Fourth Circuit Rules on Disputes to CRA
Published: May 23, 2008
The court rejected the argument that the failure to mark an account as disputed based upon a dispute from a CRA is governed exclusively by section Section 623(a) of the FCRA.

The Fourth Circuit recently found a data furnisher who failed to mark an account as “disputed” in response to a dispute received through a consumer reporting agency (CRA) was liable under Section 623(b) of the Fair Credit Reporting Act (FCRA). In Saunders v. Branch Banking and Trust Co. of VA, No. 07-1108, 2008 WL 2042620 (4th Cir. May 14, 2008), the court rejected the argument that the failure to mark an account as disputed based upon a dispute from a CRA is governed exclusively by Section 623(a) of the Act. The court determined that both Sections 623(a) and 623(b) require a data furnisher to mark a debt as disputed. This decision is significant because consumers are unable to bring a private cause of action for a violation of Section 623(a) of the FCRA, but can bring a private cause of action for violations of Section 623(b).

In this case, the consumer purchased an automobile from a car dealer and the dealer assigned the loan to a lender. When the consumer did not receive a payment book for the new car, both he and his attorney contacted the lender several times to request payment information so he could begin paying on the loan. Each time the lender's employees informed him he owed the bank nothing.

The consumer then received a letter from the lender informing him he was seriously delinquent on his payments, his loan was in default, and the lender had accelerated the payment schedule demanding the total balance on the loan including principal, interest, late fees and other charges. After receipt of the letter, the consumer contacted the lender who ultimately refused to waive the late fees as the consumer requested.

The consumer refused to pay the additional charges, and the lender later repossessed the car and reported the account to a CRA. The consumer submitted a notice of dispute to the CRA who forwarded the dispute to the lender, triggering the lender's duty to investigate the dispute. In response to the dispute, the lender updated the account to show the loan as a “profit and loss writeoff,” but did not mark the account as disputed.

The consumer sued the lender, alleging the data furnisher violated its duties under Section 623(b) by failing to report the account as disputed. At trial, the jury found in favor of the consumer and awarded the consumer statutory and punitive damages. The lender appealed.

At issue on appeal were the duties a data furnisher incurs under Section 623(b) when a consumer disputes the accuracy of information to a CRA and the CRA notifies the data furnisher of such dispute. Specifically, the court examined whether a data furnisher has a duty to mark an account as disputed under Section 623(b).

The lender argued Section 623(b) does not require data furnishers to report disputes when responding to a consumer dispute received from a CRA. The lender stated other courts have found a data furnisher's duty to mark the account as disputed based on a consumer's dispute to a CRA is controlled exclusively by Section 623(a).

The instant court rejected this line of reasoning, noting such arguments ignore the interplay between Sections 623(a) and 623(b) of the FCRA. The court stressed that the first subsection, Section 623(a), provides that data furnishers have a general duty to provide accurate and complete information; the next subsection, Section 623(b), imposes an obligation to review the previously reported information and report whether the information is incomplete or inaccurate upon receipt of a notice of dispute from a CRA. Thus, the court reasoned Section 623(b) requires data furnishers to review the previous report for accuracy and completeness but does not set forth specific requirements as to what must be reported, because those requirements are already set forth in Section 623(a), and the requirements include marking a debt as disputed.

Therefore, the court asserted that under Section 623(b), a data furnisher has a duty to mark an account as disputed upon the receipt of notice of a consumer's dispute from a CRA. Since the lender failed to reflect the dispute on the consumer's credit report, the data furnisher was liable for violating Section 623(b). As discussed earlier, unlike violations of Section 623(a), a private cause of action does exist for violations of Section 623(b). Accordingly, the Fourth Circuit affirmed the decision of the district court.

The important thing to take away from the Saunders decision is that a data furnisher has a duty to mark an account as disputed based upon a consumer's dispute received from a CRA. Failure to comply with this duty may subject the data furnisher to a private cause of action for violations of the FCRA.

This article is provided as a service of ACA International's Legal and Government Affairs Department.

Delinquent Mortgage Accounts Increase 15 Percent in a Year
Published: May 16, 2008
A recent study found the national average credit score for U.S. homeowners with a severely delinquent mortgage account was 599 in February 2008, compared to 605 in February 2007.

As the current credit crunch continues to take hold of many U.S. homeowners, the number of severely delinquent mortgage accounts increased 15 percent in one year, according to a National Score Index study conducted by Experian Consumer Direct and released April 30, 2008.

The study found the national average credit score for those with a severely delinquent mortgage account was 599 in February 2008, compared to 605 in February 2007. Conversely, the average credit score in February 2008 for those with a mortgage account with no delinquencies was 750. Severely delinquent mortgage accounts include charge-offs, short sales, foreclosures, repossession, collections, voluntary surrender and bankruptcy.

The study also found:

• The average mortgage balance for those with a severely delinquent mortgage account was $131,699 in February 2008, compared to $124,465 in February 2007.
• The states with the most severely delinquent mortgage accounts include California (12.4 percent of mortgage accounts are severely delinquent), Florida (8 percent of mortgage accounts are severely delinquent) and Texas (6.3 percent of mortgage accounts are severely delinquent).
• Washington, D.C., had the lowest reported average credit score for those with a severely delinquent mortgage account at 583.

Court Rules Debt Purchaser Not Required to Obtain Collection Agency License
Published: May 5, 2008
A recent case in New York City provides clarification for debt purchasers not engaging in collection activities.
A district court recently found a debt purchaser did not engage in collection activities and therefore was not required to hold a New York City debt collection agency license.

In Kuhne v. Cohen & Slamowitz, LLP, No. 07 Civ. 1364(HB), 2008 WL 608607 (S.D.N.Y. Mar. 5, 2008), the consumer's debt was purchased by a debt purchaser. The debt purchaser was a corporation that held portfolios of purchased, charged-off consumer debt and had no employees or operations. The debt purchaser had no direct contact with consumers. Rather, the purchased debts were placed with a collection agency pursuant to a servicing agreement. Both the collection agency and the debt purchaser were owned by the same parent company. The consumer's debt was placed with the collection agency. After unsuccessful attempts to recover payment on the consumer's debt, the collection agency retained a law firm to file suit against the consumer in the name of the debt purchaser. Both the collection agency and the law firm held collection licenses issued by the New York City Department of Consumer Affairs (DCA). The debt purchaser was not licensed.

The issue before the court was whether the debt purchaser was required to be licensed under the New York City Administrative Code in order to sue to collect the consumer's debt. Under New York City Administrative Code Section 20-490, it is unlawful for any person to act as a debt collection agency without a license. The code defines a "debt collection agency" as a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another. The court concluded the debt purchaser was not required to be licensed.

The court noted that while recent case law applied the licensing requirement to a debt purchaser that dealt directly with the consumer public, here the debt purchaser had no contact with the consumer public. Moreover, a DCA interpretive letter clarified while a debt purchaser is required to be licensed, a debt purchaser that does not engage in collection activities itself does not need a license. The court also found requiring the debt purchaser which had no direct contact with the public to be licensed would not serve the purposes of either the NYC licensing statute or the FDCPA, both of which are aimed at preventing debt collectors from abusing the consumer public.

Accordingly, the court concluded the debt purchaser in the instant case was not required to hold a New York City debt collection agency license.
This summary was provided by ACA International's Legal and Government Affairs Department.

National Credit Card Debt Increases in Fourth Quarter Consumer Trends
Published: May 2, 2008
Credit card debt increases in fourth quarter of 2007.

The national average for credit card debt per bankcard rose 4.81 percent from the previous quarter to $1,694, TransUnion reported April 1, 2008, in its analysis of trends in the credit card lending industry during the fourth quarter of 2007. The largest state average was in Alaska at $2,342, followed by Tennessee at $2,046 and Alabama at $1,996. The lowest average credit card debt was in Iowa at $1,272.

The steepest increases in average credit card debt over the previous quarter occurred in Florida (6.84 percent), Nevada (5.98 percent) and California (5.95 percent). Alaska actually experienced a drop in its average credit card debt (-2.01 percent), while Nebraska and District of Columbia's debt edged up slightly by 0.32 percent and 1.68 percent, respectively.

Credit card loan delinquency (the percentage of bankcard users 90 or more days past due) hit a national average of 1.36 percent in the fourth quarter, up 32.04 percent over the previous period. It was highest in Nevada at 1.95 percent, followed closely by Mississippi at 1.89 percent. The lowest level of bankcard user delinquency rates were found in Utah (0.87 percent), North Dakota (0.92 percent) and Montana (0.92 percent).

At the consumer level, credit card debt and delinquency are correlated to the local cost of living and regional economic effects, particularly the continuing mortgage crisis. States with a higher concentration of consumers whose hybrid adjustable rate mortgages (ARM) are resetting to higher APRs, and as a result require greater monthly payments, also include consumers who are relying more heavily on credit cards to finance daily purchases. As total debt service increases, many consumers who were previously at the limits of their liquidity are pushed into delinquency and default. The District of Columbia experienced the greatest quarter-to-quarter delinquency growth (48.9 percent), while Alaska's delinquency rate grew the least (8.1 percent) from the previous period.

The national 90-day bankcard user delinquency rate is expected to continue to rise throughout 2008 from a value of 1.36 percent in 2007 (quarter four) to 1.9 percent by year end. This is primarily due to anticipated deterioration in economic conditions throughout the country combined with consequences of the mortgage crises. Nevada (1.93 percent) is anticipated to be the state that will experience the highest average delinquency rate in 2008, while Utah is forecasted to show the lowest level of delinquency among bankcard users.

Healthcare Costs Burden Even the Insured
Published: May 1, 2008
A recent survey of nearly 26,500 people—most of whom are insured, employed and educated—revealed one in three families skipped medical care because of cost and one in four experienced serious problems paying for the care they needed.

The survey was conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) and resulted in the largest opinion pool available on healthcare.

The survey results also revealed:

• More than half of insured respondents said their insurance does not cover the care they need at an affordable price.
• One-third of college graduates said they or their family skipped medical care because of cost.
• 46 percent of respondents spent $1,000 to $5,000 out of pocket on healthcare in the last year. Seventeen percent spent more than $5,000.
• 53 percent of Medicare recipients said their prescriptions are not covered or unaffordable.
• 83 percent of respondents said their families “have just enough to get by” or are “falling behind.”
• 48 percent of respondents said they or a family member stayed in a job just to hold on to healthcare benefits.
• 95 percent of families said they are “somewhat” or “very concerned” about being able to afford health insurance in the future.

AFL-CIO and its community affiliate, Working America, launched the survey from Jan. 14, 2008, to March 3, 2008. At least 7,500 respondents shared personal stories about their experience with America's healthcare system. The survey, promoted online by more than 35 organizations, was open to anyone.

This article is provided as a service of ACA International's Healthcare Services Program