Defending “Call Volume” Claims: How Many Calls Are Too Many Under Section 1692d(5) Of The FDCPA?

Collectors cannot collect money if they cannot make contact with consumers. The primary way collectors do this is by phone, and it is often necessary to make multiple call attempts before a consumer is reached. But how many call attempts are too many? When will a collector cross the line between diligently trying to make contact, and calling so many times that a court will conclude the collector was trying to harass the consumer? Is there a magic number of calls?

There are no hard and fast rules on how many times a collector can call a consumer, and decisions of the district courts have been all over the map. Call volume claims are generally fact-intensive and can be expensive to defend, and this may explain why these cases are favored by consumer lawyers. Fortunately for collectors, however, there is an emerging trend among the district courts to reject FDCPA claims that are based solely upon counting up the number of call attempts made by the collector. These decisions reflect an appreciation of the basic fact that collectors often must make multiple attempts before the can make contact with the debtor. These call attempts reflect an attempt to start a dialogue about the debt – not an intent to harass or annoy.

Section 1692d(5) of the FDCPA prohibits collectors “[c]ausing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.” 15 U.S.C. § 1692d(5) (emphasis added). The FDCPA is often described as a “strict liability” statute, but this is not true for a section 1692d(5) claim. The plaintiff must plead and prove that the collector intended to annoy, abuse or harass in order to prevail. See, e.g., Clark v. Capital Credit & Collection Servs, Inc., 460 F. 3d 1162, 1176, n.11 (9th Cir. 2006) (identifying sections 1692d(5), 1692f(3) and 1692c(a)(1) of the FDCPA as exceptions to strict liability); Kaplan v. Assetcare, Inc., 88 F. Supp. 2d 1355, 1362 (S.D. Fla. 2000)(same: “Congress took care to require an element of knowledge or intent in certain portions of the FDCPA where it deemed such a requirement necessary.”).

Thus, to establish a violation of section 1692d(5), the consumer must show that the calls were made “repeatedly or continuously” and that they were made with the intent to annoy, abuse, or harass. Although the FDCPA does not define “repeatedly or continuously,” the FTC has opined that "continuously" means “making a series of telephone calls, one right after the other” and has said that “repeatedly means “calling with excessive frequency under the circumstances.” See Statements of General Policy or Interpretation Staff Commentary On the Fair Debt Collection Practices Act, 53 Fed.Reg. 50,097, 50,105 (Fed. Trade Comm’n Dec. 13, 1988).

The FDCPA does not contain any bright-line rules setting forth the permissible number of calls a collector can place in a day, week, month or year without violating section 1692d(5). When deciding if a collector has violated section 1692d(5), courts consider both the volume and the pattern of the calls. See Katz v. Capital One, 2010 WL 1039850, *3 (E.D. Va. Mar. 18, 2010); Saltzman v. I.C. Sys., Inc., 2009 WL 2190359, *7 (E.D. Mich. Sept. 30, 2009); see also Martin v. Select Portfolio Serving Holding Corp., 2008 WL 618788, *6 (S.D. Ohio Mar. 3, 2008) (“In determining whether the debt collector intended to annoy, abuse and harass the consumer, the Court may consider frequency, persistence, and volume of the telephone calls.”); Sanchez v. Client Services, Inc., 520 F. Supp. 2d 1149 (N.D. Cal. 2007) (summary judgment for consumer on section 1692d(5) claim where collector placed 54 telephone calls to debtor's place of employment during six month period, including 17 calls in one month and six on one day); Akalwadi v. Risk Management Alternatives, Inc.,336 F. Supp. 2d 492, 505-06 (D. Maryland 2004) (summary judgment denied on section 1692d(5) claim; 28 calls in two month period, including periods of daily calls, and three calls on one day); Kuhn v. Account Control Tech., Inc., 865 F. Supp. 1443, 1453 (D. Nev.1994) (six calls to consumer’s place of employment within twenty-four minutes constituted harassment under section 1692d(5)).

Recent decisions by district courts around the country reflect an encouraging trend for collectors facing call volume claims. A district court in Florida recently granted summary judgment for a collector who called plaintiff (a non-debtor) fifty-seven times, including seven times in a single day. See Tucker v. CBE Group, Inc., _ F. Supp. 2d _, 2010 WL 1849034, *1, 3 (M.D. Fla. May 5, 2010). Despite the relatively high number of calls, there was no evidence the collector had repeatedly placed calls after being asked to cease communication, or that it had called back on the same day it left a message. See id. at *3. The court held the “evidence demonstrates that CBE placed each of its telephone calls with an intent to reach [plaintiff’s daughter] rather than an intent to harass Plaintiff.” Id.

In Katz v. Capital One, the collector allegedly called the consumer “fifteen to seventeen times” after her attorney sent a letter instructing the collector to cease contact. The letter was sent to the original creditor, however, not to the collector. See 2010 WL 1039850 at **1-2. The court granted summary judgment for the collector, concluding there was no evidence to establish “that the phone calls were intended to be annoying, abusive, or harassing. Instead, the records shows that Allied, believing the debt to be valid, attempted to take steps to collect that debt.” Id. at *3. The collector never called more than twice in one day, none of its calls “were made back-to-back, at inconvenient times, after plaintiff had asked [the collector] to stop calling, or immediately after plaintiff hung up.” Id.

In Saltzman v. I.C. Systems, Inc., the court granted summary judgment for a collector who placed “somewhere between twenty and fifty unsuccessful telephone calls and between two and ten successful telephone calls” to the consumer in just over one month. See Saltzman, 2009 WL 2190359 at *6 n.4. While number of call attempts was relatively high, the court observed that the disparity between the large number of calls placed by the collector, and low number of actual conversations with the consumer, suggested a “difficulty of reaching Plaintiff, rather than an intent to harass.” Id. at *7 (citation omitted).

In Arteaga v. Asset Acceptance, LLC, _ F. Supp. 2d _, 2010 WL 3310259 (E.D. Cal. Aug. 23, 2010), the court granted summary judgment for a collector on a section 1692d(5) claim, despite testimony from the consumer that the collector called her “daily” or “almost daily.” Id. at *7. The court held that “even if Ms. Arteaga’s allegations are believed true, and considered under the ‘least sophisticated debtor’ standard, the conduct does not constitute harassment as a matter of law.” Id.

There is no circuit level authority on section 1692d(5) claims, and no precise guidelines regarding the permissible number of call attempts have been established. Some cases appear to reflect ad hoc reasoning based solely on number of attempts made to reach the consumer. See, e.g., Bassett v. I.C. System, Inc., _ F.Supp.2d _, 2010 WL 2179175 at *4 (N.D. Ill. June 1, 2010) (denying summary judgment where collector made thirty-one call attempts during a twelve day period); Krapf v. Nationwide Credit Inc., 2010 WL 2025323, *4 (C. D. Cal. May 21, 2010) (denying summary judgment where collector placed over 180 calls in a single month, with an average of six calls per day). The trend in the case law is encouraging for collectors, however, with courts using a more holistic, analytical approach to section 1692d(5) claims, rather than just blindly counting up the number of call attempts.

Leaving Voicemail Messages - Ninth Circuit May Resolve The Foti Issue

Debt collectors who have struggled to formulate what voicemail message, if any, to leave for consumers may be receiving guidance on the issue if the Ninth Circuit Court of Appeals decides to grant the petition that was filed on December 29, 2010, pursuant to 28 U.S.C. § 1292(b), in the case of Koby v. ARS National Service, Inc, 2010 WL 1438763 (S.D. Cal. March 29, 2010). A copy of the petition filed with the Court by defendant ARS National Services, Inc. can be read and downloaded here:


Koby v. ARS National Services, Inc. Section 1292(b) Petition To Ninth Circuit -

In Koby, the United States District Court for the Southern District of California found that the following voice mail message left for one of the plaintiffs, Michael Simmons, was NOT a “communication” within the meaning of the FDCPA, and, therefore, when defendant left the message it had NOT violated section 1692e(11) of the Act:

“This is Brian Cooper. This call is for Mike Simmons, I need you to return this call as soon as you get this message 877-333-3880, extension 2571.”

Regarding this message, the court held: “The Court, however, finds the message left for Plaintiff Simmons, which merely included the caller's name and asked for a return call, does not convey, directly or even indirectly, any information regarding the debt owed. As such, the claim based upon the voicemail message left with Plaintiff Simmons would not permit recovery under section 1692e(11) and Defendant is entitled to judgment as to this claim.” This portion of the Koby opinion is very similar to the case of Biggs v. Credit Collections Inc., 2007 WL 4034997 *4 (W.D. Okla. Nov.15, 2007).

Having made this ruling, however, the district court also held that the same message, and two other similar messages, left for plaintiffs Koby and Supler, violated section 1692d(6) of the FDCPA, by failing to “meaningfully disclose” the identity of the collector. The court also found that the Koby and Supler messages did constitute “communications” under the FDCPA, and therefore the complaint had stated a section 1692e(11) claim with respect to those messages. The Koby and Supler messages were alleged to state the following:

“This is Robin calling for Michael Koby, if you could please return my call at 800-440-6613. My direct extension is 3171. Please refer to your Reference Number as 15983225.”

“Hey John, uh, it's Mike Mazzouli with ARS National. Umm, there appears to be some documents here in my office, uh, John at this point your [sic] involved. Call me as soon as you can. My direct number and direct extension is 800-440-6613; I'm at extension 3697. Thank you.”

Recently, the district court held, consistent with the requirements of 28 U.S.C. § 1292(b), that its ruling “involves controlling questions of law as to which there is substantial ground for difference of opinion, and that an immediate appeal from the Order may materially advance the ultimate termination of the litigation” and the district court therefore certified the following two questions to the Ninth Circuit:

1. Do each of the voice mail messages as alleged in the complaint in this action constitute a ‘communication’ within the meaning of section 1692a(2) of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et. seq., (the “FDCPA”), 15 U.S.C. § 1692, et seq.;” and

2. Do the voice mail messages as alleged in the complaint violate section 1692e(11) and/or section 1692d(6) of the FDCPA?

The principal reasons raised by ARS in the petition explaining why the Ninth Circuit should take the appeal are:

• The messages are not “communications” under the plain language of the FDCPA. They did not disclose any information “regarding a debt,” such as the amount due, the name of the creditor or the applicable interest rate. By omitting this information, ARS respected the consumer’s right to privacy.

• The messages did meaningfully disclose the “caller’s identity,” because each message stated the name of the caller and provided the consumer with a toll-free number to return the call. In the context of a voice mail message, this is sufficiently meaningful disclosure.

• The district court correctly held that the message left for Plaintiff Simmons – “which merely included the caller’s name and asked for a return call” – was not a “communication” under the FDCPA, and therefore did not violate section 1692e(11) of the Act. This is consistent with the holding of the district court of Oklahoma in Biggs v. Credit Collections, Inc., 2007 WL 4034997, *4 (W.D. Okla. Nov. 15, 2007).

• The district court erred, however, when it held that the messages left for Plaintiffs Koby and Supler stated a viable claim under section 1692e(11), as this cannot be reconciled with the ruling on the message left for Plaintiff Simmons. The only differences are that the message for Koby also mentioned a “reference number” and the message for Supler also mentioned “documents” in the caller’s office.

• The district court erred when it held that all three messages stated a viable claim under section 1692d(6) for failure to provide meaningful disclosure of the caller’s identity. The court reasoned that a collector can avoid liability under 1692d(6) by not leaving any message at all, but this directly conflicts with a ruling issued by the Northern District of California, which effectively held that a collector must leave a voice mail message in order to avoid liability.

• The logic of the district court is internally inconsistent, since it found that ARS did not “communicate” with Simmons when ruling on the section 1692e(11) claim, but also found that ARS was required to state it was a “debt collector” attempting to collect a debt in order to comply with section 1692d(6).

• There are serious constitutional issues raised by the district court’s interpretation of the FDCPA, because the messages are a valid form of commercial speech. The ruling, read in conjunction with other district court cases, would expose collectors to strict liability every time they place a call, deterring calls to consumers, and silencing an entire channel of commercial speech. This violates the canon of “constitutional avoidance” which prohibits courts from interpreting statutes in a way that raises serious constitutional issues.

The Ninth Circuit should rule on the petition within the next few months and, if it is granted, the matter will then proceed as a normal appeal.

An Overview Of The Consumer Financial Protection Act of 2010 For Debt Collectors

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. This statute undoubtedly marks a sea change for debt collectors. In particular, as described further in this article, Title 10 to the Dodd-Frank Act, known as the “Consumer Financial Protection Act of 2010” (the “CFPA”), has the potential to effectuate sweeping changes across many aspects of the collection industry.

You can read and download the text of the entire Dodd-Frank Act here:


Dodd-Frank Wall Street Reform And Consumer Protection Act -

The Act establishes a Bureau of Consumer Financial Protection (the “Bureau”) that will assume broad regulatory powers over debt collectors and virtually all other “covered persons” who have any connection to consumer financial products or services. The Bureau will have exclusive rule-making authority with respect to all significant federal statutes that impact the collection industry, including the Fair Debt Collection Practices Act (“FDCPA”), the Fair Credit Reporting Act (“FCRA”) and others. This means, for example, that the Bureau will have the ability to pass rules and regulations that interpret any of the provisions of the FDCPA, potentially impacting all facets of the collection channel.

At this time, it is not possible or practical to attempt to provide a comprehensive analysis of how the CFPA will impact debt collectors. The full extent of that impact probably will not be known for a year or more, when the Bureau begins to implement regulations. This article is designed to summarize key portions of the statute and to provide collectors with a broad overview of how the CFPA may change the landscape.

Section 1002 – Definitions

If any debt collectors are still holding out hope that the CFPA would not apply to them, they will probably be disappointed. Unless a collector manages to obtain an exemption from the Bureau, it will likely be subject to the CFPA. A “covered person” under the CFPA includes “any person that engages in offering or providing a consumer financial product or service,” as well as any “affiliate” of that person “if such affiliate acts as a service provider to such person.” Later in the Act, the term “consumer financial product or service” is defined very broadly, to include anyone who is “collecting debt relating to any consumer financial product or service.” A “financial product or service” includes not only “extending credit and servicing loans,” but also “acquiring, purchasing, selling, brokering, or other extensions of credit (other than solely extending commercial credit to a person who originates consumer credit transactions).”

The CFPA also defines “service providers” to include “any person that provides a material service to a covered person in connection with the offering or provision of such covered person of a consumer financial product or service,” including person who “processes transactions relating to the consumer financial product or service.”

Thus, if you are a debt collector, or even a “service provider” for a debt collector, you are likely subject to the CFPA.

Section 1021 – Purpose, Objectives, and Functions

Not surprisingly, the CFPA espouses strong consumer protection objectives. The purpose of the Bureau is to “implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”

Certain of the Bureau’s stated objectives (items 3 and 4, below) could benefit the collection industry. The CFPA lists the objectives of the Bureau as ensuring that “(1) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (2) consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; (3) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (4) Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and (5) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”


Section 1022 – Rulemaking Authority

For the first time, Congress has granted a regulatory body the power to formulate broad rules that will impact debt collectors, as well as all other entities that deal with consumer services and products. Theoretically, this could be a welcome change for debt collectors, because new regulations could provide collectors with much needed clarity under the FDCPA where the courts have failed to provide consistent guidance. Some fear, though, that the new regulations will not bring much clarity, and will simply make it even more difficult to collect.

The Bureau has been given the sweeping powers to “prescribe rules and issue orders and guidance, as may be necessary or appropriate” under the federal consumer financial protection laws. In making rules, the Bureau “shall consider (i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and (ii) the impact of proposed rules on covered persons, as described in section 1026, and the impact on consumers in rural areas.”

It is possible, in theory, for debt collectors or other covered persons to obtain exemptions from select provisions of the CFPA, or from certain of the rules that may be implemented by the Bureau. The Bureau has the ability to exempt any “class of covered persons, service providers or consumer financial services or products, from any provision of this title, or from any rule issued under this title.”

At this point, it is unclear how commonly these exemptions will be granted, but the CFPA establishes the factors that the Bureau must consider in connection with granting exemptions, including “(i) the total assets of the class of covered persons; (ii) the volume of transactions involving consumer financial products or services in which the class of covered persons engages; and (iii) existing provisions of law which are applicable to the consumer financial product or service and the extent to which such provisions provide consumers with adequate protections.”

Section 1027 – Limitations On Authorities Of the Bureau; Preservation of Authorities

Debt collection attorneys will be regulated by the CFPA and the Bureau, unless they obtain an exemption. With respect to attorneys, the CFPA initially provides that the Bureau “may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law. ” While this may sound encouraging to collection attorneys, the CFPA also provides that this limitation on the Bureau’s regulatory power “shall not be construed so as to limit the authority of the Bureau with respect to any attorney, to the extent that such attorney is otherwise subject to any of the enumerated consumer laws or the authorities transferred” to the Bureau. Thus, to the extent that an attorney is subject to the FDCPA – which is one of the enumerated consumer laws transferred to the Bureau – that attorney is also subject to the CFPA and the regulatory powers of the Bureau.

Section 1031 – Prohibiting Unfair, Deceptive or Abusive Acts Or Practices

The Bureau has the power to proscribe new rules that will apply to any debt collector or service provider, and those rules can identify “as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

There is some good news for debt collectors in that the definitions used by the CFPA seem to acknowledge that only practices that cause some “material” harm to consumers should be deemed unlawful. For example, when determining that an act or practice is unlawful because it is “unfair,” the Bureau must have a “reasonable basis to conclude that (A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition.”

Similarly, before any act or practice may be declared unlawful because it is “abusive,” the Bureau must find that it “(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of – (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”

Section 1032 – Disclosures

Model forms and safe harbors may be on the horizon for debt collectors. The CFPA provides that the Bureau may proscribe disclosure rules that are designed to ensure that the “features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.” Thus, the Bureau has the ability to impose new disclosure requirements upon debt collectors, because they are dealing with consumers “over the term of the product or service. . . .”

The Bureau has the power to create “model disclosures” that can be used for this purpose, and the Act provides that any “covered person that uses a model form included with a rule issued under this section shall be deemed to be in compliance with the disclosure requirements of this section with respect to such model form.” This could be welcome news for debt collectors who have, for example, struggled to design section 1692g letters, settlement letters and privacy notices that do not run afoul of the FDCPA.

Section 1033 – Consumer Rights To Access Information

The Bureau can also implement rules requiring debt collectors and other covered persons to provide information to consumers upon request. The CFPA provides that, subject to rules prescribed by the Bureau, “a covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data. The information shall be made available in an electronic form usable by consumers.” The Bureau may set rules that would provide standardized formats in which this information must be provided.

It is unclear how any new requirements imposed under this section, and under section 1034 (discussed below), will interact with the existing dispute and validation requirements of section 1692g of the FDCPA.

Section 1034 – Responses To Consumer Complaints And Inquiries

Regarding consumer complaints, the Bureau will receive complaints from consumers, and where appropriate, the Bureau can direct debt collectors and other covered persons to respond to the Bureau regarding the status of the complaint. The debt collector’s response may need to include “(1) steps that have been taken by the covered person to respond to the complaint or inquiry of the consumer; (2) responses received by the covered person from the consumer; and (3) follow-up actions or planned follow-up actions by the covered person to respond to the complaint or inquiry of the consumer.”

Section 1034 of the Act also includes an ongoing duty for debt collectors and other covered persons to respond in a “timely manner” to consumer inquiries, including consumer requests for documentation regarding debts. The Act describes this duty as follows: “A covered person subject to supervision and primary enforcement by the Bureau pursuant to section 1025 shall, in a timely manner, comply with a consumer request for information in the control or possession of such covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including supporting written documentation, concerning the account of the consumer.”

Section 1036 – Prohibited Acts

The CFPA declares that it shall be “unlawful” for debt collectors or other covered persons or service providers to “(A) to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law; or (B) to engage in any unfair, deceptive, or abusive act or practice.”

The Act also declares it unlawful for “(2) any covered person or service provider to fail or refuse, as required by Federal consumer financial law, or any rule or order issued by the Bureau thereunder– (A) to permit access to or copying of records; (B) to establish or maintain records; or (C) to make reports or provide information to the Bureau.”

Finally, the Act includes a provision akin to aiding and abetting liability, which declares it unlawful for “(3) any person to knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of section 1031, or any rule or order issued thereunder, and notwithstanding any provision of this title, the provider of such substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom such assistance is provided.”

Section 1041 – Relation To State Law

The CFPA does not preempt state laws, except to the extent that a provision of state law is inconsistent with the Act. Thus, the CFPA states that it “may not be construed as annulling, altering, or affecting, or exempting any person subject to the provisions of this title from complying with, the statutes, regulations, orders, or interpretations in effect in any State, except to the extent that any such provision of law is inconsistent with the provisions of this title, and then only to the extent of the inconsistency.”

A state law is not inconsistent with the CFPA, however, if the state law provides consumers with greater protections than the CFPA. Accordingly, the Act provides: “For purposes of this subsection, a statute, regulation, order, or interpretation in effect in any State is not inconsistent with the provisions of this title if the protection that such statute, regulation, order, or interpretation affords to consumers is greater than the protection provided under this title. A determination regarding whether a statute, regulation, order, or interpretation in effect in any State is inconsistent with the provisions of this title may be made by the Bureau on its own motion or in response to a nonfrivolous petition initiated by any interested person.”

Section 1054 – Litigation Authority

One bright spot for debt collectors is that the CFPA does not contain a provision that allows for a private right of action for consumers. Only the Bureau can file civil actions against any person who violates the CFPA “to impose a civil penalty or to seek all appropriate legal and equitable relief including a permanent or temporary injunction as permitted by law.”

The statute of limitations for any such action by the Bureau is three years “after the date of discovery of the violation to which an action relates.”

Section 1055 – Relief Available

The Act provides for a broad range of remedies that may be obtained by the Bureau for violations of the CFPA or other consumer financial laws, including: “(A) rescission or reformation of contracts; (B) refund of moneys or return of real property; (C) restitution; (D) disgorgement or compensation for unjust enrichment; (E) payment of damages or other monetary relief; (F) public notification regarding the violation, including the costs of notification; (G) limits on the activities or functions of the person; and (H) civil money penalties, as set forth more fully in subsection( c ).”

The Bureau may not recover punitive damages, but the Act does provide for recovery of costs, as well as the imposition of potentially significant civil penalties.

FTC Issues Report "Repairing A Broken System: Protecting Consumers In Debt Collection Litigation And Arbitration"

After conducting a series of roundtable discussions with industry experts in Chicago, San Francisco and Washington, D.C., the FTC recently released its report entitled: "Repairing A Broken System: Protecting Consumers In Debt Collection Litigation And Arbitration." A copy of the report can be read and downloaded here:


FTC Report.Repairing A. Broken System.Protecting Consumers In Debt Collection Litigation And Arbitration -

The Executive Summary to the Report acknowledges the critical role that collectors play in the health of the economy. The FTC states: "Credit benefits consumers by allowing them to obtain goods and services without paying the entire cost at the time of purchase. This lets consumers make purchases they might not otherwise be able to afford, and allows them to benefit from goods and services immediately while paying for them over time. Because consumers sometimes fail to pay their creditors, debt collection plays a vitally important role in the consumer credit system. Debt collection benefits individual creditors, of course, who are repaid money they are owed. More importantly, however, by providing compensation to creditors when consumers do not repay their debts, the debt collection system helps keep credit prices low and helps ensure that consumer credit remains widely available."

Having said this, however, the balance FTC's report is highly critical of the debt collection industry generally, and critical of the collection litigation and arbitration process specifically. While the report made a splash when it was announced, it is unclear whether the FTC will actually play any significant role with respect to the issues the report has raised. Will the report be a catalyst for change, or much ado about nothing?

For example, many of the recommendations made by the FTC would require wholesale changes to the rules of civil procedure and substantive rules bearing on state court collection litigation -- changes that state legislatures would need to enact. States would need to be convinced that it made sense to pass an entirely new set of rules that would apply to debt collection cases only, as opposed to other forms of civil litigation. States may conclude, contrary to the implicit assumption in the FTC report, that their existing rules governing civil litigation already provide consumers with sufficient protections.

The FTC also seems fixated on the notion that collectors throughout the country are routinely filing lawsuits that seek to collect on time-barred debt, though the report does not cite to empirical studies to provide support for this belief. The report recommends that collectors be forced to notify consumers and courts when the debt at issue may be beyond the applicable limitations period, and that collectors should advise consumers that subsequent payments may restart the limitations period. The FTC does not explain why any litigant should be required to disclose the existence of a potential affirmative defense to its adversary, or why a potential statute of limitations defense should be highlighted in collection litigation, as opposed to various other affirmative defenses that the consumer might possess. The FTC, of course, has no ability to enact state legislation, and its ability to influence rule changes at the state court level is far from clear.

The report also makes a number of recommendations with respect to debt collection arbitration proceedings that appear to be at odds with the policies underlying the Federal Arbitration Act and decades of jurisprudence favoring the resolution of disputes through private arbitration. The report is highly-critical of creditors who include mandatory pre-dispute arbitration clauses in their customer agreements, though it acknowledges that such agreements are legally enforceable. The report suggests that consumer arbitration awards should include reasoned opinions from the arbitrators. Yet there would be no precedential value in those opinions, and they would likely serve to increase the number of subsequent challenges to the awards, contrary to goal of creating a simple, streamlined process for reaching final adjudications of disputes. The report notes that consumers often do not participate in arbitration proceedings, and that creditors prevail in the vast majority of cases. From this, and from other anecdotal evidence, the report suggests that consumers are not being adequately notified of the arbitration process, and that the process is inherently biased or unfair to consumers. The FTC report cites liberally to the unproven allegations of bias that have been leveled against consumer arbitration providers by litigants and consumer attorneys.

The FTC does not have the power to amend the FDCPA in order to implement any of the recommendations in its report. The FTC can make recommendations to Congress about potential changes to the FDCPA. But the new Bureau of Consumer Financial Protection (formed by the Dodd-Frank Act) will be given concurrent authority with the FTC to enforce the FDCPA, and only the Bureau will also have rule-making authority under the FDCPA. This means that the Bureau can issue regulations that will graft on top of the FDCPA, but the FTC cannot do so. The Bureau will also have other broad powers over the collection industry. All the FTC can do is issue opinion letters (it has only done this a few times since the FDCPA was enacted in 1977), and bring enforcement actions against collection companies.

The following recommendations are contained in the FTC's report:

"States should consider adopting measures to make it more likely that consumers will defend in litigation. Very few consumers defend or otherwise participate in debt collection litigation, resulting in courts entering default judgment against them. States should take steps to ensure that: (1) consumers receive adequate notice when actions have been commenced; and (2) the costs to consumers of participating in such actions are not prohibitively high."

"States should require collectors to include more information about the debt in their complaints. Complaints often do not contain sufficient information to allow consumers in their answers to admit or deny the allegations and assert affirmative defenses. To assist them in doing so, states should consider requiring that debt collection complaints include: (1) the name of the original creditor and the last four digits of the original account number; (2) the date of default or charge-off and the amount due at that time; (3) the name of the current owner of the debt; (4) the total amount currently owed on the debt; (5) the total amount owed broken down by principal, interest, and fees; and (6) the relevant terms of the underlying credit contract, if the contract itself is not attached to the complaint."

"States should take steps to make it less likely that collectors will sue on time-barred debt and that consumers will unknowingly waive statute of limitations defenses available to them. In circumstances where it is difficult to determine the correct statute of limitations, it would be advantageous if states developed more clear and uniform statutes of limitations. Consumers do not understand that in many states a statute of limitations constitutes an affirmative defense which may preclude collectors from successfully suing to collect, so they rarely assert this affirmative defense. These states should assign to collectors the burden of proving that debts are not time-barred and require that they include the date of default and the statute of limitations in their complaints. Consumers are not aware that collectors cannot lawfully sue to recover on time-barred debt. To prevent deception, collectors who seek to collect debt they know or should know is time-barred should disclose that they cannot lawfully sue the consumers. Consumers likewise do not know that in many states making a partial payment on a time-barred debt revives the entire debt for a new statute of limitations period. Collectors in these states should disclose to consumers that making a payment will revive such debt."

"Federal and state laws should be changed to prevent the freezing of a specified amount in a bank account into which a consumer has deposited funds that are exempt from garnishment. When banks freeze the accounts of consumers who receive government payments such as Social Security (which are exempt from garnishment), it may result in significant hardship for consumers, including many who are indigent. To alleviate such hardship, federal and state laws should be changed to limit the amount that banks can freeze in accounts receiving exempt funds."

"The Commission’s principal findings, conclusions, and recommendations relating to debt collection arbitration are:"

"Consumers should be given meaningful choice about arbitration. Consumers currently have little, if any, choice regarding mandatory pre-dispute arbitration provisions in contracts. Creditors should draft their consumer credit contracts in a way that ensures consumers are aware of their choice whether to arbitrate, and provides consumers with a reasonable method of exercising that choice. The public and private sectors should increase efforts to educate consumers, so that they have a basic understanding of arbitration and its consequences. They should evaluate whether, and under what conditions, options beyond the initial choice about arbitration must be offered in consumer credit contracts."

"Arbitration forums and arbitrators should eliminate bias and the appearance of bias. Especially in the wake of serious concerns relating to the conduct of NAF, arbitration forums should take significant and concrete steps to prevent bias and the appearance of bias. Forums should develop, adopt, and vigorously enforce standards prohibiting bias and the appearance of bias for themselves and their arbitrators. Forums should diversify their rosters of arbitrators, rotate matters randomly among arbitrators, and limit the number of matters each arbitrator handles. Forums should make the process and procedures they use for selecting arbitrators as transparent as possible."

"Arbitration forums should conduct proceedings in a manner which makes it more likely consumers will participate. Consumers frequently do not appear in arbitration proceedings. While it is not clear to what extent notification problems cause low participation rates, arbitration forums should adopt measures to increase the likelihood they have valid addresses for consumers, track and document delivery of notices, and use envelopes which make it clear that their contents are important while not disclosing consumer debts to third parties. Arbitration forums and arbitrators also should conduct a closer assessment of consumers’ assertions that they did not receive adequate notice."

"Arbitration forums should establish rules that limit the total cost to consumers of arbitrating a dispute to the cost that they would pay to defend against a similar proceeding in court."

"Arbitration forums should require that awards contain more information about how the case was decided and how the award amount was calculated. Arbitrators rarely accompany awards with an opinion setting forth a statement of the law and an application of the law to the facts, which makes it difficult to understand the basis for the award. Arbitration forums should require that arbitrators issue reasoned opinions setting forth: (1) the law applied; (2) how the law was applied to the facts; and (3) how the amount of the award was calculated, including how the amount of principal, interest, and fees awarded was determined."

"Arbitration forums should make their process and results more transparent. For the public to assess the costs and benefits of arbitration, and for consumers to decide whether to agree to arbitration, the process used and the results reached must be more transparent. To promote such transparency, Congress should consider creating a nationwide system requiring arbitration forums to report and make public arbitration awards and decisions."

"The Commission will continue to closely monitor debt collection arbitration, and evaluate whether creditors and arbitration forums provide consumers with meaningful choice and fair process. As appropriate, the Commission will report its views on new debt collection arbitration models to policymakers, industry, consumer groups, and the general public."

Are You Liable For Your Process Server Under The FDCPA?

Consumers often assert FDCPA claims against collectors based upon alleged misstatements or misconduct by process servers while serving a state court summons and complaint. Thus, consumers may claim a process server was rude or abusive at the time of service, causing them to suffer emotional distress, or that a process server made false statements about the debt. These allegations are not sufficient to impose liability on the collector under the FDCPA.

The alleged conduct of the process server while serving the summons and complaint is not covered by the FDCPA. In fact, when it defined the term “debt collector” under the FDCPA, Congress specifically noted that the term “does not include . . . . any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt . . . .” See 15 U.S.C. § 1692a(6)(D). This is sometimes referred to as the “process server” exemption, which applies to "those individuals whose involvement in a debt collection communication was limited to serving the communication on the consumer – in effect, to being messengers[.]" Romea v. Heiberger & Assoc., 163 F.3d 111, 117 (2d Cir. 1998); see also S.Rep. No. 95-382, at 3-4 (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1697-98 ( The term debt collector is not intended to include ... process servers. ).

Given this exemption, any alleged improper conduct or statements made by a process server while serving or attempting to serve a complaint cannot give rise to FDCPA liability. Since there is no FDCPA liability for the process server’s statements or conduct, the debt collector cannot be held vicariously liable. See, e.g., Worch v. Wolpoff & Abramson, LLP, 477 F. Supp. 2d 1015,1018-19 (E.D. Mo. 2007) (process server who allegedly came to residence and “pounded on the door repeatedly and aggressively” to serve debtor was not subject to FDCPA; collection firm not vicariously liable for server’s alleged conduct); Federal Home Loan Mortgage Corp. v. Lamar, 2006 WL 2422903, *8-9 (N.D. Ohio Aug. 22, 2006) (process server allegedly involved in erratic car chase while serving debtor with complaint not liable under FDCPA; collection firm not vicariously liable).

This conclusion – that collectors are not liable for communications made by their process servers – is reinforced by provisions of section 1692c of the FDCPA. Although that section places important restrictions upon a collector’s ability to communicate with debtors and third parties, it provides exceptions for any communications made with the “express permission of a court of competent jurisdiction.” See, e.g., 15 U.S.C. § 1692c(a), (b) (listing restrictions on communications made at inconvenient times or places, with debtors represented by counsel, or at places of employment, but providing exception for communications permitted by “the express permission of a court of competent jurisdiction”). Collectors are not only permitted by the court to serve a summons and complaint on a debtor, they are required to do so consistent with state law. Thus, the service of the complaint by a process server falls within the exemption under section 1692c(a) and (b) of the FDCPA.

Similarly, even where a consumer has notified a collector in writing that the consumer refuses to pay the debt, or that he wants further communications by the collector to cease and desist, the FDCPA allows the collector to notify the consumer about “specified remedies” that the creditor or collector normally invoke and/or intend to invoke. See 15 U.S.C. § 1692c(c). The service of a state court complaint by a process server is notification that the creditor is seeking to invoke a remedy – judicial enforcement of the debt – and is exempt.

This article is not meant to provide a comprehensive analysis of a debt collector’s potential liability for “sewer service” by a process server. In situations where an FDCPA claim against a collector is based solely upon statements or conduct by a process server in connection with serving or attempting to serve a summons and complaint, however, the FDCPA simply does not apply.

Beating FDCPA Claims That Were Not Disclosed In Bankruptcy

Bankruptcy filings and FDCPA lawsuits are both rising steadily. If you have been sued in an FDCPA action by a consumer who recently filed for bankruptcy, you should pull the bankruptcy filings and carefully review the debtor’s petition. You may find that the consumer failed to properly disclose the claims they now seek to pursue against you. If so, the case is subject to a motion to dismiss. Consumers lack standing to assert claims based upon pre-petition conduct if the claims were not properly disclosed in the bankruptcy petition. See, e.g., Yack v. Washington Mutual Inc., 389 B.R. 91 (N.D. Cal. 2008) (granting motion to dismiss FDCPA class action where debtor failed to disclose claims in bankruptcy schedules).

The filing of a bankruptcy petition creates an “‘estate’” that consists of “‘all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case,’” including any causes of action the debtor may have. See Cusano v. Klein, 264 F.3d 936, 945 (9th Cir. 2001) (quoting 11 U.S.C. § 541(a)). Once a cause of action becomes part of the bankruptcy estate, “[o]nly the trustee . . . has the authority to prosecute and/or settle such causes of action.” Cain v. Hyatt, 101 B.R. 440, 442 (Bankr. E.D. Pa. 1989).

A debtor has an affirmative duty to schedule all property the debtor owns, including all legal claims. See 11 U.S.C. § 521(1). “Causes of action are separate assets which must be formally listed.” Cusano, 264 F.3d at 947. The importance of complete disclosure of a debtor’s assets cannot be overstated: “These matters are at the heart of the bankruptcy system . . . . The proper ‘operation of the bankruptcy system depends on honest reporting.’” In re Mohring, 142 B.R. 389, 394 (Bankr. E.D. Cal. 1992) (citation omitted); see also In re Colvin, 288 B.R. 477, 480 (Bankr. E.D. Mich. 2003) (“the disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price debtors pay for receiving the bankruptcy discharge”).

Courts have recognized that, “[f]ull and comprehensive disclosure is critical to the integrity of the bankruptcy process.” In re Rolland, 317 B.R. 402, 413 (Bankr. C.D. Cal. 2004). This “duty of candor . . . accrues from the time the facts that give rise to the potential claim are known.” Rose v. Beverly Health & Rehab. Servs., Inc., 356 B.R. 18, 25 (E.D. Cal. 2006) (emphasis added).

Debtors have a “paramount duty” to not only list all of their assets, but also to do so “carefully, completely and accurately,” using the appropriate schedules. See In re Mohring, 142 B.R. at 394 (emphasis added); see also Cusano, 264 F.3d at 945 (bankruptcy code places “affirmative duty” on debtor to schedule “assets and liabilities”). As the In re Mohring court explained:

“The basic rule is that schedules must be accurate and complete. And they must be corrected if they are incomplete. Thus, amendments are liberally permitted and can be demanded by the court. . . . Numerous cases hold that the debtor has a duty to prepare schedules carefully, completely, and accurately. . . . There are, however, no bright-line rules for how much itemization and specificity is required. What is required is reasonable particularization under the circumstances. The Official Forms themselves have generally been regarded as subject to a rule of substantial compliance.”

In re Mohring, 142 B.R. at 394-95 (citations omitted); see also In re Searles, 317 B.R. 368, 378 (9th Cir. B.A.P. 2004) (“Every debtor has a continuing duty to assure the accuracy and completeness of schedules. Postpetition discovery of rights that actually existed at the time of filing must be addressed in the schedules. This implies a duty to amend.”).

At the conclusion of the bankruptcy proceedings, if a claim was properly scheduled by the debtor, and was not otherwise administered by the trustee, the claim is “abandoned to the debtor.” 11 U.S.C. § 554(c). But if a debtor has failed “to properly schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate” and the claim does not revert to the debtor. Cusano, 264 F.3d at 945-46.

A trustee cannot “abandon” a claim if the claim was never disclosed by the debtor. For this reason, in Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982), the Ninth Circuit held that “abandonment results only when the trustee knows of the existence of the property. . . . When the bankrupt fails to list an asset, he cannot claim abandonment because the trustee had no opportunity to pursue the claim.” Id. at 891 (affirming dismissal of debtor’s unscheduled antitrust claim). Similarly, in Cusano, the Ninth Circuit held that a debtor lacked standing to assert a claim for royalties that had not been scheduled by the debtor:

“Thus, if there was any outstanding balance due Cusano on the open book account when he filed for bankruptcy, he was under a duty to schedule it as a receivable or as a cause of action for unpaid royalties. His failure to do so vests the claim in the bankruptcy estate, where it remains.”

Cusano, 264 F.3d at 948.

The debtor lacks standing to pursue claims that were not properly disclosed. See Cusano, 264 F.3d at 945-48 (where a debtor fails to “properly schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate” and does not revert to the debtor); see also Stein, 692 F.2d at 891 (debtor lacked standing to pursue antitrust claims that were not listed in bankruptcy).

Debtors may seek to reopen the bankruptcy proceedings to reacquire claims they failed to list, but the judicial estoppel doctrine should bar them. Judicial estoppel is “is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later taking to their benefit a clearly inconsistent position.” See Yack, 389 B.R. at 96 (citation omitted). In “the bankruptcy context, a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure statements.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001); see also Hay v. First Interstate Bank, 978 F.2d 555, 557 (9th Cir. 1992) (failure to list a cause of action in bankruptcy schedule judicially estops prosecution of that claim). This is true “even if the discharge is later vacated.” Hamilton, 270 F.3d at 784.

Where a debtor failed to disclose their alleged claims, they are judicially estopped from seeking to re-acquire and assert them later. To hold otherwise would reward debtors for hiding assets from her creditors and the trustee, and would amount to a fraud on the bankruptcy court. See Latman v. Burdette, 366 F.3d 774, 785 (9th Cir. 2004) (surcharge remedy prevented “a fraud on the bankruptcy court” where plaintiffs knowingly failed to disclose assets that should have been listed on bankruptcy schedule).

For these reasons, collectors sued in FDCPA action should carefully review the bankruptcy filings of the debtor to determine if these defenses are available.

Finding Guidance In Gorman: Examining A Furnisher’s Duty To Report Complete And Accurate Information And The Duty To Investigate Consumer Disputes

The Ninth Circuit’s decision in Gorman v. Wolpoff & Abramson, 584 F.3d 1147 (9th Cir. 2009) probably triggered more than a few groans from collectors who furnish information to consumer reporting agencies. In Gorman, the Ninth Circuit recognized a new cause of action arising under California law based upon a furnisher’s failure to report complete and accurate information. Although furnishers have always had this duty, which is established by section 1785.25(a) of the California Civil Code, previous decisions had held that consumer claims arising under the state statute were preempted by the Fair Credit Reporting Act.

Gorman thus adds another potential claim that can be asserted by California consumers against collectors who furnish information about their accounts. If there is a silver lining to Gorman, however, it is that the case provides furnishers with a reminder of the importance of the need to ensure they are reporting complete and accurate information, and some guidance on how they should handle disputes about the information they report.


In Gorman, the Court held, inter alia, that a consumer can pursue a private right of action, under section 1785.25(a) of the California Civil Code, against a furnisher who reports inaccurate or incomplete information to a consumer reporting agency. The consumer can also seek actual damages, punitive damages, attorney’s fees and injunctive relief, and can seek to pursue claims on behalf of a class of consumers, under sections 1785.25(g) and 1785.31 of the Code. See Gorman, 584 F. 3d at 1170-73. Although these Civil Code sections had been on the books for decades, they had not given rise to many claims against the collection industry, because a line of district court cases had held that the Fair Credit Reporting Act preempted the damage provisions found at sections 1785.25(g) and 1785.31 of the Civil Code. See, e.g., Lin v. Universal Card Services Corp., 238 F. Supp. 2d 1147 (N.D. Cal. 2002).


Furnishers already have a duty, arising under both federal and state law, to ensure that they submit accurate and complete information to consumer reporting agencies. See 15 U.S.C. § 1681s-2(a); Cal. Civ. Code § 1785.25(a). But courts have recognized that consumers cannot pursue damage claims under federal law for alleged violations of section 1681s-2(a) of the FCRA. Thus, the Gorman decision recognized a “new” cause of action against furnishers. Under Gorman, a consumer can now sue the furnisher under state law where the furnisher has submitted information “on a specific transaction or experience to any consumer credit reporting agency” if the consumer proves the furnisher “knows or should know the information is incomplete or inaccurate.” See Cal. Civ. Code § 1785.25(a).

All of this may sound depressing, but the good news is, there is likely nothing new that a furnisher needs to do in order to comply with Gorman. Furnishers should already have in place procedures for ensuring that the information they report is complete and accurate, consistent with their obligations under 16 C.F.R. § 660.3 (effective July 1, 2010). The federal agencies have published guidelines that furnishers must consider when developing policies and procedures to ensure the “accuracy” and “integrity” of the information they furnish, and the guidelines are designed to be flexible in order to reflect “the nature, size, complexity, and scope of the furnisher's activities.” See 16 C.F.R. Pt. 660, App A.

Thus, a furnisher who is complying with federal law should have no trouble defeating a claim asserted under section 1785.25(a) of the Civil Code. In fact, the Civil Code includes a defense, similar to the “bona fide error” defense in the FDCPA, which provides that the furnisher will not be liable if it “establishes by a preponderance of the evidence that, at the time of the failure to comply with this section, the furnisher maintained reasonable procedures to comply with those provisions.” See Cal. Civ. Code § 1785.25(g).


The Gorman case also provides some helpful guidance on how furnishers should go about investigating disputes they receive from consumers through the consumer reporting agencies. Most furnishers know that they must conduct a reasonable investigation of these disputes, but it is not always easy to determine exactly what you need to do in order to discharge your duty of investigation. Do you have the right procedures in place?

Although the reasonableness of furnisher’s investigation under section 1681s-2(b) of the FCRA would appear to be a question of fact, the Gorman court held that an investigation can be reasonable as a matter of law. See Gorman, 584 F.3d at 1157 (“Summary judgment is not precluded altogether on questions of reasonableness. It is appropriate when only one conclusion about the conduct's reasonableness is possible.”) (citations and quotation marks omitted).

A review of the holding in Gorman reveals some basic steps that a furnisher should follow to ensure that the investigation process is reasonable. A furnisher should:

1) individually review each dispute received from a consumer reporting agency,
2) analyze all information in its possession bearing on the dispute, and
3) update all the reporting on the account as appropriate.

A furnisher should not believe that it can conduct a reasonable investigation by treating every dispute in an identical fashion. Most furnishers receive electronic notice of disputes from consumer reporting agencies through the E-Oscar system. The description of the dispute is often cryptic, and is typically described using one or more standardized dispute codes. One of the disputes received by MBNA in the Gorman case simply stated “Claims Company Will Change” and nothing more. See Gorman, 584 F.3d at 1158. Even if the description of the dispute is sparse, however, the investigation conducted by the furnisher must be reasonable. A “superficial” investigation will not do; rather, a “fairly searching inquiry” is required. Id. at 1156.

Furnishers should read each ACDV carefully, because the scope of the duty to investigate under section 1681s-2(b) of the FCRA is delineated by the description of the dispute received from the consumer reporting agency. In addition to the standard dispute codes, ACDVs typically have a space entitled “FCRA Relevant Information,” which can be used to further describe the dispute. All sections of the ACDV should be read carefully. As the Gorman court noted,

[T]he reasonableness of the furnisher's investigation is measured by its response to the specific information provided by the CRA in the notice of dispute. The pertinent question is thus whether the furnisher's procedures were reasonable in light of what it learned about the dispute from the description in the CRA's notice of dispute.

Gorman, 584 F.3d at 1157 (citation omitted).

After the dispute has been reviewed, the furnisher must have in place a procedure for reviewing all information in its possession which might bear upon the dispute. Consumers often argue that a furnisher must go beyond a review the information contained in its own files. To date, however, no circuit court has extended the duty of investigation that far. For example, in Westra v. Credit Control of Pinellas, 409 F.3d 825 (7th Cir. 2005), the consumer argued the furnisher’s investigation was unreasonable because it never contacted the consumer directly. The Seventh Circuit rejected this, noting that “requiring a furnisher to contact every consumer who disputes a debt would be terribly inefficient and such action is not mandated by the FCRA.” Id. at 827.

Similarly, in Gorman, the consumer argued that MBNA’s investigation was unreasonable, because the bank had not contacted the merchant or the consumer, and had relied solely upon its internal account records. Gorman, 584 F. 3d at 1160. The Ninth Circuit noted that MBNA had properly consulted “the relevant information in its possession.” Id. at 1161. The bank reviewed its account notes, which showed it had previously investigated and rejected Gorman’s dispute. Id. The bank was not required to reinvestigate the dispute, particularly since no new information had been supplied by the consumer. The Court observed:

Congress could not have intended to place a burden on furnishers continually to reinvestigate a particular transaction, without any new information or other reason to doubt the result of the earlier investigation, every time the consumer disputes again the transaction with a CRA because the investigation was not resolved in his favor.

Id. at 1160.

If the furnisher does not even bother to review data in its own files which might bear on the dispute, however, the review will be deemed unreasonable. For example, in Johnson v. MBNA America Bank, 357 F.3d 426 (4th Cir. 2004), a woman disputed an MBNA account that appeared on her credit report. The dispute stated “consumer states belongs to husband only ... was never a signer on account. Was an authorized user.” Id. at 429. In response, MBNA reviewed its electronic notes, but did not attempt to ascertain if it still had records reflecting whether the plaintiff was a co-obligor on the account. The court upheld a jury’s finding that this investigation was unreasonable. Id. at 431.

Once the investigation is complete, the furnisher must review the information it is furnishing and make any appropriate updates to its reporting to the consumer reporting agency. See 15 U.S.C. § 1681s-2(b)(1). Thus a furnisher’s procedures should include steps to ensure that any new information uncovered by the investigation is reflected in future reporting. This does not mean that the furnisher must always agree with the consumer, or that you will automatically violates the FCRA if the updated information turns out to be wrong. See Gorman, 584 F.2d at 1161 (“An investigation is not necessarily unreasonable because it results in a substantive conclusion unfavorable to the consumer, even if that conclusion turns out to be inaccurate.”). But furnishers should be sure to review all information they are reporting on the account for accuracy. Continuing to report information about an account that is “materially misleading” – i.e., information that could have an “adverse effect” on credit decisions relating to the consumer – can support a claim under section 1681s-2(b) of the FCRA. Id. at 1163.

The Gorman decision recognizes a “new” cause of action for consumers, arising under section 1785.25(a) of the California Civil Code. But the case does not impose a new set of legal duties on furnishers. Furnishers have always had a responsibility under federal and state law to maintain procedures designed to ensure that the information they furnish to consumer reporting agencies is complete and accurate. As of July 2010, federal law mandates that furnishers must maintain written policies and procedures which explain how they will ensure the accuracy and integrity of the data that they submit. Thus, furnishers who continue to comply with their existing obligations should have much trouble in defeating the consumer claims that they may encounter under section 1785.25(a).

To comply with the duty of investigation under section 1681s-2(b) of the FCRA, and consistent with the Gorman decision, furnishers should establish procedures (preferably in writing) setting forth how each dispute received from a consumer reporting agency will be reviewed. Employees must be trained on how to read and understand all standard dispute codes used by the consumer reporting agencies, and to evaluate any additional “FCRA Relevant Information” that is supplied. All of the information in the furnisher’s files that might bear upon the dispute must be reviewed. Once the investigation is complete, all information that is being reported by the furnisher should be reviewed, and updated as appropriate.

[Note: This post reflects an article authored by Tomio Narita that originally appeared in the May/June 2010 Edition of "Collector's Ink" Magazine]

A copy of the full text of the Fair Credit Reporting Act as published by the Federal Trade Commission can be viewed and downloaded here:


FTC's.Complete.Text.of.FCRA.July.2009 -


Endnotes:

1. Section 1785.25(a) of the California Civil Code provides: “A person shall not furnish information on a specific transaction or experience to any consumer credit reporting agency if the person knows or should know the information is incomplete or inaccurate.”

2. Section 1785.25(g) of the California Civil Code provides: “A person who furnishes information to a consumer credit reporting agency is liable for failure to comply with this section, unless the furnisher establishes by a preponderance of the evidence that, at the time of the failure to comply with this section, the furnisher maintained reasonable procedures to comply with those provisions.”

3. Section 1785.31 of the California Civil Code provides that any consumer who suffers damages as a result of a violation of the title may seek actual damages for negligent violations (including court costs, loss of wages, attorney’s fees and pain and suffering), and in the case of wilful violations, may also seek punitive damages of not less than one hundred dollars ($100) and not more than five thousand dollars ($5,000) for each violation as the court deems proper. Consumers may also seek injunctive relief and may assert their claims in a class action.

4. The Ninth Circuit has held that there is no private right of action for breach of the duties set forth in section 1681s-2(a) of the FCRA, which includes the duty to furnish accurate information to consumer reporting agencies. See Nelson v. Chase Manhattan Mortgage Corp., 282 F.3d 1057, 1059-60 (9th Cir. 2002).

5. Section 1681s-2(b) of the FCRA provides that, after receiving a notice of dispute, the furnisher shall: (A) conduct an investigation with respect to the disputed information; (B) review all relevant information provided by the [CRA] pursuant to section 1681i(a)(2) ...;(C) report the results of the investigation to the [CRA]; (D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other [CRAs] to which the person furnished the information ...; and (E) if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any reinvestigation under paragraph (1) ... (i) modify ... (ii) delete[or] (iii) permanently block the reporting of that item of information [to the CRAs]. 15 U.S.C. § 1681s-2(b).