Credit bureau may face ‘willful’ violation claim

Source: VA Lawyers Weekly

A credit reporting agency may face a trial on a claim for "willful" violation of the Fair Credit Reporting Act because it did not come clean on sources of information for a plaintiff's damaging credit report.

Michael Dreher learned about the bad credit report during a 2010 security clearance background check by the federal government that revealed he had been the victim of identity theft in 2008. Someone else had opened a bank credit card in Dreher's name. He alleged that when he requested information from Experian Information Solutions to help straighten out the mess, they failed to disclose critical information on who was actually servicing the account after the bank failed.

Dreher alleged Experian reported the delinquent account was listed as "Advanta Credit Cards."

Unknown to Dreher, Advanta had collapsed in 2010. He alleged Experian did not tell him that CardWorks had taken over responsibility for handling consumer disputes for Advanta. Dreher filed a putative class action, including a charge that Experian willfully violated the statute by providing incomplete information about his account. Proving a "willful" violation in a class action could lead to actual, statutory and punitive damages under the FCRA.

Richmond U.S. District Judge John A. Gibney denied Experian's motion for partial summary judgment on the willfulness charge under 15 U.S.C. § 1681g(a). Gibney said that under the statute's "sources of information" provision, factual issues remained over whether Experian had failed to include the information that actually mattered to Dreher.

"[A] reasonable jury could decide that Experian's exclusion of CardWorks represents an inordinate risk toward Dreher's statutory right to 'clearly and accurately' know the 'sources of the information' in his credit report," Gibney wrote.

Fairfax attorney Kristi Cahoon Kelly said she and her client were pleased with the decision.

Kelly's co-counsel, Leonard Bennett of Newport News, said the court's analysis was consistent with the language of the statute.

"A credit report can be confusing enough but to be told that an entity that had ceased to exist reported credit information a year after it ceased to exist demonstrates the challenges a consumer faces when trying to learn more information about a credit report," he said.

Bennett estimated the class could include hundreds of thousands - if not millions - of consumers so the decision has a potentially sizable impact.

Richmond attorney David Neal Anthony, who represented Experian, referred questions about the case to company spokesperson Susan Henson, who declined to comment on the suit, citing the ongoing litigation.

Lifting the veil

After Advanta's collapse and emergence from Federal Deposit Insurance Corporation receivership, CardWorks was appointed as the "Successor Servicer" to Advanta's accounts.

As the servicer, CardWorks was responsible for dealing with borrowers and handling consumer disputes like Dreher's.

Unable to resolve his account problems, Dreher filed suit under the FCRA, alleging individual and class claims for failure to follow reasonable procedures to achieve maximum possible accuracy; to provide accurate results of reinvestigations and to clearly and accurately disclose the source of the Advanta information in credit reports.

In moving to dismiss the class claims, Experian argued its actions were not "objectively unreasonable" as required by the statute to establish a willful violation.

But Gibney said Experian could not establish it utilized a reasonable interpretation of the FCRA.

The statute required Experian to "clearly and accurately" disclose to Dreher "the sources of information" found in his consumer file. Both in the context of the case and the statute, the term "sources" "clearly embraces CardWorks," the court said.

"Whatever else it might mean, the term 'sources of information' certainly includes the entity that gave the information to Experian," the judge wrote.

"Experian had no obligation to select only one single source; in fact, doing so directly conflicted with the FCRA's language, which compels parties to identify, not the 'source,' but the 'sources' of the information,'" the court said.

Industry standard practices allow for a format to list multiple subscriber codes like previous servicer/issuer and current servicer, he noted, which would have allowed both Advanta and CardWorks to be listed on the account.

The company had no obligation to accede to CardWorks' request to keep Advanta's name in the form, Gibney added.

"Despite CardWorks' message of 'Pay no attention to that man behind the curtain,' Experian never had any doubt about the wizard's true identity," he wrote. Disclosing CardWorks "would have lifted the Advanta veil and brought Dreher one step closer to the resolution of his problems," the court said.

A lack of case law on this point did not mean Experian was entitled to a pass, the court said.

"Experian was not 'merely careless' but 'substantially' more culpable when it disclosed Advanta as the sole source of the information at issue," Gibney concluded, as Experian had withheld the "information" that "actually" mattered in Dreher's case - CardWorks' identity and role.

The litigation will now move forward with the next battle likely over class certification.

If the case makes it to trial and a jury finds "willfulness," Dreher - or the class - could recover the greater of either actual damages or statutory damages ranging from $100 to $1,000 per violation, attorney's fees and costs and the potential for punitive damages.