A Furnisher of Credit Data Must Make a Reasonable Investigation in Response to an Indirect Dispute, and Review of “Account-Level Documentation” May Be Required

In Hinkle v. Midland Credit Management, Inc., 2016 WL 3672112 (11th Cir. July 11, 2016), the Eleventh Circuit, addressing an issue of first impression, reversed summary judgment in favor of a credit data furnisher—a “down-the-line” buyer of charged-off debt—which had not requested or reviewed underlying account information after receiving a dispute from a consumer reporting agency (“CRA”) in which a consumer alleged that the debt did not belong to her.

The case involved two so-called “junk debts,” one originating with GE/Meijer (for the debtor “Terri Hinkle”) and the other with T-Mobile (for “Teri Hinkle”). Midland bought the GE debt from another buyer of charged-off debt (not the original creditor) and received an electronic data file and a limited warranty that the information provided was accurate to the best of the seller’s knowledge.  The purchase agreement required the seller to assist Midland in obtaining account-level documentation from the original creditor if necessary to respond to consumer disputes.  Midland also acquired the T-Mobile debt from another buyer of charged-off debt, again receiving only a limited warranty and an electronic data file.  With respect to the T-Mobile debt, Midland and the company from whom it purchased the debt disagreed on whether any obligation to assist Midland in obtaining account-level documentation survived closing of the sale.

In 2008, Midland sent a dunning letter for the GE account to the address on file for the account. The debt was quickly settled, though there was no evidence before the district court about who paid it.  After receiving the payment, Midland, which had for two months reported the account as assigned to collections, marked the account “paid.”  Almost three years later, in September 2011, the plaintiff—Teri Lynn Hinkle—filed a dispute with the CRAs, asserting that the debt appeared on her credit report but was not hers.  Midland took no action on the dispute because it had already marked the debt “paid.”

In December 2011 Midland sent the plaintiff (Teri Lynn Hinkle) a dunning letter for the T-Mobile account. Midland also called Ms. Hinkle in an attempt to reach settlement.  During the call, Ms. Hinkle said the account was not hers.  Thereafter, Midland sent Ms. Hinkle a letter saying that “[a]s part of our investigation . . . it would be helpful to have a copy of any documentation you may have that supports your dispute.”  In the meantime, Midland continued to work the account because the dispute was outside the “validation period” under § 1692g of the Fair Debt Collection Practices Act (“FDCPA”), concerning a furnisher’s obligations after receiving a written dispute directly from a consumer.  Midland continued to report the account as “assigned to . . . collections” and as “disputed.”  In July 2012 Ms. Hinkle disputed the account with the CRAs.  When the CRAs notified Midland of the dispute, Midland verified the debt “by double-checking the information it had reported to the CRAs against its own internal records.  These records consisted of the same electronically-stored information Midland received . . . when it purchased the debt.  Midland did not request account-level documentation from [the entity from which it purchased the debt] or T-Mobile.”  Midland also asked Ms. Hinkle, again, to provide documentation supporting her dispute.  She responded that she had no such documentation, because the account was not hers.  Thereafter, Ms. Hinkle, proceeding pro se, filed an action against Midland alleging violations of the Fair Credit Reporting Act (“FCRA”) and the FDCPA.  The district court granted summary judgment in Midland’s favor on all of the claims.

Ms. Hinkle appealed the grant of summary judgment on her claim under § 1681s-2(b) of the FCRA, which requires that, upon receipt of notice from a CRA of a consumer’s dispute, a furnisher of information must (1) “‘conduct an investigation with respect to the disputed information’; (2) ‘review all relevant information provided by the [CRA]’ in connection with the dispute; and (3) ‘report the results of the investigation to the [CRA]’”  (Slip Op. at 11.)  “Should the investigation determine that the disputed information is ‘inaccurate or incomplete or cannot be verified,’ the furnisher must ‘as appropriate, based on the results of the reinvestigation promptly . . . modify[,] . . . delete [or] permanently block the reporting’ of that information to CRAs.”  (Id.)  The district court had held that Midland’s consulting its own electronic-data files and requesting additional information from Ms. Hinkle constituted a sufficient investigation on the facts of the case.  Hinkle contended that Midland was required to verify its information against account-level documentation, not just the information in its electronic files.

In an opinion by Senior Judge Susan Black, the Eleventh Circuit first held that the standard for evaluating a furnisher’s investigation is one of reasonableness. Observing that “[t]he scope of the duty to investigate under § 1681s-2(b) is an issue of first impression” for the court, the court noted that the portion of the FCRA applicable to investigations by CRAs imposes “a duty . . . to make reasonable efforts to investigate and correct inaccurate or incomplete information,” and that “[t]he structure of the statute . . . suggests that the duty of a furnisher under § 1681s-2(b) is a component of the larger reinvestigation duty imposed by § 1681i(a) on CRAs themselves.”  Thus, “[g]iven the interrelated nature of §§ 1681s-2(b) and 1681i(a), we conclude that ‘reasonableness’ is an appropriate touchstone for evaluating investigations under § 1681s-2(b).” (Id.)  “We emphasize,” the court continued, “that what constitutes a ‘reasonable investigation’ will vary depending on the circumstances of the case and whether the investigation is being conducted by a CRA under § 1681i(a), or a furnisher of information under § 1681s-2(b).”  (Id. 13–14.)  For furnishers, “[w]hether a furnisher’s investigation is reasonable will depend in part on the status of the furnisher—as an original creditor, a collection agency collecting on behalf of the original creditor, a debt buyer, or a down-the-line buyer—and on the quality of documentation available to the furnisher.”  (Id. at 14.)

Section 1681s-2(b), applicable to furnishers, “contemplates three potential ending points to reinvestigation: verification of accuracy, a determination of inaccuracy or incompleteness, or a determination that the information ‘cannot be verified.’”  (Id.)  Midland argued that once it confirmed that the information provided by the CRA in Ms. Hinkle’s dispute matched Midland’s own records, it was entitled to report the account as “verified.”  Hinkle argued that the electronic records Midland possessed were insufficient to verify the challenged information—which had originated from those same records—and Midland therefore should have reported the information as “cannot be verified.”  The Eleventh Circuit held that Midland was not entitled to summary judgment.

In reaching its conclusion, the court cited dictionary definitions of “verification” and “investigation,” noted that “[t]hese definitions support the conclusion that § 1681s-2(b) requires some degree of careful inquiry by furnishers of information,” and held that “when a furnisher does not already possess evidence establishing that an item of disputed information is true, § 1681s-2(b) requires the furnisher to seek out and obtain such evidence before reporting the information as ‘verified.’ . . . The requirement to uncover additional facts will be more or less intensive depending on what evidence the furnisher already possesses.”  (Id. at 16.)  “For instance,” the court noted, “a debt buyer with account-level documentation or more comprehensive warranties from its predecessor debt buyer might be in a completely different position than Midland.”  (Id. at 16-17.)

If a furnisher does report disputed information as “verified,” the reasonableness of a furnisher’s actions in reaching that determination “will turn on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true,” a “factual question [which] will normally be reserved for trial.” (Id. at 17.)  If a furnisher reports disputed information as unverifiable, the question will be “whether the furnisher reasonably determined that further investigation would be fruitless or unduly burdensome.”  If a furnisher is unable to verify the identity of an alleged debtor, “the appropriate response will be to delete the account or cease reporting it entirely.”  (The creditor can still attempt to collect the debt, but should not report it.)

In reaching its holding, the court cited with approval the Fourth Circuit’s opinion in Johnson v. MBNA America Bank, NA, 357 F.3d 426 (4th Cir. 2004), in which the court rejected an argument that the defendant bank acted reasonably in reporting information as “verified” after checking only computerized records because it had destroyed account-level documentation pursuant to its document retention policy.  According to the Fourth Circuit, a reasonable jury could find that the bank should have “‘at least informed the credit reporting agencies that [it] could not conclusively verify” the disputed information.’”  (Hinkle, Slip Op. at 20 (quoting Johnson, 357 F.3d at 432).)  “The reasoning of Johnson,” the Eleventh Circuit said, “is doubly persuasive in the case of a down-the-line buyer like Midland”:

Midland did not attempt to consult account-level documentation to confirm that the “Terri Hinkle” and “Teri Hinkle” who incurred the debts in 2005-2006 were the same “Teri Lynn Hinkle” it was dunning six years later. A reasonable jury could find that such a cursory investigation was unreasonable on the facts of this case.  A jury could find that the documentation Midland reviewed was insufficient to prove that the GE/Meijer and T-Mobile accounts belonged to Hinkle and that Midland therefore had a duty to report the accounts as “cannot be verified.” . . . A jury could also find that because Midland retained the right to seek account-level documentation through its agreements with [the sellers of the debts], Midland behaved unreasonably when it reported the accounts as “verified” without first exercising those rights.

(Slip op. at 21.) The court rejected Midland’s argument that its letters to Hinkle had the effect of shifting to her the burden of substantiating the dispute—“Midland cites nothing in the FCRA that permits a furnisher to shift its burden of ‘reasonable investigation’ to the consumer in the case of a § 1681s-2(b) dispute” (id. at 23)—and Midland’s argument “that its investigative burden was less extensive because the notice of dispute it received from the CRAs stated only that the GE/Meijer and T-Mobile accounts were ‘[n]ot his/hers.’”  “Although we agree that whether an investigation is reasonable will depend on what the furnisher knows about the dispute,” the court said, “we reject the proposition that a furnisher may truncate its investigation simply because the CRA failed to exhaustively describe the dispute in its § 1681i(a)(2) notice.”  (Id. at 24.)

Nor did the court agree that Hinkle could not, as a matter of law, prove a “willful” violation of § 1681s-2(b); Midland’s contractual rights to seek additional information, and its reliance on automated systems without any “review by Midland employees capable of analyzing disputed accounts and initiating requests for account-level documentation,” could support a finding that Midland acted with “reckless disregard for the fact that it would result in perfunctory review in contravention of the FCRA.”  Midland’s suggestion that it did not respond to the GE dispute because it had already marked the debt “paid” also fell flat:  “We are unaware of any provision in the FCRA that relieves furnishers of their obligations under § 1681s-2(b) once they are no longer actively reporting the disputed account.”  (Slip op. at 12 n.7.)  The court affirmed summary judgment in Midland’s favor on Hinkle’s other claims—under other sections of the FCRA and under § 1692g of the FDCPA—concluding that those claims “are dismissed, waived, abandoned, or lack merit.”(Id. at 2 n.2.)

Posted by Valerie Sanders.

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