11th Circuit reverses summary judgment for credit reporting agency under FCRA finding mere verification with provider insufficient where consumer advised that reaffirmation had been rescinded

The 11th Circuit just recently entered a decision on the liability of credit reporting agencies for continuing to report an obligation owed on a debt discharged in bankruptcy.  In Losch v. Nationwide Mortg. LLC, 2021 U.S. App. LEXIS 12578, Case no. 20-10695 (28 April 2021) the debtor, Losch, initially reaffirmed the mortgage, but rescinded such reaffirmation (with court approval) after the trustee sold the home.  Upon discovering that Esperian was continuing to report a $140,000 balance and that he was delinquent on the mortgage in the amount of $10,000, he contacted the agency to have them correct the issue, but the agency’s inquiry with its data furnisher – Nationstar, inaccurately confirmed the prior report.

Losch filed suit under the Fair Credit Reporting Act (FCRA), 15 U.S.C. §1681.  The district court granted summary judgment in favor of Esperian, finding that it’s actions were reasonable under 15 U.S.C. §1681e and §1681i, concluding that the statute does not impose any obligation on the credit reporting agency other than notifying the furnisher of the dispute and examining any information the consumer submits.

The 11th Circuit initially concluded that Losch had standing to appeal, which was challenged by Experian asserting that he had not shown damages sufficient to meet the standing requirements.  As noted by the court in Pedro v Equifax, Inc., 868 F.3d 1275, 1279-80 (11th Cir. 2017) a credit report agency’s failure to follow reasonable procedures to assure maximum possible accuracy of the information bore a close relationship to the common-law tort of defamation, which was traditionally actionable per-se.  Thus Losch did not need to prove the reporting lowered his credit score, but rather the injury is the false reporting itself.  The credit reports themselves show Experian supplied the report at least 26 times to six entities.  Experian could not verify that these soft inquiries did not result in a creditor receiving the full credit report including the report on Nationstar.

The emotional distress alleged by Losch is a separate concrete injury supporting standing.  Losch testified at deposition and submitted an affidavit that he suffered stress, anxiety, and lack of sleep from the aftermath of the discharge, and that he devoted nearly 400 hours correcting the credit report.

15 U.S.C. §1681e(b) provides that in preparing a consumer report, a reporting agency ‘shall follow reasonable procedures to assure maximum possible accuracy’ about an individual.   If the completeness or accuracy is disputed by the consumer, the agency shall conduct a reasonable investigation to determine whether the information is accurate.  §1681i(a)(1)(A).  A claim arises under §1681 if the report contained factually inaccurate information, the procedures it took in preparing and distributing the report were not reasonable, and damages followed as a result.

The 11th Circuit initially rejected Experian’s argument that the report was not inaccurate, as the bankruptcy discharge is an injunction against certain means of enforcing a debt rather than an expungement of a debt from one’s record.  However, as Experian not only reported the existence of the debt, but also the balance owed and the amount past due, as well as how long such amount was past due, such report was inaccurate to support a claim under the statute.

As to the reasonableness of the inquiry undertaken by Experian upon being notified of the error, the court noted that while a reporting agency may initially rely on a data provider (the creditor in this case), once a claimed inaccuracy is pinpointed, an agency needs only to investigate the specific item alleged to be in error.  Experian argued that the unusual facts in this case, an initial reaffirmation, a rescission, and a discharge order which did not specify the mortgage, required more analysis than could be required of the agency.  As Experian failed to even check the bankruptcy docket here, a jury could find it was negligent in discharging its obligation to conduct a reasonable investigation and reinvestigation into the disputed information.

The appellate court did reject Losch’s request for damages for a willful violation.  This requires a showing that Experian either knowingly or recklessly violated the FCRA.  Experian’s interpretation could reasonably have found support in the courts, as reconfirming the information from the data furnisher prevents a finding of a willful violation.