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 United States Court of Appeals for the Sixth Circuit (the “Court”), reversing the district court, recently ruled that a debtor who had discharged a mortgage loan had standing to assert a claim under the Fair Credit Reporting Act (FCRA or “the Act”) against a servicer who continued to report the discharged debt as past due, causing an artificially low credit score. Although this decision is unpublished, perhaps because the result was a reversal and remand for the case to move past summary judgment to trial, the decision signals what the Court sees as criteria for standing under the FCRA. Krueger v Experian Information Solutions, Inc., 2021 U.S. App. LEXIS 27699 (6th Cir. September 13, 2021).
To view the decision, click here.
Debtor Mark R. Krueger filed a chapter 13 case, made all the payments due under his confirmed plan, and in 2018 received a discharge of his remaining debts, including a mortgage loan on a piece of real property. The servicer for the mortgage was Cenlar. After his discharge, the debtor intended to replace his older car with a new one. A month later, however, he received notice from an online credit-monitoring app that one of his accounts was past due. He pulled his credit reports from the three credit reporting services, all of which showed the Cenlar loan was still active and the debt was almost $11,000 past due. This caused his credit score to be 515, much lower than he expected.
Abandoning his plan to buy a new a car due to the low credit score, he disputed his credit report. The credit reporting agencies forwarded his disputes to Cenlar. By then, Cenlar knew the mortgage loan had been discharged and internally it recognized he owed nothing on the discharged debt. Yet its negligent efforts to correct the mistaken report instead resulted in a “no status” report, which meant no change from the prior month, showing it was still owing and increasing the amount overdue. Despite months of efforts by the debtor, the three credit reporting services continued to misreport the debt’s status.
About a year later, the debtor sued Cenlar under FCRA for willfully and negligently violating its statutory duties as a “furnisher” of credit information. On cross summary judgment motions, the district court held that Cenlar had not violated the Act willfully and that the debtor lacked standing to bring a claim that Cenlar had violated the Act negligently. It granted summary judgment for Cenlar. The debtor appealed to the Court, which reversed and remanded.
Citing the Supreme Court in Lujan v Defs. of Wildlife, 504 U.S. 555, 560-61 (1992), the Court stated a “plaintiff has standing if he suffered an injury in fact, fairly traceable to the defendant’s alleged misconduct., which the relief he seeks would likely redress.” Since the debtor sought damages under the FCRA against Cenlar which allegedly violated its procedural duties under the Act, the Court further refined what was needed for standing by looking at the more recent Supreme Court decision in Spokeo, Inc. v Robins, 136 S. Ct. 1540, 1549 (2016) which had held that not every violation of the Act causes an injury in fact. The issue the Court analyzed was whether Cenlar misreporting the status of the mortgage loan inflicted a concrete harm.
The debtor argued that his harm was concrete because he had to abandon his plans to buy a new car; the low credit score Cenlar’s error caused would have resulted in lenders charging him a higher interest rate. So he drove an old car for 18 months until the credit reporting agencies finally corrected their reports, resulting in a score which was almost 100 points higher. Then he could – and did – purchase a replacement vehicle. The Court was satisfied that this inability to purchase a new car was a sufficient injury caused by Cenlar to confer standing under FCRA.
On the willful issue, the Court found that a jury could find that Cenlar’s failure to correct the misleading “no status” reports for many months after it knew the debt was discharged was a willful breach of its duties.
These two rulings resulted in a reversal and remand for further proceedings in the district court.
Ever since Spokeo came down, federal courts around the country have struggled with determining what is a sufficient concrete “injury in fact” for a plaintiff to have standing to assert a claim for a statutory violation. Here, the Sixth Circuit found the inability to buy a new car because of an artificially low credit score caused by the misreporting of the loan status was sufficient to create standing. As with the other decisions on this issue, the Court acknowledged that something more than just a procedural violation of the statute must be shown by the specific facts of the case for a plaintiff to have standing. The key for practitioners will be to set forth those facts which demonstrate a concrete harm. Failure to show such harm will result in case dismissal.
This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA, ret.) 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.