Opinion ID: 563740
Heading Depth: 3
Heading Rank: 1

Heading: Duty to Follow Reasonable Procedures

Text: 12 In order to make out a prima facie violation of section 607(b), the Act implicitly requires that a consumer must present evidence tending to show that a credit reporting agency prepared a report containing inaccurate information. 5 If he fails to satisfy this initial burden, the consumer, as a matter of law, has not established a violation of section 607(b), and a court need not inquire further as to the reasonableness of the procedures adopted by the credit reporting agency. 6 The Act, however, does not make reporting agencies strictly liable for all inaccuracies. 7 The agency can escape liability if it establishes that an inaccurate report was generated by following reasonable procedures, 8 which will be a jury question in the overwhelming majority of cases. Thus, prior to sending a section 607(b) claim to the jury, a credit reporting agency can usually prevail only if a court finds, as a matter of law, that a credit report was accurate. 13 Although courts have assumed that the so-called accuracy defense 9 is a question fit for disposition on motion for summary judgment, they have widely diverged in their interpretations of what constitutes an accurate credit report. Accuracy is quite clearly not a self-defining concept, and FCRA's fragmentary legislative history provides little, if any, guidance as to how Congress intended this standard to be applied. 10 As a result, two differing judicial perspectives on section 607(b) have developed. Under the approach implicitly adopted by the district court in this case, a plaintiff has failed to carry his initial burden if a court finds that the information contained in a challenged credit report was accurate on its face, or, put somewhat differently, technically accurate. That is, a credit reporting agency satisfies its duty under section 607(b) if it produces a report that contains factually correct information about a consumer that might nonetheless be misleading or incomplete in some respect. 11 14 For example, in Todd v. Associated Credit Bureau Servs., Inc., 12 a department store charged off the balance on plaintiff's account to profit and loss and assigned the account to a collection agency. Although the plaintiff eventually paid off the balance of the account to the collection agency, the plaintiff's credit report only showed the high balance of the account; that the store had charged off the balance as a bad debt; and that this sum had been referred to a collection agency. The fact that the debt was later paid in full was never reflected in the credit report. 13 On a motion for summary judgment, the Todd court held, however, that the credit reporting agency had not breached its duty under section 607(b) because the information that was actually reported was unquestionably accurate. 14 15 In contrast, the District of Columbia Circuit has rejected the technical accuracy position and adopted a more stringent definition of the meaning of accurate information under section 607(b). Under that circuit's view, a credit reporting agency is unable to prevail on summary judgment if the plaintiff establishes that the agency reported factually correct information that could also be interpreted as being misleading or incomplete. 15 Thus, unless a credit reporting agency can show that it has generated a credit report containing information of maximum possible accuracy, it will be unable to prevail on a motion for summary judgment. In Koropoulos, for example, the plaintiff defaulted on an installment loan, which the bank later charged off its books as a bad debt and referred to a credit agency. The plaintiff subsequently paid off the full amount of the debt to the collection agency, which retained 40% of this sum as a collection fee. After the debt was paid, the credit reporting agency reported the status of this account as being a bad debt with a zero balance. 16 In rejecting the technical accuracy approach on these facts, which are strikingly similar to those presented in Todd, the D.C. Circuit held that there was a factual question as to whether the credit reporting agency's treatment of this debt was so misleading as to be inaccurate within the meaning of section 607(b). 17 16 The instant case, however, presents a much narrower issue that does not require us to ratify either of these two approaches as the law of the circuit. In both Todd and Koropoulos, the plaintiff-consumers contended that the credit reporting agencies failed to report or report clearly that they had at some later time fully satisfied their previously charged off accounts. Thus, in their view, the credit reports were inaccurate because they failed to report additional or explanatory information that would have corrected any misimpressions created by the credit reporting agencies' abbreviated remarks on their credit reports. In this case, on the other hand, Cahlin essentially contends that CBI should have ceased reporting any derogatory credit information about his GMAC account after the settlement in May, 1986. By carrying this account in some negative light until November, 1987, he alleges that CBI reported information that was inaccurate within the meaning of section 607(b). 17 Although a credit reporting agency has a duty to make a reasonable effort to report accurate information on a consumer's credit history, it has no duty to report only that information which is favorable or beneficial to the consumer. Congress enacted FCRA with the goals of ensuring that such agencies imposed procedures that were not only fair and equitable to the consumer, but that also met the needs of commerce for accurate credit reporting. 18 Indeed, the very economic purpose for credit reporting companies would be significantly vitiated if they shaded every credit history in their files in the best possible light for the consumer. Thus, the standard of accuracy embodied in section 607(b) is an objective measure that should be interpreted in an evenhanded manner toward the interests of both consumers and potential creditors in fair and accurate credit reporting. 18 As noted above, a consumer may be able to recover for a violation of section 607(b) if he proves that a credit reporting agency published an inaccurate description of the consumer's relationship with a previous creditor. The issue presented here is whether a credit report containing derogatory information about an account which was charged off by a creditor for accounting purposes and which was later settled by the consumer for an amount less than the full balance due is accurate. In determining whether a credit reporting agency's treatment of an account was accurate, we are first guided by the intent of the creditor who transmitted the information about a particular account. Because GMAC was once a party to this dispute, there is significant, uncontroverted evidence in the record which sheds light on GMAC's attitude toward Cahlin's account. The district court found that the undisputed facts show that GMAC charged off Cahlin's account as a bad debt in November, 1985 and that when this debt was later settled for $2,000, GMAC intended the account to be reported as a paid charge off or the equivalent. The record also shows that GMAC's various instructions in October 1986 and 1987 to CBI to remove any derogatory information about Cahlin's account were largely motivated by a desire to mollify Cahlin and avoid potential litigation, not to correct any reporting errors by CBI. Thus, from GMAC's perspective, Cahlin's account would have been most accurately reported if it had been carried as a charged off account that was later paid off. 19 This conclusion is buttressed by a comparison between the relative accuracy of how CBI reported the GMAC account and how Cahlin alleges this account should have been reported. As we noted above, Cahlin does not challenge CBI's treatment of derogatory credit information as merely being ambiguous, incomplete, or misleading, but contends that Cahlin never should have received an adverse credit report from GMAC to begin with. In interpreting the meaning of accuracy within section 607(b), we cannot conclude that a debt which has been charged off by the creditor and is later settled for an amount less than the original balance due should be reported without any derogatory references on a credit report. This information, which reflects the efforts required to collect a debt, is clearly of interest to potential creditors and would be effectively hidden by a credit report that treated the account as being in good standing. 20 Because Cahlin's position that CBI should have never reported any derogatory information about his GMAC account is not borne out by the record, we need not consider whether the changes in CBI's reporting of this account resulting from GMAC's letters of June 16, 1986 or October 9, 1986 were inaccurate. The fact that CBI eventually acceded in November, 1987 to Cahlin's position on GMAC's instructions by completely rehabilitating his credit report does not make its earlier treatment of his account actionable under section 607(b). The deposition testimony of GMAC clearly establishes that Cahlin's account, even if reported today, might be reported as an I9 with a zero balance. We would therefore subvert the policies animating FCRA were we to hold that a credit reporting agency can be held liable for not reporting information that is conceded to be inaccurate by the creditor. Such a result would neither improve the utility of credit reports nor make the current credit reporting system more equitable to consumers. 19 21 Yet, even when the reporting of Cahlin's account is examined in detail, we find that CBI never reported any inaccurate information. Beginning in December, 1985 as a result of the termination of the lease agreement, CBI began reporting the GMAC account as a bad debt with an outstanding balance of $3,843.44. As we noted above, it is uncontroverted that this notation accurately reflected the status of the account at this time. After the terms of the settlement were satisfied, GMAC informed CBI in June, 1986 that the balance on the account had been liquidated, and, as a result, CBI changed the reporting of Cahlin's account to a bad debt with a zero balance. The deposition testimony of GMAC's representatives indicates without contradiction that this characterization of the account was accurate after May, 1986, and, indeed, is how this account might be reported today. Thus, any claim that CBI was reporting inaccurate information prior to June, 1986 is utterly without merit. 22 Due to Cahlin's complaints, however, GMAC further informed CBI by letter on October 9, 1986, the totality of which stated, to [p]lease change the rating on the above customer's account from I-9 to I-1. In response, CBI changed the current status of Cahlin's GMAC account to an I1 rating, which is a favorable rating, but moved the I9 rating to the section of the report detailing past credit history. Relying on deposition testimony from a GMAC employee, Cahlin contends that it was against GMAC's intent to have any reference to an I9 rating on his credit report after the October 9, 1986 letter and therefore all of CBI's reports from the date of this letter to November, 1987 were inaccurate. 20 We disagree. Viewed in the light most favorable to Cahlin, the facts show that GMAC in June, 1986 believed that the Cahlin account was accurately reported as being a bad debt with a zero balance, but agreed in October, 1986 to inform CBI to change the reporting of the account under the threat of litigation. This change of heart, however, does not erase the historical fact that until at least June, 1986, GMAC was reporting to CBI that the Cahlin account was a bad debt. 21 It was this information that was conveyed by CBI's report when it moved the I9 rating to the previous history section of Cahlin's account. Thus, the notation was an accurate reflection of how GMAC had been reporting this account to CBI in the past. Nothing contained in GMAC's terse letter of October 9 instructs CBI to eradicate GMAC's own past characterizations of the account from future credit reports. As we noted above, the fact that CBI eventually abided by GMAC's instructions to wipe completely clean Cahlin's report in November, 1987 does not mean that its reporting of this account after October 9, 1986 was inaccurate. Those reports accurately reflected GMAC's current characterization of the account and how it had been previously reported and therefore are not actionable under FCRA.