The Rise of Consumer Litigation Concerning Post-Discharge Debt Reporting: What it Means for CRAs and Furnishers
In light of the rise of consumer litigation concerning post-discharge reporting, consumer reporting agencies (“CRAs”) and companies that furnish information to CRAs (“Furnishers”) must ensure they are protected. To begin, they should: 1) examine their consumer reports reflecting discharged debts and the information they furnish to CRAs with a critical eye, and 2) ask whether a third-party could potentially be misled by the reported information.
Courts across the country have witnessed a dramatic rise in the number of plaintiffs suing CRAs and Furnishers under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (“FCRA”), for allegedly violating certain obligations when reporting consumer debts that have been discharged in bankruptcy. As an initial matter, the FCRA permits CRAs to report bankruptcy cases for 10 years and report accounts that are delinquent or that have been placed for collection for seven years. (15 U.S.C. § 1681c). Exactly what account information may be reported in a consumer report after bankruptcy discharge has been a subject of recent debate.
One of the main purposes of the FCRA is to ensure the accuracy of information reflected on consumer reports. It is well-established, however, that the FCRA requires more than just technical accuracy. Courts also inquire whether information reported in a consumer report could mislead a third-party into making an adverse credit decision. In this context, post-bankruptcy discharge reporting of consumer debts must not mislead potential creditors into making an adverse credit decision based on the mistaken belief that the consumer is still responsible to pay the discharged debts.
Recently, there has been substantial litigation over what constitutes misleading information in credit reports that include reporting on discharged debts. A bankruptcy discharge does not eliminate the existence of the debt; rather, it enjoins creditors from continuing collection activities related to the debt. In other words, the consumer bears no responsibility for paying on the debt after discharge. Thus, while reporting the actual amount that remains unpaid on a debt after discharge may be technically accurate, such reporting in some instances may be misleading and result in liability under the FCRA.
The Federal Trade Commission (“FTC”) has provided some guidance on what information may be reported on a discharged debt in its 40 Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report with Summary of Interpretations (“FTC Report”). The FTC Report and case law in this area consistently instruct that CRAs and Furnishers must report discharged accounts as having a zero balance and must include language that such account was “discharged through bankruptcy.” Traditionally, courts have held that additional reported information, such as a scheduled monthly payment amount or a past due amount, could render the report misleading, even if the same information was reported in the “account history” section of the report. A potential creditor may interpret the additional information as evidence that the consumer still has payment obligations under the debt, even though the debt has been discharged in bankruptcy.
As courts across the country encounter this issue more frequently, opinions on what constitutes misleading information has evolved. Courts have recently begun scrutinizing whether additional information on an account, also showing a zero balance and the “discharged in bankruptcy” language, could in fact mislead even an unsophisticated third party. Recent opinions arising out of the Northern District of Illinois, for example, suggest that when a consumer report shows a zero balance and a clear notation that the debt has been discharged in bankruptcy, it is accurate “per se,” and no additional information could confuse or mislead even an unsophisticated consumer or potential creditor into believing that the consumer is still obligated to pay on the account.
The courts will continue to have the opportunity to refine what can reasonably be considered “misleading” information in a consumer report. Until the courts establish clearer precedent as to whether additional information contained in a tradeline that reported a discharged debt with a zero balance and the requisite “discharged in bankruptcy” language could make the tradeline inaccurate, Furnishers and CRAs should be cautious about including any further information about the debt.