In Persinger v. Southwest Credit Systems, 2021 WL 6058148 (7th Circuit) (“Persinger”), the United States Court of Appeals for the Seventh Circuit (the “Court”) held that a loan servicer that got notice of a debtor’s discharge after making a credit inquiry was not guilty of a willful violation of the Fair Credit Reporting Act, particularly in light of the reasonable general practices the servicer employed to avoid violations even though those practices arguably failed in this specific instance.
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Southwest Credit Systems (“Southwest”) is a debt servicer. When it receives notice of the bankruptcy of a debtor whose debt it is servicing, it closes the account. When it gets a new account to service, it does a “bankruptcy scrub” with a contract service. If the contract service’s search reveals a related bankruptcy, it sends a notice to Southwest, which then, in accordance with its policy, closes the account. If the initial scrub produces nothing, the service sends no report to Southwest. However, it continues to search the record. It gives Southwest notice if it later learns of a bankruptcy, leading Southwest to close any such account.
The debtor Persinger had four former names, one of which was Brooke Casey. Persinger and her husband filed a joint Chapter 7 petition in 2017. The debtors listed their combined creditors. Among the listed creditors was Southwest, which was servicing an AT&T debt incurred separately by Persinger’s husband in 2014. The couple did not schedule any debt in the name of Brooke Casey The case was a no-asset case, so no creditors received any distribution. The couple received their discharge, and as a listed creditor Southwest got notice of it. Persinger contended otherwise, but it appears that Southwest got the notice after the events at issue in the appeal.
In 2018, Southwest was assigned a delinquent account in Persinger’s former name, Brooke Casey. The bankruptcy scrub was clean, so Southwest began collection activity. It ordered a “propensity to pay” test from a credit reporting agency to help inform its collection strategy. Such a report is not a full credit report, but a rating of the likelihood of repayment, so it is not available to third parties and does not affect the target’s credit score. Several months later, Southwest received an update on the earlier bankruptcy scrub that included the Persingers’ 2017 bankruptcy. Southwest thereupon closed the Brooke Casey/Persinger account in accordance with its bankruptcy policy.
Upon learning that Southwest had obtained credit information about her after her bankruptcy and discharge, Persinger sued Southwest in the federal District Court for violations of the Fair Credit Reporting Act (the “FCRA”). The complaint focused on Southwestern’s having accessed her credit information (via the propensity to pay report) after her bankruptcy discharge. That Persinger had not scheduled her Brooke Casey debt even though she listed that name in the petition did not affect the discharge of that debt because the creditor would not have gotten any distribution in a no-asset case, a “no harm, no foul” outcome. The parties eventually made cross motions for summary judgment. The District Court granted Southwest’s motion and denied Persinger’s
The Court considered the entire record de novo because that is the standard for reviewing a summary judgment determination. In a long passage, it first focused on Southwest’s theory that Persinger lacked Article III Constitutional standing because she suffered no “concrete” injury, a theory on which the District Court simply passed in its decision on the summary judgment motions. Although even Persinger admitted in her testimony below that she suffered no pecuniary harm and the Court rejected other theories of concrete harm Persinger advanced, the Court agreed with her that the invasion of her privacy occasioned by the propensity to pay report was a sufficient injury to satisfy the Constitution. As the Court wrote, the Supreme Court itself has generally recognized a right to privacy concerning information about an individual. See U.S. Department of Justice v. Reporters Comm. for Freedom of the Press, 489 U.S. 749, 763 (1983); other precedent, the Court noted, concurs.
Next, the Court considered whether, as Southwest argued, its conduct was not a negligent violation of the FCRA because accessing a credit report (of which both parties assumed a propensity to pay report is a species) is not per se negligent. However, the Court found that Southwest had failed to satisfy any of the circumstances under which such an access would not be a negligent violation. However, Persinger failed to show any pecuniary harm and failed to describe with “‘reasonable detail’” the nonpecuniary harm she suffered as prescribed by the Court’s decision in Ruffin-Thompkins v. Experian Info, Sols., Inc., 422 F.3d 603, 607-08 (7th Cir. 2005). Hence, she had no negligent violation claim.
Ultimately, the case came down to whether Southwest was guilty of willful violation of FCRA. In Persinger’s favor, such a violation does not require actual damages. However, it does require intentional or reckless conduct. Here, the Court agreed with Southwest based upon the Court’s independent review of the evidence that Southwest did not know of the Persinger bankruptcy via the bankruptcy notice, which included the name Brooke Casey, until after it had ordered the propensity to pay report. Had it known before, that actual knowledge would have supported a finding of willfulness. Thus, the Court concluded, Southwest was not guilty of a willful violation of FCRA.
Assuming that the temporal sequence of events is as the Court determined, the result is not only correct, but a good one. It appears that Southwest had a systematic approach to learning of and dealing appropriately with bankruptcy information and behaved responsibly by closing the account as soon as it did learn of the bankruptcy. Persinger simply fell into the interstices of that program. In some instances such a process experiences mishaps. In Persinger, the bankruptcy notice came too late for Southwest to eschew pursuing the Brooke Casey-named debt in its usual fashion via a propensity to pay report that matched up with her former name in the notice. An event like that is not a reason to hold a party liable for a FCRA violation; all reasonable procedures have their quirks and imperfections. As the Court noted, FCRA involves a balancing of a debtor’s legitimate interests with those of credit industry. It redressed an historical imbalance that had favored the industry, but without sacrificing its genuine needs.