Creditor Failed to Report Debt as Disputed in California: Can I Sue?

25 Jan Creditor Failed to Report Debt as Disputed in California: Can I Sue?

YES!  On January 12, 2009, the Ninth Circuit Court of Appeals breathed new life into the California Credit Reporting Agencies Act when it rendered its decision in Gorman v. Wolpoff & Abramson, LLP, 2009 U.S. App. LEXIS 585 (9th Cir. Cal. Jan. 12, 2009).  Previously, various courts had ruled California Civil Code 1785.25(a) was preempted by the Federal Fair Credit Reporting Act.  Thus many consumers were without a remedy against persons that reported incomplete or inaccurate information to credit bureaus, unless they fell within the limited protections of the FCRA.


Although 1785.25(a) is specifically exempted from the FCRA(the FCRA specifically states that CA Civ Code 1785.25(a) can coexist with the FCRA), courts such as the original Gorman Court in Gorman I, 370 F. Supp. 2d at 1010-11, nevertheless had held such causes of action as preempted, because the private right of action to enforce Cal. Civ. Code section 1785.25(a) is found in other sections not specifically exempted from the federal preemption provision in the FCRA, namely, Cal Civ. Code sections 1785.25(g)29 and 1785.31.30.  These courts reasoned that because these specific sections were not excluded from the preemption section of the FCRA,  Cal. Civ. Code section 1785.25(a) was therefore a toothless tiger and could only be enforced by federal or state officials. 


The Ninth Circuit disagreed.  In its reasoning, it concluded that 1788.25(a) was not preempted, distinguishing duties under that section versus enforcement under other sections:


Cal. Civ. Code section 1785.25(a), and only section 1785.25(a), that imposes legal duties — “rule[s] of law that must be obeyed” — on furnishers of information.  Congress explicitly saved this section from preemption in the FCRA. Private enforcement of these obligations does not impose “requirement[s] or prohibition[s]” but, instead, provides enforcement mechanisms for “requirement[s] or prohibition[s] imposed separately.  Sections 1785.25(g) and 1785.31 do not impose any additional standards “designed to be . . . potent method[s] of governing conduct and controlling policy,” Riegel, 128 S.Ct. at 1008, nor do these sections require furnishers to obey any additional rules of law. The rules that must be obeyed already exist in the reporting obligations specified by section 1785.25(a) and saved in the FCRA.


So what does all that mean in laymen’s terms?  Can this apply to you?  Possibly.  It means that persons which report to credit bureaus must now follow CC 1785.25(a) and must report complete and accurate information of face liability:


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.


In the Gorman case, the Ninth Circuit addressed an attorney suing a collection law firm for failing to report the debt in question as disputed when defective goods were delivered.  The Ninth Circuit reversed the prior court that previously threw out the case and instead allowed the attorney to continue to sue the collection firm for failing to report to credit bureaus that he “disputed” the debt pursuant to 1785.25(a).  The court also allowed the attorney to continue to sue for libel as well.  Accordingly, a person that fails to report a debt as “disputed,” after you previously disputed the debt with that person, will probably liable under 1785.25(a) for reporting “incomplete or inaccurate” information.


So if you dispute a debt with a creditor, check your subsequent credit reports.  If that creditor continues to report the debt to credit bureaus without also reporting that it is presently being disputed, you probably have a cause of action against that creditor for violation of 1785.25(a).  Additional “incomplete or inaccurate information” might also include: a payment made but not reflected in the credit report, making a timely payment yet the credit report shows late, paying off an account or discharging it in bankruptcy yet the credit report still shows a balance, etc.


Such violations are also not without penalty.  1785.31 provides the remedy for such incomplete or inaccurate information as follows:


(1) In the case of a negligent violation, actual damages, including court costs, loss of wages, attorney’s fees and, when applicable, pain and suffering.

     (2) In the case of a willful violation:

          (A) Actual damages as set forth in paragraph (1) above:
(B) Punitive damages of not less than one hundred dollars ($100) nor more than five thousand dollars                ($5,000) for each violation as the court deems proper;
(C) Any other relief that the court deems proper.


Accordingly, if the creditor willfully fails to report the debt as “disputed” they may be liable for actual damages, pain and suffering, statutory punitive damages of $5,000, loss of wages, attorney fees, and costs.


Remember, the main purpose of credit reporting is primarily to coerce payment of debt.  Unfavorable reporting and the threat of unfavorable reporting creates significant revenues for the credit industry each year, and thus it is in their best interest that reporting be tailored to maximize their profits, even if it sometimes means breaking the laws.  As always, seek competent legal representation if you feel you may be victim to one of these unlawful practices.


Written by Michael G. Doan









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