In a cautionary tale for banks, the U.S. Court of Appeals, Eleventh Circuit held that a plaintiff could move forward with his Fair Credit Reporting Act (FCRA) suit after a national bank allegedly failed to investigate a disputed item and used false pretenses to obtain multiple credit reports.
The Eleventh Circuit affirmed the dismissal of the plaintiff’s Fair Debt Collection Practices Act (FDCPA) claim, however, adopting the “least sophisticated consumer” standard.
What happened
John Pinson obtained a copy of his credit report from TransUnion in May 2012. The report showed a past-due account with an entity that he believed he did not have an account with. However, the name was similar to the name of a bank with which he did have a past-due mortgage.
Pinson disputed the entry with both the bank and TransUnion in July 2012. The consumer credit reporting agency responded with a letter stating the entry would continue to appear on his credit report, but the bank did not respond.
He sent five additional letters to the bank in 2012 and 2013 disputing the entry on his credit report, with no response. Letters in 2014 to TransUnion resulted in the same reply from the consumer credit reporting agency—that the entry would remain on his report.
Pinson sued the bank in April 2016, asserting violations of the FDCPA and the FCRA. He alleged that the use of a name other than the bank’s true name in the collection of a debt violated the FDCPA. With regard to the FCRA, the bank allegedly failed to investigate the accuracy of information it provided TransUnion and requested his credit report without a permissible purpose, Pinson claimed.
A Florida federal court granted the bank’s motion to dismiss the suit, and Pinson appealed. While the Eleventh Circuit affirmed the toss of the FDCPA claim, it reversed on the plaintiff’s FCRA counts.
Joining the Second and Seventh Circuits, the panel adopted the “least sophisticated consumer” standard to consider Pinson’s FDCPA allegation that the bank used a false name. Applying the standard that protects “naïve consumers” with a minimal understanding of personal finance and debt collection, the court said the plaintiff failed to meet this low bar.
Even the least sophisticated consumer standing in Pinson’s shoes would understand that the bank and the name on his credit report entry were related entities, the panel said, rejecting the plaintiff’s suggestion to establish a bright-line rule requiring creditors to use the exact same name throughout their relationships with debtors in order to avoid FDCPA liability.
Turning to the FCRA allegations, the Eleventh Circuit found the plaintiff had plausibly alleged three claims under the statute. First, Pinson had sufficiently alleged that the bank willfully failed to comply with the FCRA’s investigation requirement. Not only did he dispute the entry on his credit report with TransUnion three times—with the credit reporting agency statutorily bound to notify the bank of each dispute—he also contacted the bank on at least six occasions.
Focusing on the communication to the bank by TransUnion, the alleged failure to investigate “not once but three times plausibly indicates reckless disregard of the investigation requirement,” the panel wrote.
Pinson’s next claim, that the bank unlawfully obtained his credit report, covered two separate violations of the statute, the court said: § 1681b(f)(1), which prohibits obtaining a credit report for an improper purpose, and § 1681q, a provision that bans obtaining a credit report under false pretenses.
According to the plaintiff, the bank obtained his credit report 20 times between May 10, 2013, and Oct. 13, 2014, for litigation purposes. Litigation does not appear on the exhaustive list of purposes for which the FCRA authorizes a person to obtain a credit report, the panel explained, a potentially willful violation of the statute as “[e]ven a careless reader would understand that the statute’s list of permissible purposes is exhaustive.” The bank argued that it had a permissible purpose for obtaining the reports because Pinson had a past-due account with the bank.
Separately, the FCRA makes it a crime to knowingly and willfully obtain information on a consumer from a consumer reporting agency under false pretenses, the court said. “Consistent with every other court to address this issue, we now hold that intentionally obtaining a credit report under the guise of a permissible purpose while intending to use the report for an impermissible purpose can constitute false pretenses under § 1681q,” the Eleventh Circuit wrote. The court further noted that the question of whether the bank had obtained the report for a proper purpose or under false pretenses was a question of fact that could not be resolved on a motion to dismiss.
The panel remanded the case for consideration of the FCRA claims.
To read the opinion, click here.
Why it matters
The Eleventh Circuit addressed two novel issues for the circuit. First, the Eleventh Circuit adopted the “least sophisticated consumer” standard for consumers who assert FDCPA claims when a creditor uses an alternative name in reporting a past-due debt to credit reporting agencies. Second, the Eleventh Circuit established that a consumer might have valid FCRA claims if someone intentionally obtains a credit report under the guise of a permissible purpose with the intent of using the report for an impermissible purpose. Credit scores and other consumer reports include important information, and it is tempting to use the information for marketing, analytics or other purposes, but the decision is a reminder that a consumer report can be obtained and then used only for permissible purposes as set forth in the FCRA.