not conduct a per se reasonable reinvestigation into the disputed information, a potential violation of 14 U.S.C. §§ 1681e and 1681i of the FCRA. Losch v Nationstar Mortg. LLC, 2021 WL 1846821 (11th Cir. April 28, 2021).
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Henry Losch took out a mortgage through CitiMortgage on his home in Apopka, Florida. Five years later he filed a chapter 7 bankruptcy. He originally tried to keep his home by reaffirming the debt. Despite that effort, for unknown reasons the trustee sold the home. Losch then asked the court to rescind the reaffirmation, which it did by court order. Meanwhile, Citimortgage had transferred the servicing of the mortgage to Nationstar, which began sending Losch past-due notices. After receiving his discharge, which included the mortgage, Losch was surprised to learn that his Experian credit report still showed a debt with Nationstar, with a past-due balance of more than $10,000.
Losch then wrote to Experian to dispute the report, identifying the account number, explaining the rescinded reaffirmation, and notifying Experian that the mortgage debt had been discharged in a 2017 bankruptcy. After receiving the dispute letter, Experian sent an automated consumer data verification (ACDV) form to Nationstar, seeking to verify the alleged debt. Nationstar responded that the loan balance was correct. Nationstar advised Losch of that response and took no further steps to verify the debt.
Losch sued Experian and Nationstar in district court for violating FCRA by, among other things, not conducting a reasonable reinvestigation into the reported debt and delinquency after receiving his dispute letter. FCRA would have required Experian to do under such circumstances according to some case law. He settled with Nationstar but the district court granted summary judgment for Experian, concluding that as a matter of law sending the ACDV was sufficient investigation and finding that Losch had failed to provide Experian with what it considered requisite detailed information for it to discover he no longer owed money to Nationstar. Losch appealed the judgment in favor of Experian to the Court, which reversed.
The court first analyzed sua sponte whether Losch had Article III standing and concluded that he did. Relying on a similar Eleventh Circuit case, Pedro v Equifax, Inc. 868 F. 3d 1275 (11th Cir. 2017), the Court found that the harm caused by the reporting of inaccurate information bore a close resemblance to the injury caused by defamation, which was actionable per se. Losch need not show that the false reporting worsened his credit score; the false reporting itself was the injury, satisfying Article III standing. In addition, the Court held that the fact that Losch wasted time trying to correct the inaccurate report also conferred standing on him, as lost time was a concrete harm.
The Court then turned to the merits of whether Experian needed to do more than send the ACDV form to Nationstar and rely on its response. Following decisions in other circuits, the Court concluded that this act alone was not a reasonable reinvestigation as a matter of law when notified of a specific factual dispute as Losch had done. Specifically, it held that “on the facts of this case – where (1) Losch provided a sufficiently detailed notice to Experian for it to investigate the inaccuracy and (2) Experian did nothing other than forward the letter to its data furnisher – we cannot say that Experian’s procedures were reasonable as a matter of law.” The Court, however, left the door open for Experian to escape liability, because although its procedures were not per se reasonable, neither were they per se unreasonable. Thus, the Court left the determination of reasonableness to a jury.
The definitive ruling by the Court on the standing issue was not new precedent in the Eleventh Circuit but noteworthy nonetheless. The analogy of false reporting to defamation and ruling that false reporting itself was the injury and therefore actionable per se is a significant victory for consumers in this age of Spokeo, Inc. v Robins, 136 S. Ct. 1540, 1547 (2016), where the United States Supreme Court specified that a plaintiff must have suffered an “injury in fact” to have Article III standing. The same is true of the Court’s companion finding that Losch’s having merely spent time on the problem was a harm conferring standing. This ruling opens the door for a consumer to sue without demonstrating a lower credit score or actual denial of credit based on a falsely reported fact.
The merits ruling is less concrete. By ruling that just sending the ACDV to the data furnisher was neither per se reasonable or unreasonable, the Court left a continuing ambiguity as to what is a reasonable investigation, open to a myriad of arguments. I am disappointed that the Court did not provide more guidance by establishing some parameters for what is a reasonable investigation, as it had an opportunity to do so on the facts of this case. I predict more appellate decisions on the reasonableness issue.
This submission was authored by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.) a member of the ad hoc group, with editorial contributions from Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, also a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.