Add. Case: Ori v. Fifth Third Bank (E.D. Wisc., 2009)–Ori sued Fifth Third Bank and Fiserv
for violations of the FCRA. Fifth hired Fiserv to process information about mortgages. Through
Fiserv, Fifth provided information to consumer reporting agencies, which would make both
Fiserv and Fifth liable for any violations of the FCRA. Based on their information, CRAs
incorrectly reported that Ori was delinquent in mortgage payments. That damaged his credit
rating. He claimed he notified the CRAs about the incorrect information, and that the
information was provided to Fifth and Fiserv, but they did not investigate or correct the alleged
error, which would be a violation of the FCRA. Ori sued for negligence and libel. Defendants
moved for the claims to be dismissed.
Decision: Motion denied. The consumer’s allegations that he informed the CRAs about disputed
information in their reports required Fifth and Fiserv to investigate the issue. Failure to do so
Add. Case: Levine v. World Financial Network National Bank (11th Cir., 2006)–Levine had
a store credit card with Structure, a clothing company. The account was operated through World
Financial National Network Bank (World). Levine paid the account in full and closed it. That
fact was shown on his Experian credit report. Four years later, Experian sold Levine’s credit
report to Structure which told Experian it wanted the report for “account review” purposes.
Levine filed a complaint in federal court against Experian, Structure, and World, contending
violations of the Fair Credit Reporting Act (FCRA) for the request and sale of a credit report for
an impermissible purpose. The trial court dismissed the suit. Levine appealed.
Decision: Reversed and remanded. Levine has stated a claim for a violation of the FCRA, so the
suit should not have been dismissed. A consumer reporting agency can violate the FCRA by
complying with a former creditor’s facially valid request for a credit report, if it has reasonable
Add. Case: Phillips v. Grendahl (8th Cir., 2002)–Sarah G. moved in with Phillips and was
planning to marry him. Mary Grendahl, Sarah’s mother, believed Phillips was lying about his
background, so she hired a private investigator to check him out. Using consumer reports, he
determined that Phillips had been convicted for writing bad checks, sued for paternity in one
state, and was delinquent in child support in another state. When Phillips learned the truth
about his background had been revealed, he sued Mary, the detective agency, and
consumer-reporting agency for violating the FCRA. The court dismissed the suit. Phillips
appealed.
Decision: Reversed. The consumer report falls under the FCRA. There is evidence that it may
have been obtained for use that is not permitted under the law, which restricts use to legitimate
Consumer Rights—Under the Act, consumers have the right to see negative information
contained in their credit reports. This allows consumers to correct false or inaccurate
information, so appropriate changes may be made in the report. The FTC handles large numbers
of complaints about consumer problems with credit bureaus. Most credit bureaus allow
consumers to have a copy of their own report. (Note that many employers buy consumer reports
on prospective employees, so consumer reporting agencies play an ever-important information
role.)
Shredding Documents—The FTC’s Disposal Rule applies to all generators and users of
consumer reports. Information from such reports must be destroyed properly after use, whether
paper or electronic. Proper document inventory and destruction is good business practice in
general.
Enforcement and Penalties—The FTC enforces the FCRA. Consumers may sue for punitive
damages if a credit bureau is in willful noncompliance with the Act. For example, TRW paid
$290,000 in damages (mostly punitive) for willfully ignoring a consumer’s efforts to correct
credit report errors.
Add. Case: Cassara v. DAC Services (10th Cir., 2002)–Cassara worked for trucking
companies. When he left them, they reported to DAC Services, a consumer reporting agency,
about his record. DAC provided this information to companies inquiring about Cassara. It is
standard practice for trucking companies to gather information about prospective employees
because they are required by the Dept. of Transportation to investigate driving records and
employment history of drivers of large trucks. Accidents must be reported, but the focus is on
injury-causing accidents. Cassara was involved in eight damage incidents, but none involved
injuries. He sued DAC for listing the incidents as accidents. Cassara contended that the Fair
Credit Reporting Act (FCRA) was violated because DAC did not have adequate procedures to
ensure accuracy of the kinds of accidents reported. The court dismissed the suit; Cassara
appealed.
Decision: Affirmed in part; reversed in part. The FCRA requires consumer reporting agencies to
follow reasonable procedures to ensure accuracy of information about individuals. To sue for a
violation, a plaintiff must show: 1) the agency failed to follow reasonable procedures to assure
Add. Case: Guimond v. Trans Union (9th Cir., 1995)–Guimond’s credit report at Trans Union
was filled with errors. She attempted to correct the errors, and was told they had been corrected,
but they were not. Guimond was not denied credit as a result of the bad information. She sued,
claiming violation of the FCRA. She claimed damages for 1) the fees collected by Trans Union
for disclosure of information, 2) opportunities she lost for being deterred from applying for
credit while her report was wrong, and 3) emotional distress from worrying about her wrong
report. Court granted Trans Union summary judgment and attorney fees of $7,700. Guimond
appealed.
Decision: Reversed. No attorney fees could be awarded to Trans Union, even if it prevails; the
statutes do not provide for that. Guimond had a cause of action; one does not have to wait to be
rejected for credit to have a cause of action for violation of the statutes. fiThe FCRA provides for
Add. Case: Hodge v. Texaco (5th Cir., 1992)–While Hodge was working for Texaco he had to
give a urine sample for a random drug test. He failed the test and was fired. He sued the two
drug testing companies, claiming they were ficonsumer reporting agencies” that violated the
FCRA by failing to use reasonable procedures to guarantee maximum possible accuracy in their
consumer reports. He sued Texaco for violating FCRA by failing to disclose to him the name and
addresses of the drug testing labs when he was fired. Case was dismissed; Hodge appealed.
Decision: Affirmed. The drug testing companies do fall within the language of the statute since a
ficonsumer report” is defined as fiany written, oral, or other communication of any information
by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing,
credit capacity, character, general reputation, personal characteristics, or mode of living which
Fair and Accurate Credit Transactions Act—An amendment to the Fair Credit Reporting
(FACT) Act passed in 2003. It requires the credit reporting services to let consumers see their
reports annually for free. To help combat identity theft, how information is listed is restricted in
transactions, such as only the last four digits appearing on receipts. The Disposal Rule required
credit related information to be destroyed in an effective manner to protect information.
Red Flag Rule—FTC wrote this rule as required by FACT Act, but due to strong opposition, it
was delayed until 2011. All creditors—which means any business collecting payments—are
subject to it. Their systems must have fired flags” that help catch information theft: alerts from
consumer reporting agencies; suspicious documents about credit accounts; odd information such
as an address that seems out of place; unusual rate of activity; and notices from consumers or
authorities about information theft.
Issue Spotter: Dealing with Customer Records
Trash disposal is a major problem. Banks and company offices handling financial receipts have
been caught dumping old copies in the trash. If a company generates much trash with consumer
data on it, a bonded shredding company can be hired to take possession and destroy the material.
That shows good faith on the part of the company. Employees can get lazy and pitch the paper
instead of shredding it in a machine at the office. Going paperless helps; electronic records are
easier to secure, assuming you secure the computer system and keep up to date on controls. The
most common identity theft is someone known to the victim. There is not much a company can
do to prevent that sort of theft, since the information comes from the home of the victim.
Equal Credit Opportunity Act—The ECOA also amends the CCPA; it prohibits credit
discrimination the basis of race, gender, color, religion, national origin, marital status, receipt of
public benefits, or age (these are known as prohibited bases). Under the ECOA, a creditor must
notify consumers of its credit decisions within thirty days. Credit denials must include specific
reasons for the denial. Regulation B implements the ECOA.
Unlawful Credit Discrimination— The Act makes credit discrimination on a prohibited basis
illegal. Regulation B spells out some of the circumstances under which the Act applies.
Examples include the following: creditors may not use information about the likelihood a woman
will become pregnant when making credit determinations; creditors may use indirect credit
histories when making credit determinations; and creditors may ask questions about an
applicant’s spouse or former spouse only under certain conditions. Creditors may be sued for
violations of the ECOA in the amount of actual damages plus attorney’s fees, court costs and
punitive damages up to $10,000 if appropriate.
Add. Case: Rosa v. Park West Bank & Trust (1st Cir., 2000)–Lucas Rosa, a male, went to a
bank to apply for a loan. He was dressed in women’s clothing. A bank employee requested to see
his identification, which he produced, showing him dressed as a man. The employee said she
would not provide him a loan application unless he went home and changed into male attire, so
he would look like his ID cards. He sued the bank for violation of the ECOA for firequiring him
to conform to sex stereotypes.” Supported by the Gay & Lesbian Advocates, he also sued for
emotional distress, depression, humiliation, and extreme embarrassment. The court dismissed
the suit, holding that the ECOA does not prohibit discrimination based on clothing. Rosa
appealed.
Decision: Reversed and remanded. To prevail under ECOA, Rosa must show that he suffered
discrimination on the basis of sex. While the ECOA does not state that this includes cross-
dressing, the issue here does involve sex. It is possible that fithe Bank may treat, for credit
ECOA Notification Requirements—Creditors that deny credit, or provide it on less advantageous
terms, must provide consumers with written information that explains the ECOA, why the
creditor took the action it did, and where the consumer will find a federal agency that regulates
compliance with the Act. These notice requirements make it easier for consumers to report cases
of suspected discrimination.
Add. Case: Silverman v. Eastrich Multiple Investor Fund (3rd Cir., 1995)–The Hunt’s Pier
partnership borrowed $10 million from Atlantic Financial Federal. Atlantic required all Hunt’s
Pier partners to guaranty repayment individually, jointly, and severally. Janice Silverman was
the wife of one of the partners who signed the loan papers in 1986. In 1991, Hunt’s was in
default. The loan was now owned by Eastrich, which sued, in 1994, to collect from all who
signed the loan guaranty. In 1994, Silverman filed suit against Eastrich (and Atlantic), claiming
ECOA violation by requiring her signature on the guaranty simply because she was married to a
partner. She also sued for relief from payment to Eastrich to bail out Hunt’s Pier. District court
dismissed; she appealed.
Decision: Reversed. Despite the passage of time from when the guaranty was signed, the time in
which Silverman had to file did not begin until 1994, when the collection effort was made. The
guaranty she signed did not have the required ECOA notice, and so violated the law. If
Silverman can show at trial that the only reason she was required to sign the note was because
Fair Debt Collection Practices Act—The FDCPA is supposed to eliminate unfair, deceptive,
and abusive debt collection techniques used by some debt collection agencies. Such agencies
usually collect debt on commission for a creditor or have bought the debt from a creditor. The
Act permits the reasonable collection of debts. It does not apply to debts collected directly by the
original creditor.
Restrictions Imposed—The FDCPA regulates over 5,000 independent debt collection agencies.
In the 1995 case, Heintz v. Jenkins, the Supreme Court held that the FDCPA applies to lawyers
regularly engaged in consumer debt-collection litigation on behalf of creditor clients. Hence, if
the attorney sends a letter (or allows his or her letterhead to be used for letters sent by the
creditor) that violates the FDCPA, the attorney is personally liable for the violation. The Act
prohibits agencies from employing certain harassing and deceptive tactics in their collection of
consumer debt and requires collectors to send consumers certain information within five days of
an initial contact.
Add. Case: Gammon v. GC Services (7th Cir., 1994)–GC, a debt collection agency, tried to
collect a debt Gammon owed to American Express. The letter indicated the company worked for
the federal and state governments to collect delinquent taxes, and that it knew how to make
people pay regardless of excuse. Gammon sued, claiming violation of FDCPA, which makes it
illegal for a debt collector to claim affiliation with governments. District court dismissed,
claiming no reasonable person would think the company was linked to the government. Gammon
appealed.
Decision: Reversed. Gammon had a cause of action against GC; an unsophisticated consumer
Note: This statute only applies to debt collection agencies, not to any other creditors. Why would
Congress not have the law apply equally to all creditors instead of just debt collection agencies?
Would Sears and other creditors would be likely to engage in abusive debt collection practices?
Add. Case: Boyd v. Wexler (7th Cir., 2002)–Plaintiffs received letters from the Wexler law firm
demanding payment for money allegedly owed to Wexler’s client. The plaintiffs sued, contending
Wexler violated the Fair Debt Collection Practices Act, which prohibits a debt collector to fiuse
any false, deceptive, or misleading representation or implication that any individual is an
attorney or that any communication is from an attorney.” A lawyer who rents his letterhead to a
collection agency is in violation of the Act since the attorney did not review the letter sent in the
name of the attorney. Wexler contended that he in fact reviewed all letters; the trial court
granted him summary judgment. Plaintiffs appealed.
Decision: Reversed. fiA debtor who receives a dunning letter signed by a lawyer will think that a
lawyer reviewed the claim and determined that it had at least colorable merit,” so the debtor
will be deceived in violation of the Act. An average of 52,000 letters were sent to debtors each
month on the Wexler letterhead. That would mean that each letter would get Wexler’s attention
Add. Info: Least sophisticated consumer: The Gammon court used the fiunsophisticated
consumer” standard to determine if there had been a violation of the FDCPA. Other courts use
the fileast sophisticated consumer” standard. The 2nd Circuit uses that standard (see Russell v.
Equifax, 74 F.3d 30 (1996)), which, as the Gammon court noted, must mean a person of very low
intelligence; it is, therefore, a very tough standard not to violate.
Issue Spotter: How Should You Handle Unpaid Accounts?
If you collect on the debts directly, the Fair Debt Collection Practices Act does not apply because
you are not considered a debt collector. Hence, ethical or not, you can you stronger tactics, which
generally means a higher collection rate. If you sell the debt to a debt collector, they become the
owner of the debt and must comply with the FDCPA, but that is their problem. You get paid a
certain percentage of the debt according to how highly the debt collector rates the debt based on
experience in the industry. If you assign the debt to a collector, you pay a fee and they are under
the FDCPA. One downside, managerially, is that running a debt collection effort requires
personnel and your store is probably not good at doing it. Debt collectors know the tricks and
what approach is most likely to succeed–which is why most debt is turned over to them after a
couple months of fruitless efforts.
What Must Be Communicated—Debt collectors must tell consumers the amount of debt they
owe, to whom they owe it, and that they have thirty days to dispute the claim. The form of
communication is precise.
CASE: Chuway v. National Action Financial Serv. 7th Cir., 2004)—National Action, a debt
collector, sent Chuway a letter telling her she owed a fibalance” of $367.52 on a debt. She sued,
claiming violation of FDCPA because the communication was not proper. Court held it was
because it stated the amount of the debt. Chuway appealed.
Decision: Reversed. The letter was in violation. It gave the fibalance” but also said to call for
information about fiyour most current balance.” So there was confusion. Judge Posner than
Questions: 1. How could Chuway afford to sue National Action over such a small sum of
money?
Remember that the statute provides that the winner gets attorney fees paid. So some attorneys
2. Why did National Action not use the language the court cited as providing a safe-harbor
because the words meet the specific requirements of the FDCPA?
Dumb. No excuse. Stick to required language and many problems are avoided.
Enforcement—The FDCPA is primarily self-enforcing. Unhappy consumers typically bring suit
Add. Case: Wagner v. Ocwen Federal Bank (N.D. Ill., 2000)–Wagner filed bankruptcy and
received a discharge of debts in 1997. Among the debts was a note secured by a mortgage of real
property. The note and mortgage were assigned to Ocwen, which is in the business of buying and
collecting defaulted debts. Ocwen attempted to collect the discharged debt from Wagner. She
sued, claiming violation of the FDCPA for attempting to collect money from her that she did not
owe. Ocwen moved for dismissal, contending her only remedy would be under the Bankruptcy
Code.
Decision: Motion denied. Since Wagner’s debts had been discharged, she was not a debtor to
Ocwen, who attempted to collect money from her. Both laws can be violated. Ocwen could be in
contempt of the Bankruptcy Code and in violation of the FDCPA. fiWagner’s FDCPA claim, at its
Electronic Funds Transfer Act—This Act was passed in 1979 and provides protection for
consumers who use automated teller machines, pay-by-phone systems, direct deposit/direct
deduction services, and point-of-transfer sales. Regulation E, written by the Federal Reserve
Board, implements this Act.
Liability for Stolen Cards—If a consumer loses a fund-transfer card and an unauthorized person
drains the account, the consumer must act quickly to avoid liability for these losses. If consumers
report lost cards within two days, they will be liable for only $50 of unauthorized charges to their
account. Thereafter, consumers are liable for a maximum of $500 of unauthorized charges. If a
consumer fails to report a lost or stolen card in sixty days, the consumer is liable for all
unauthorized charges.
Liability for Mistakes—Banks are liable to consumers if they fail to make electronic fund
transfers as requested. Consumers receive monthly account reports for financial institutions to
help them keep track of their account. Consumers must report errors in accounts within sixty
days. Financial institutions have a duty to investigate these discrepancies promptly. If an
institution fails to make a good faith effort to investigate an error, it could be liable for three
times the consumer’s actual damages.
The Consumer Financial Protection Bureau—The Dodd-Frank Act of 2010 established the
CFPB within the Federal Reserve. The Bureau has broad rulemaking authority over financial
institutions. It draws employees and expertise from the STF, FDIC, Comptroller, and other
agencies and will take two years to become structured and functional. Its focus is to be financial
scams aimed at ordinary consumers. It is also to standardize and simplify terminology in
consumer finance documents and crack down on some practices by non-bank lenders, such as
payday lenders.
Discussion Question
In most instances consumers are unaware of the existence of various regulations that apply to
most unfair and deceptive business practices. But many consumers seem to think that the
government magically prevents any deceptive practices from occurring and seem shocked when
they do happen. This may be in part because consumers hear various law enforcement officials
claim they are preventing bad characters from doing much. But consumers are suckered into
many fitoo good to be true” deals by slick (and not-so-slick) con artists. It may be that some
people are gullible or it may be that they are gambling or hoping that the great deal for very little
really is true.
Case Questions
1. The Supreme Court reversed the decision, holding that there is no express or implied
exception under the Act for drugs used by the terminally ill. The Act prohibits interstate
distribution of any finew drug” unless the Secretary of Health, Education and Welfare approves
an application supported by substantial evidence of the drug’s safety and effectiveness. The
2. (answer on Internet for students) The Colorado supreme court remanded for new trial. It held
that the first trial finding that the drug caused the plaintiff’s injuries was sufficiently supported
by the evidence. It is up to the jury to determine the facts, the credibility of the witnesses, and
weigh the evidence. Their finding in that regard is not upset. The court cited the California
supreme court which held that the jury may find fia product is defective in design if 1) the
3. FDA wins. Any dietary supplement that poses an fiunreasonable risk of illness or injury” is
subject to FDA control and may be banned from the market. FDA had scientific evidence of the
4. (answer on Internet for students) Yes, deceptive. fiNo reasonable fact finder could conclude
that the solicitation was not likely to deceive consumers acting reasonably under the
5. Yes, the statute applies to such a claim, so the suit may proceed. The law prohibits suppliers
of services from engaging in deceptive acts and practices. That would include medical services
6. (answer on Internet for students) Dismissal vacated; remanded for further proceedings. To
recover on a false advertising claim under the Lanham Act, the plaintiff must show: 1) that the
defendant made false or misleading descriptions of fact or representation of fact in commercial
7. Reversed. An acquirer of debt that continues to service it is acting much like the original
creditor that created the debt, so that the FDCPA does not apply. On the other hand, if it simply
8. Regulation Z of the Federal Reserve Board does not include this specific kind of charge in its
definition of fifinance charge.” Since the matter is not settled, the court must look to the intent of
Congress in the Act. fiThe fee imposed in this case falls squarely within the statutory definition
9. Yes, he has a case. The consumer report falls under the FCRA. There is evidence that it may
have been obtained for use that is not permitted under the law, which restricts use to legitimate
report.
Ethics Question
If the producers of the product have reason to believe that there may be long-run consumer
health problems caused by the product in question, then it would be unethical to oppose efforts
to, at a minimum, test the product to determine the potential scope of the problem. If there is a
Internet Assignment
Federal Trade Commission, Consumer Information: www.ftc.gov/bcp/consumer.shtm
Better Business Bureau: www.bbb.org/
The Internet can be used as a self-help tool to avoid problematic products and services. You can
check the Better Business Bureau in your area.
You can search for product specifications on a company’s website. You can check the Internet for
“gripe sites” related to the product you are considering purchasing. If purchasing items online,
you may be able to access reviews of the products posted by other customers. Information about
product recalls can also be found using the Internet.