I have put my sickle into other mens corne, and have laid my building upon other mens foundations.
John Speed, sixteenth century mapmaker, from The Theatre of the Empire of Great Britaine
BRIDGING A GAP
Financial institutions have few friends. However, despite their poor image, they provide a range
of services without which it is difficult to envisage how a modern economy could operate. It
is also true that banks attract some of the brightest and most highly qualified people of any
industry. Money is one factor, banks pay well for top talent, but many are also attracted by
the intellectual challenges of the business. Banks are difficult to analyze but they also provide
fascinating and challenging problems to solve.
No single person could now write the definitive text on financial systems because the scope
of the subject matter is too broad, the level of detail too deep and it is in a state of constant flux.
One can, for example, go to any large bookshop and buy a 600+ page ‘introductory text’ to value
at risk, techniques used in controlling trading risk. Books that focus on a particular, narrowly
defined subject tend to be very detailed and are usually written for specialist practitioners or
finance academics.
Books that aim to give a general introduction to banking, securities and financial markets
are often rather superficial and most suited to a high-school audience. They tend to be full of
rather boring tables showing such interesting things as international bank rankings by assets
and charts illustrating the growth in the nominal value of interest rate swap agreements. This
book represents an attempt to bridge the gap between the more superficial introductions and
the specialist tomes. In writing this book I have tried to follow these guiding principles:

Scope and detail. That all important functions and subjects related to the financial services
industry be covered. That the key principles related to each subject are clearly identified and
that the level of detail is sufficient for the reader to understand their nature, rationale and
shortcomings.

Brevity. That explanations and subjects are covered in a clear and concise manner. Many
specialist finance texts weigh in at an impressive 1000+ pages. The longer a book on
principles is, the less likely it is to be concerned with principles. Einstein’s original paper on
special relativity was a mere 80 pages long. Less is more.

Universality. That the coverage is of universal applicability rather than country specific, and
will date only slowly. This is achieved by focusing on principles and the underlying economic
reality of transactions. Where there are important differences in practices between countries
these are identified.

Motives. That the motives of people and organizations are clearly identified and conflicts of
interest highlighted. Power, greed, fear and corruption all play their parts in financial dealings.
ix
Foreword
TARGET READERSHIP
In a very real sense, this is the book that I wish I had had when, fresh out of business school, I
started out as a bank analyst. An important objective is to demystify a vital industry that many
find to be baffling and impenetrable. People who will benefit most from reading this book include
the following:

Business school students and other graduates. MBA and finance students will find that
while the main courses are based on fundamental principles, they come with a pinch of
worldly cynicism. The book also highlights issues such as the failure of financial statements
to provide a true view of banks’ condition and the arbitrary nature of regulatory capital
requirements. Several important areas, such as credit risk management and banking crises,
are also covered that are rarely addressed in general financialworks. Anyone who is seriously
considering a career in financial services should find that reading this book helps them in
making their decision.

Finance professionals. Many front-office finance professionals are specialists working in a
narrowly defined field. This book will help them to gain a wider perspective on other parts of
the industry with which they are less familiar. Many other professionals work in back-office,
systems and other support functions. In some cases they have only a limited understanding
of the businesses they are supporting and frequently feel too intimidated to admit their
ignorance. This book will help them to gain a better understanding of the businesses they
support and improve their communications with other people working in the industry.

Analysts and portfolio managers. Financial analysts and portfolio managers are likely to
find the chapters on bank valuation approaches of particular interest. Portfolio managers
apply diversification techniques in the context of fund management but they will gain a new
perspective from seeing how these techniques are also applied in trading, credit risk and in
turn drive bank capital management and requirements.

Consultants, accountants, auditors and legal practitioners. Many external professionals
provide a wide range of services to financial institutions. This book will help them to
understand better their clients’ requirements. It will also help to break down the barriers to
communication created by industry jargon.

Financial journalists. Most financial journalists are journalists first and finance specialists
second. This book will give them a solid grounding in theory and practices as they relate
to the financial services industry and help them to understand and interpret bank results,
new developments and regulatory changes better. As Warren Buffett put it “The smarter the
journalists are, the better off society is. People read the press to inform themselves, and the
better the teacher, the better the student body.”

Corporate management. “If you know the enemy and know yourself, you need not fear the
result of a hundred battles. If you know yourself but not the enemy, for every victory gained
you will suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every
battle” (from Sun Tzu’s The Art of War ). Corporate treasuries face many of the same risk
management issues as banks.
I have assumed a basic understanding of accounting and level of numeracy. Some parts of this
work are rather technical but I have tried to keep the level of mathematics in the body of the
text itself relatively low and provided more formal derivations and proofs in stand-alone exhibits
and primers.
x
Prologue
The love of money is the root of all evil.
The Bible, Timothy, Chapter 12
LANGUAGE, GENERAL RELATIVITY, TECHNOLOGY AND LIBERALIZATION
Language
It is not uncommon to meet professionals in financial services who have only a vague idea about
what their colleagues actually do, even though they work on the same floor. The root cause is
specialization and the subsequent development of languages, or patois, that makes communication
between common specialists faster and more precise but are virtually impenetrable to
everybody else.
Some of the terms in these languages can be quite evocative (butterfly spread, fallen angels,
chastity bonds, baked-in-the-cake, sinking funds, double witching day, bottom fishing, concert
party, dressing up, flip-flop notes, ever-greening, barefoot pilgrim) and sound quite fun. Other
terms (collateralized debt obligation, contingent immunization, continuous net settlement, noncumulative
preference stocks, death-backed bonds, disintermediation, correlation coefficients,
dynamic asset diversification, subordinated limited irredeemable preference shares) are quite
intimidating and sound as though they should have come from a German-speaking lawyer.
Most lay people have no idea what most of these terms mean but assume quite reasonably
that people who work in finance do. This is like assuming that all Europeans speak the same
language. The terms that we meet in day-to-day life are usually the ones we would rather not
have to think about such as bounced check, over credit limit, minimum payment, bank charges,
commission rates and, at ATMs, service suspended.
General Relativity
It is not necessary to understand Einstein’s theory of general relativity or be able to recall
Newton’s laws to know that if you drop a brick onto your foot it is going to hurt. We only have to
know enough about the effects of gravity to avoid dropping a brick on our toes in the first place.
One does not have to be able to derive the highly complex and very difficult Black–Scholes
model for valuing financial options to be able to understand how they can be used, what factors
determine their price and how changes in these factors will affect a traded option’s price.
Richard Feynman (a jazz-playing, womanizing, fun-loving physicist who won the Nobel prize)
believed that understanding what lies behind a natural phenomenon described by a set of
equations was more important than the ability to write them. He also argued that if one can’t
explain a phenomenon without having to resort to equations, one doesn’t really understand
what is going on. This is how it should be with financial theory.
xv
Prologue
Much of financial theory tries to formalize what we instinctively believe to be true. We know
that if we back a winning long-shot the payout will be far higher than if it had been the clear
favorite. Risk and reward are inextricably linked. Many of us are experts in liquidity management
and recognize credit and settlement risks when we see them.
Significant advances have been made in finance theory over the past 40 years, particularly
in the areas of asset portfolio management and option valuation techniques. People still joke
about weather forecasting but short-term forecasting is actually pretty good these days, made
possible by very powerful number-crunching computers. I doubt, however, that any progress has
been made in terms of predicting market behaviour reliably and profitably using mathematical
computer models. This lack of progress would be consistent with the fundamental premise that
security price movements are inherently random. An awful lot of people are paid a great deal
of money in the belief that this premise is false.
We also need to maintain a healthy level of skepticism about theories that rely on unrealistic
simplifying assumptions and those that cross the line between science and psychology. An attractive
theory may be supported by historic data but fail the acid test of successfully forecasting
future results.
Technology
Most of the academic papers on financial theory submitted to journals would lie gathering dust
in various libraries around the world if it had not been for the huge advances in information
technology and data processing that have been made over the past 30 years or so. In 1666
(the same year as the Great Fire of London) Isaac Newton was able to calculate the velocity
required for a rocket to escape earth’s gravity but it took nearly 300 years before the technology
was developed to allow this to be achieved.
Computer hardware, databases, software applications and huge increases in cheap bandwidth
and telecommunications capabilities have allowed financial institutions to apply these
advances in financial theory. Academic financial journals are now full of articles seeking
to support or disprove these theories by mining the rich vein of digital financial data now
available.
Few really understand that the world’s financial system has become entirely dependent on
technology. It became fashionable, after the event, to dismiss the warnings of possible Y2K
disasters as hysterical, self-serving hyperbole. If Captain Smith had reduced speed the Titanic
might have escaped from its appointment with destiny. On arrival in New York some would have
criticized him for being too cautious and for failing to meet the promised crossing time. Financial
institutions make huge investments in technology where a successful outcome is one where
nothing happens.
Liberalization
It is difficult to gain a historical perspective of the times through which we live. Each new
paradigm gains its supporters and has its 15 minutes of fame before being casually discarded.
In the 1980s there were scores of books extolling the Japanese way of doing things.
American politicians inflamed fears that the Japanese would end up owning most of the
USA. This hysteria reached a peak when Japanese investors bought the symbolic Rockefeller
Center in New York. By the early 1990s most of these books had been remaindered and
were being used for landfill. Many so-called new paradigms are simply the same old ideas
xvi
Prologue
packaged in a different form whose time has come again, and are used to sell consultancy
services.
Liberalization, in all of its forms, has passed into and out of favor many times. The last 25
years of the twentieth century are likely to be viewed by posterity as a period when it was in
ascendancy around the world (despite occasional set-backs). Most industries were affected
and financial services were no exception. A major inflexion point was the collapse in the early
1970s of the fixed exchange rate system between major industrialized economies established
at the end of the Second World War.
Commercial banking and financial brokerage were among the few industries where national
price controls, in the form of regulated deposit and lending rates and commission rates for
buying and selling stocks, still existed. The types of activities that financial institutions could
undertake were also highly restricted. Deposit-taking banks in many countries were prohibited
from stock exchange membership and from owning insurance companies or writing insurance
policies. Significant regulatory barriers had been erected in countries around the world to prevent
domestic financial systems falling into the hands of foreigners.
Banking cartels had become well entrenched in many countries. Banks and their regulators
enjoyed a cozy co-existence with incumbents enjoying considerable shelter from the harsh light
of competition. This was at the expense of their customers of course. Liberalization occurred for
a number of reasons. Financial institutions started to shift their international business to those
regimes with the most laissez-faire attitude and lowest taxes and costs. Facing a continuing
loss of jobs and revenues the more highly regulated centers were under relentless pressure to
act to “create a level playing field”. Boundaries between different types of businesses became
increasingly difficult to define. Companies could borrow from a commercial bank or raise funds
from the capital markets. Insurance companies and brokerages sold investment products that
competed head on with bank deposit products.
Progress on World Trade Organization (WTO) agreements on financial services has been
slow and is likely to remain so. Competition and market forces do not stand still, however.
Financial crises have also forced some governments to relax maximum limits on the level of
foreign ownership and lower barriers to entry in order to attract foreign capital.
PUBLIC IMAGE LIMITED
Historic Perspective
The most basic financial services, such as money lending, date back to the earliest use of money
as a store of value and a means of exchange. Banks, however, have never enjoyed universal
popularity. In the Bible, we read about Jesus Christ throwing out the moneychangers from the
temple two thousand years ago. The Quran prohibits the payment of interest on loans and
deposits. Shakespeare mocked Shylock, a moneylender, in the play The Merchant of Venice.
Banks were blamed widely for the 1930s depression in the US when Gross Domestic Product
(GDP) halved and millions lost their jobs. Thousands of banks failed and many retail depositors
saw their life savings vanish. People who had taken out mortgages to buy their homes, but were
unable to make the required monthly payments, found themselves homeless after banks acted
to seize the property and evict the occupants.
xvii
Prologue
Retail Banking Blues
In more recent years banks around the world have taken action to dissuade low-income retail
customers from using their services. This has been a three-pronged attack. The first prong
involved the introduction of automated teller machines (ATMs) to try to coax retail customers
away from bank branches. The second prong was widespread closures of marginal branches.
The third prong involved the introduction of account and transaction-based fees. In many cases
these fees are waived for customers who maintain a specified minimum balance in their deposit
account. Inevitably it has tended to be the people who can least afford these fees that have
ended up paying them. This has left banks open to continuing political attack and in some
countries legislators have acted to force banks to provide a free basic banking service.
Banks have also been attacked by consumer advocacy groups for offering easy credit and
charging excessive rates of interest to consumers. Inevitably banks have been guilty of misleading
advertising. Banks and finance companies may calculate, and highlight, the “interest
rate” charged on installment loans by taking the total interest paid divided by the initial value
of the loan. As this takes no account of the loan’s reducing balance over its term this rate is
well below the effective rate being charged. In many countries lawmakers have had to resort to
legislation to prohibit such practices.
Many banks have also been guilty of selling investment products to ill-informed retail customers
without explaining the nature of the underlying downside risks. On occasion when things
have gone badly wrong banks refer complaining customers to the small print in the lengthy
agreement that the customer signed. These “agreements” always seek to indemnify the bank
against any claims or customer losses. As these agreements are usually written in an archaic
form of financial legalese it is not surprising that few members of the general public understand
their detail.
The Pig Trough
Best-selling books and box-office hits have shaped popular perception of investment banking.
Michael Douglas, in his Oscar-winning portrayal of an investment banker in the 1984 movieWall
Street, caught the public eye with his battle cry that “Greed is good”. There are many books,
both fiction and non-fiction, that have chronicled the excesses of investment bankers, “Masters
of the Universe”. One of the best of these books is Burrough’s Barbarians at the Gate which
gave a riveting account of the takeover of RJR Nabisco, at the time the largest ever such deal,
warts and all.
Any doubts about whether such accounts exaggerated the level of avarice in the 1980s were
probably dispelled by the closure of Drexel Burnham, a US investment bank that pioneered
the issue of ( junk) bonds for companies with a low credit standing. The US District Attorney
prosecuted Michael Milken, its high profile CEO, for criminal and racketeering charges. Milken
pleaded guilty and was sentenced to two years in jail and “agreed” to pay a fine of $850m.
Most insurance companies seem to have been designed to avoid paying out on any claims
and on the rare occasions when they do they never seem to meet the claims in full. Claims
on damage from minor auto accidents always seem to be finely balanced between the costs
of the claim and losing the no-claims bonus. Life insurance policies always seem to cost more
than originally expected and to give worse returns than alternatives. The people selling such
investment products rarely understand how these actually work but follow a script and are
trained to give stock responses to frequently asked questions.
xviii
Prologue
Retail brokers push speculative stocks in order to persuade clients to place buy and sell
orders and hence generate brokerage commission. Many so-called “independent” financial
advisors recommend those investment policies that generate the highest commission for the
advisor rather than those that are in their clients’ best interests. Investors who have bought
mutual funds find that if they try to sell those funds that the amount they actually receive is well
below the value of their investment due to high redemption charges. Nobody likes cold calling
but in many countries such practices are legal and used with high-pressure sales techniques
to persuade unsophisticated investors to buy investment funds that are totally inappropriate to
their needs. Money and morality are words that both start and end with the same letters but
have little else in common.
xix
1
Securities Markets and Financial Intermediation
There is no such thing as absolute value in this world. You can only estimate what a thing is worth
to you.
Charles Dudley Warner, US Journalist
RAISON D’Eˆ TRE
Pure capitalist economies are market-based. The allocation and prices of capital, labor, goods
and services are determined by market forces alone, based on supply and demand. This
differs from that of command, or planned, economies where allocation is determined, and
prices set, by a central authority. The former Soviet Union provides an example of a command
economy.
Developed economies today can be viewed as “mixed” economies where private enterprise
and market disciplines are the major determinants of capital allocation and the establishment
of prices but the state also plays a role. Even in those countries where market forces are given
most freedom to act the state usually intervenes to correct the most egregious forms of market
failures and in particular to protect groups, such as individual depositors and investors, from
abuses such as fraud.
Market-based economic systems need financial organizations and structures to facilitate
pricing, market making and redistribution of money and financial risk in order to operate efficiently:

Money. A fundamental requirement of efficient modern economies is that capital is transferred
from those parties with a surplus and allocated to those individuals, companies and
sectors that can generate the highest economic returns. The main mechanism used to determine
this allocation is the action of financial markets.

Risk. All human activities involve a degree of risk. There is, however, a wide range of the
level of risk associated with specific activities. Some institutions and individuals exposed to
a particular form of risk may wish to reduce that exposure and will be prepared to pay to do
so. Others are prepared to accept those risks at a certain price. As a result there is a market
for risk. Financial service organizations help these markets to function by taking such risks
onto their own account, acting in an intermediary role and providing products to redistribute
risks.
In this first chapterwe set the scene by painting a big picture showing the principal flows of money
from investors to borrowers. An impressionist work is created with thousands of brushstrokes
but only makes sense when seen from a distance. Individual brushstrokes have little meaning
in themselves. Readers may come across terms in this chapter with which they are unfamiliar
or whose precise definition is unclear. My advice to readers is to gloss over any such terms.
We will be looking at all of the areas covered here in more detail later.
3
The Bank Analyst’s Handbook
The glossary at the end of this book contains definitions of many of the more important
financial terms. The dictionary definition of a glossary, however, is “a detailed list of specific
terms on a particular subject area that never contains the one you are looking for”.
PRINCIPAL CHANNELS
One of the most important functions of a financial system is to facilitate the flow of capital from
those with excess (the providers of capital) to those with a financing need (the users of capital).
I will tend to use the term investors rather than the unwieldy providers of capital and borrowers
rather than users of capital. Members of the former group are also referred to as savers and
members of the latter group as security issuers.
It is convenient to identify four distinct groups: individuals, private corporations, public sector
entities such asmunicipal authorities and governments. Members of each group may play either
role and at times will play both. There are three principal channels for flows of money between
investors and borrowers:

Direct investment. These are direct flows of money from individual investors to individual
borrowers. Most of these flows are in the formof equity investments and dividends and capital
returns on these investments. Direct investments suffer from a number of fundamental and
practical problems. These flows account for only a very small proportion of the total flows
between investors and borrowers.

Bank intermediation. Banks take deposits from savers and pass these funds on to borrowers.
They pay interest on the deposits and charge interest on the loans. Their profits come
from the spread between the rate they pay for funds and the rate they charge. The pooling
of individual deposits and banks’ ability to lend to many different borrowers eliminate many
of the problems associated with direct investments.

Securities markets intermediation. Using securities markets provides a way to avoid bank
intermediation by bringing together many individual investors to invest in securities, such as
equities and bonds, issued by many different borrowers. Securities market intermediation
also eliminates many of the direct investment problems. By eliminating the banks’ spread
this may provide better returns to investors and lower cost funds to borrowers.
A third type of intermediary exists, not identified explicitly above, that offers investment products
by packaging securities in a number of different ways and selling these to investors. The relative
importance of bank versus securities market intermediation varies significantly from country to
country but we can make these general observations:

Level of development. Securities market intermediation becomes increasingly more important
as the level of development of a country increases. In the most developed economies
securities intermediation to meet corporate financing requirements has become much larger
than bank intermediation. In emerging markets the low level of income is reflected in a limited
demand for investment products and a lower level of domestic institutional investors.
This is one factor in bank intermediation remaining more important than securities markets
intermediation in these countries.
4

Your Name
Your Address
City, State Zip

Credit Card Company
1 E. Erroneous Way
Phoenix, AZ 5016

Date: Nov 1, 2002

Re: Acct#’s XXXX-XXXX-XXXX-XXXX

To Whom It May Concern:

I noticed that you are reporting the referenced account on my credit report, even though I am only an authorized user. This is a violation of the FCRA and I respectfully request that you remove this listing immediately.

According to section 603 of the FCRA, only information on credit issued to a consumer is allowed. If you are an authorized user, you do not fall under these categories, you are not responsible for the debt and did not receive credit. An authorized user doesn't have credit on this account and it's only the signor that is responsible. So, in essence, if an account on which you are an authorized user shows up on your report, it would be someone else's credit (the signor on the account). Here's the exact text to which I refer:

FCRA Section § 603. Definitions; rules of construction [15 U.S.C. § 1681a] (what credit lines can be reported).
(l) Firm offer of credit or insurance.
The term "firm offer of credit or insurance" means any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer, except that the offer may be further conditioned on one or more of the following:
The consumer being determined, based on information in the consumer's application for the credit or insurance, to meet specific criteria bearing on credit worthiness or insurability, as applicable, that are established

(A) before selection of the consumer for the offer; and
(B) for the purpose of determining whether to extend credit or insurance pursuant to the offer.

(2) Verification
(A) that the consumer continues to meet the specific criteria used to select the consumer for the offer, by using information in a consumer report on the consumer, information in the consumer's application for the credit or insurance, or other information bearing on the credit worthiness or insurability of the consumer; or
(B) of the information in the consumer's application for the credit or insurance, to determine that the consumer meets the specific criteria bearing on credit worthiness or insurability.

(3) The consumer furnishing any collateral that is a requirement for the extension of the credit or insurance that was
(A) established before selection of the consumer for the offer of credit or insurance; and
(B) disclosed to the consumer in the offer of credit or insurance.




Your Name

Asking ChexSystems to Remove a Listing

Asking ChexSystems to Remove a Listing
ChexSystems is the “credit bureau” for checking accounts; it maintains a database of individuals who have written a number of bad checks. If you get on their list, you won’t be able to open a checking account anywhere in the United States. Keep a copy for your files and send the letter registered mail.

Your Name
123 Your Street Address
Your City, ST 01234
SSN

ChexSystems
Customer Relations
12005 Ford Road Suite 600
Dallas, TX 75234

Date:

To Whom It May Concern:

My bank has informed me that there is negative information reported by United Anytown Bank included in the file ChexSystems maintains under my Social Security Number. Upon ordering a copy of the report, I see an entry from this bank listing a “debit card revoked” in March 1997.

I do not recall having a debit card from this bank in 1997.

Please validate this information with United Anytown Bank and provide me with copies of any documentation associated with this “debit card” bearing my signature. In the absence of any such documentation bearing my signature, I ask that this information be immediately deleted from the file you maintain under my Social Security Number.

Sincerely,



Your Signature
Your Name

Herbert Vs Credit Technologies

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
------------------------------x
:
CAROLYN HERBERT, :
:
Plaintiff, :
:
v. : Civ. No. 3:96CV00665(AWT)
:
MONTEREY FINANCIAL :
SERVICES, INC., :
:
Defendant. :
:
------------------------------x
MEMORANDUM OPINION
Plaintiff Carolyn Herbert (“Herbert”) claims that the
defendant, Monterey Financial Services, Inc. (“Monterey”),
violated the Fair Debt Collection Practices Act, 15 U.S.C.
§ 1692(e), (“FDCPA”) and the Connecticut Unfair Trade Practices
Act, Conn. Gen. Stat. § 42-110a et seq. (“CUTPA”) by (1)
reporting that Herbert owed a debt, without reporting that the
debt was disputed and (2) failing to notify the credit bureaus
that the debt owed by Herbert had been discharged. The
defendant contends, as to the first claim, that any violation
was the result of a bona fide error which occurred in spite of
Monterey’s adoption of procedures designed to avoid such an
error, as contemplated by 15 U.S.C. § 1692k(c). As to the
second claim, the defendant contends that it reported the debt
as discharged immediately after receiving notification that the
-2-
debt had been discharged.
After a bench trial, the court makes the following
findings of fact and conclusions of law, and finds for the
defendant on all claims.
I. FACTUAL BACKGROUND
In 1990, the plaintiff entered into an “Interval Ownership
Purchase and Sale Agreement” with Inn Group Associates (“Inn
Group”) for the purchase of a “time-share” vacation home. The
plaintiff financed this purchase with a promissory note which
was secured by a mortgage on the time-share. In August 1992,
the mortgage securing the promissory note issued by Herbert was
foreclosed on by the Inn Group for non-payment. The
foreclosure sale of the plaintiff’s vacation time-share
produced proceeds of $1,000, which was applied against the debt
owed by Herbert to the Inn Group.
In September 1992, Monterey, a debt collection agency that
had been hired earlier by the Inn Group to collect its
delinquent accounts, commenced taking steps to collect the
remaining amount owed by Herbert to the Inn Group. The parties
agree that Monterey is a “debt collector” within the meaning of
the FDCPA. 15 U.S.C. § 1692a(6).
After attempting to collect the debt, without success,
Monterey designated Herbert’s account as “uncollectible”.
Pursuant to Monterey’s Collection Agency Manual, it is standard
-3-
procedure to continue to report uncollected accounts to credit
bureaus unless Monterey is informed by its client – in this
case, the Inn Group – to do otherwise. Therefore, Monterey
continued to report the debt as delinquent to credit bureaus
after designating it “uncollectible”. Further, it is
Monterey’s standard practice not to delete credit information
from its files unless its client makes a written request that
Monterey do so.
Herbert’s attorney notified Monterey, in two letters dated
October 1992 and November 1992, that Herbert’s position was
that the debt was not valid, that Monterey’s records did not
reflect a $1,000 payment made on August 7, 1992, and that
Herbert refused to pay. The letters stated that Herbert
“vigorously dispute[d]” the debt.
In May 1993, the plaintiff’s debt to the Inn Group was
discharged, and the original promissory note executed by
Herbert was returned to her marked “void”. The Inn Group did
not notify Monterey that the debt had been discharged. Neither
Herbert nor her attorney notified the defendant at that time
that the debt had been discharged.
It is Monterey’s policy that when a debtor indicates in
correspondence that a debt is disputed, the debtor’s
correspondence is referred to a manager. During the period
relevant here, the manager would verify the debt and then go to
the information system office and give an instruction that an
-4-
indication be made in the account file that the debt was
disputed by entering a particular code in the computer. This
policy is covered in Monterey’s operating manual, and
collectors and managers at Monterey are instructed as to this
policy during their training. Also, one or two Monterey
managers walk around at all times in the area in which
collectors sit as they place and receive telephone calls, in
order to listen in on those calls and ensure that this and
other policies are being followed. This policy has been in
place as described since at least 1992, when the events at
issue here took place. However, in this case, Herbert’s
dispute was not referred to a manager, and although the
correspondence was placed in Herbert’s file, the computer
record of Herbert’s account was never updated to indicate that
the debt was disputed.
The policy as to disputed debts was not the only instance
where Monterey required collectors to notify a manager. Not
only did all attorney letters have to be reviewed by
management, but collectors had to also notify a manager of any
correspondence from any government department or the media, any
unusual threats of violence, any viable lawsuits and any
important issues or problems related to the client (e.g., the
Inn Group). Thus, this information as to how to handle
disputed debts was presented to collectors as being something
that was important to Monterey.
-5-
Although the plaintiff was aware that Monterey was
servicing her account for the Inn Group, neither the plaintiff
nor her attorney notified Monterey of the discharge of the debt
until March 18, 1996, when Monterey received a letter from
Herbert’s attorney indicating that the debt had been
discharged. When Monterey received this letter, it contacted
the Inn Group to confirm that the debt had in fact been
discharged. Monterey then took action to stop reporting
Herbert’s account to credit bureaus as delinquent. Herbert’s
account nonetheless was reported as being delinquent in a
credit report dated May 1996.
II. DISCUSSION
A. Count One: FDCPA
It is a violation of the FDCPA for a debt collector to
make a “false representation of . . . the character, amount, or
legal status of any debt . . ..” 15 U.S.C. § 1692e(2)(A) (West
2001). The plaintiff argues that Monterey committed two such
violations: one when it failed to report that the debt was
disputed after receiving notice from the plaintiff’s attorney
of a dispute in November 1992, and a second when it reported
Herbert’s account as being delinquent after receiving notice in
March 1996 that the debt had been discharged.
The FDCPA provides that “any debt collector who fails to
comply with any provision of this subchapter with respect to
-6-
any person is liable to such person” for actual damages
suffered plus an additional amount not to exceed $1,000. 15
U.S.C. § 1692k(a) (West 2001). However, the statute also
contains an affirmative defense:
A debt collector may not be held liable in any action
brought under this subchapter if the debt collector
shows by a preponderance of the evidence that the
violation was not intentional and resulted from a bona
fide error notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error.
15 U.S.C. § 1692k(c) (West 2001).
First Claim: Failure to Report Debt as Disputed
The defendant concedes that it failed to properly report
that the plaintiff’s claim was disputed after receiving notice
of the dispute in November 1992. However, the defendant
produced evidence at trial showing that the failure to report
the debt as disputed was not intentional, but was the result of
a bona fide error which occurred in spite of Monterey’s
maintaining procedures reasonably adapted to avoid such errors.
Robert Steinke (“Steinke”), the president of Monterey,
testified at trial, in detail, regarding the defendant’s
policies and procedures relating to the marking of records when
a debt is disputed. As set forth above, when a debtor or her
representative reports that a debt is disputed, the collector
who receives that information is supposed to refer the case to
a manager. Monterey’s procedure is that the manager then
confirms that the debt is valid and makes a notation in the
-7-
file that the debt is disputed. In addition, the manager takes
appropriate steps to see that a code is entered into the
debtor’s computer file indicating that the debt is disputed.
All collectors and managers receive training in this procedure.
In this case, the collector who received the
correspondence from Herbert’s attorney stating that the debt
was disputed apparently did not follow Monterey’s established
procedure. Although the collector made a notation in Herbert’s
file regarding the correspondence, he did not refer the case to
a manager. Consequently, there was never notification to the
person who was charged with the responsibility for making sure
that the computer file for Herbert was updated to reflect the
fact that the debt was disputed. As a result, the debt was
subsequently reported numerous times to credit bureaus without
any notation that it was disputed. This happened despite the
fact that Monterey had in place a procedure reasonably adapted
to avoid such a mistake. The changing of the computer file was
entrusted to a manager, and collectors were under instructions
to report a series of significant occurrences to their manager
-– not just this one item. In addition, Monterey periodically
monitored the collectors while they were at work, to ensure
that Monterey’s policies and procedures were being followed.
The evidence establishes that Monterey did not
intentionally fail to designate Herbert’s debt as disputed.
The file maintained at Monterey did, in fact, reflect the
-8-
dispute; the error came in a failure to enter a particular
computer code which would have flagged the debt as disputed
when it was reported to credit bureaus. Every indication in
this record is that had the collector referred the
correspondence to a manager, the appropriate information would
have been entered in the computer concerning Herbert’s account.
The court finds that Monterey has established, by a
preponderance of the evidence, that this was a bona fide error
which occurred notwithstanding the fact that Monterey had in
place “procedures reasonably adapted to avoid any such error”,
as required by the statute. The court also finds that Monterey
has proven that the violation was not intentional. Therefore,
the defendant has met its burden pursuant to 15 U.S.C.
§ 1692k(c), and is entitled to judgment in its favor on this
claim.
Second Claim: Failure to Report Debt as Discharged
The defendant presented evidence that it promptly notified
the credit bureaus that Herbert’s debt had been discharged and
instructed the credit bureaus to remove Herbert’s account from
their databases once it received confirmation that the debt had
in fact been discharged. This evidence was in the form of
computer backup disks which contain copies of the information
sent by Monterey to the credit bureaus on April 11, 1996.
Monterey sends reports to the credit bureaus once a month,
-9-
indicating the current status of each account for which it is
responsible. The April 11, 1996 report to the credit bureaus
was the first report issued by Monterey after receiving the
March 18, 1996 letter indicating that Herbert’s debt had been
discharged. The computer backup disks show that in the April
11, 1996 report, Monterey instructed each of the credit bureaus
to remove the Herbert account from their databases, because the
debt had been discharged. Thus, Monterey did not report
Herbert’s account to the credit bureaus as active and
delinquent at any time after March 18, 1996, and the April 11,
1996 report did not contain any false or misleading information
regarding Herbert’s account.
The plaintiff contends that Monterey should have taken
additional steps to see that the credit bureaus corrected their
records sooner as to the status of the plaintiff’s debt, but
the defendant has shown that its procedure was reasonable. The
plaintiff’s argument amounts, under the circumstances of this
case, to a position that daily updates should be sent by a
collection agency to the credit bureaus. There is no support
for such a proposition.
Therefore, the plaintiff has failed to establish a
violation of the FDCPA on this ground, and the defendant is
entitled to judgment in its favor on this claim.
B. Count Two: CUTPA
-10-
In Count Two, the plaintiff claims that Monterey’s actions
constitute unfair and deceptive acts in the conduct of trade or
commerce in violation of CUTPA. CUTPA provides in relevant
part that “[n]o person shall engage in unfair methods of
competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce.” Conn. Gen. Stat. § 42-
110b(a) (2001). The Connecticut Supreme Court has stated:
It is well settled that in determining whether a
practice violates CUTPA we have adopted the criteria
set out in the 'cigarette rule' by the federal trade
commission for determining when a practice is unfair:
(1) Whether the practice, without necessarily having
been previously considered unlawful, offends public
policy as it has been established by statutes, the
common law, or otherwise -- whether, in other words, it
is within at least the penumbra of some common law,
statutory, or other established concept of unfairness;
(2) whether it is immoral, unethical, oppressive, or
unscrupulous; (3) whether it causes substantial injury
to consumers (competitors or other businessmen).
All three criteria do not need to be satisfied to
support a finding of unfairness. A practice may be
unfair because of the degree to which it meets one of
the criteria or because to a lesser extent it meets all
three. Thus a violation of CUTPA may be established by
showing either an actual deceptive practice or a
practice amounting to a violation of public policy.
Furthermore, a party need not prove an intent to
deceive to prevail under CUTPA.
Cheshire Mortgage Serv. Inc. v. Montes, 612 A.2d 1130, 1143-44
(Conn. 1992).
The court has found that Monterey did not make any false
representation regarding Herbert’s account after it was
notified that the debt had been discharged; therefore, the
plaintiff can not prevail on her CUTPA claim on that ground.
-11-
As to the failure to indicate that the debt was disputed, the
court has found that Monterey made a bona fide error, of the
sort that is bound to occur even when safeguards, such as those
instituted by Monterey, are in place. This error does not
“offend[] public policy”, nor is it “immoral, unethical,
oppressive, or unscrupulous”. Nor is there any evidence that
Monterey’s error caused “substantial injury to consumers”.
Thus, the error in failing to report the debt as disputed does
not constitute a violation of CUTPA. The defendant is entitled
to judgment on the CUTPA claim.
III. CONCLUSION
For the reasons set forth above, the court finds for the
defendant, Monterey Financial Services, Inc., as to all claims.
Accordingly, judgment shall enter in favor of the defendant.
It is so ordered.
Dated this 28th day of September, 2001, at Hartford,
Connecticut.
Alvin W. Thompson
United States District Judge

Toby Nelson vs. Chase Manhattan - he won

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
TOBY D. NELSON,
No. 00-15946
Plaintiff-Appellant,
D.C. No.
v. CV-99-00290-
CHASE MANHATTAN MORTGAGE JBR(RLH)
CORP.,
OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the District of Nevada
Johnnie B. Rawlinson, District Judge, Presiding
Argued and Submitted
January 16, 2002--San Francisco, California
Filed March 1, 2002
Before: Alfred T. Goodwin, John T. Noonan and
Stephen S. Trott, Circuit Judges.
Opinion by Judge Noonan
3385
3386
3387
COUNSEL
Richard J. Rubin, Santa Fe, New Mexico, and Michael D.
Gliner, Las Vegas, Nevada, for the plaintiff-appellant.
Gerald D. Waite and Nikki Baker, Kummer Kaempfer Bonner
& Renshaw, Las Vegas, Nevada, for the defendant-appellee.
John F. Daly, Federal Trade Commission, Washington, D.C.,
for the amicus in support of the appellant.
_________________________________________________________________
3388
OPINION
NOONAN, Circuit Judge:
Toby D. Nelson ("Nelson") appeals the judgment of the
district court for the District of Nevada dismissing his suit
under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-
1681u ("the FCRA") for failure to state a cause of action
against the defendant Chase Manhattan Mortgage Corporation
("Chase"). Holding that section 1681s-2(b) does create a
cause of action for a consumer against a furnisher of credit
information, we reverse the judgment of the district court.
FACTS
According to his complaint and attached exhibits, Nelson
on February 2, 1995 became a co-signatory with Anthony
Proietti ("Proietti") on a mortgage loan of $119,950 from
Chase. On February 15, 1998, Proietti declared bankruptcy.
Nelson continued to pay the amounts due on the mortgage in
a timely manner.
Nelson, however, experienced difficulty in obtaining
financing after Proietti's bankruptcy. In September 1998, Nelson
asked Experian Information Solutions, Inc. ("Experian")
for his credit profile. Experian provided him with a report
referring to the account with Chase. Regular payments were
shown made up to January 8, 1997, with a balance of
$110,011 then showing. The report stated: "As of 2/15/98 this
account is included in a discharge through bankruptcy chapter
7, 11 or 12."
On December 2, 1998, Nelson wrote Experian requesting
it to investigate "disputed matters" in the credit report. Nelson
stated that he had never declared bankruptcy and that the
bankruptcy noted was that of the co-obligor. He asked for
deletion of the bankruptcy reference. He copied this letter to
Chase.
3389
On January 4, 1998, Chase wrote Nelson stating:"At the
time we receive notice of a bankruptcy filing, we are required
to note the appropriate account is in bankruptcy, regardless of
whether the account is current or past due, to prevent contact
with the party[ies] involved in violation of the bankruptcy
laws . . . . This status is not a reflection of which of the borrowers
actually filed bankruptcy, but merely a statement that
the account itself is affected by the bankruptcy filing." Chase
went on to say that prudent lenders should follow up on the
report and determine whether the consumer in question "had
actually filed the bankruptcy action." Chase apologized for
"any inconvenience" to Nelson. It promised to inform credit
bureaus that "the account has been affected by a bankruptcy
filed by one, but not all, of the borrowers."
Nelson continued to have difficulties getting credit. On
March 5, 1999, Nelson received a report from Equifax showing
his credit history with the notation "included in bankruptcy
8/98," opposite the entry for Chase. On March 6, 1999,
U.S. Bank of Minneapolis denied his application for a truck
loan "due to bankruptcy filing on your credit bureau report."
On March 7, 1998, Nelson wrote Equifax, like Experian a
credit reporting agency ("CRA"), disputing this report and
requesting an investigation.
PROCEEDINGS
On March 8, 1999, Nelson filed this suit against Chase,
which ultimately moved to dismiss his third amended complaint.
On April 14, 2000, the district court granted the motion
to dismiss. The court ruled that the FCRA, 18 U.S.C.§ 1681s-
2(b) did not create a private action.
Nelson appeals.
ANALYSIS
The FCRA was enacted in 1970. It was prefaced with
a congressional finding that "unfair credit methods undermine
3390
the public confidence which is essential to the continued functioning
of the banking system." 15 U.S.C. § 1681(a)(1). Section
1681n provides: "Any person who willfully fails to
comply with any requirement imposed under this subchapter
with respect to any consumer is liable to that consumer in an
amount equal to the sum of any actual damages sustained by
the consumer . . . or damages of not less than $100 or more
than $1,000" plus reasonable attorney's fees. In similar terms,
§ 1681o establishes comparable liability for negligent noncompliance.
That with these words Congress created a private
right of action for consumers cannot be doubted. That right is
to sue for violation of any requirement "imposed with respect
to any consumer." What we have to decide is whether sections
1681n and 1681o permit suit against a furnisher of credit
reporting information that violates the duties imposed under
section 1681s-2. Inspection of this section in its entirety is
necessary.
Section 1681s-2(a) begins with a flat prohibition in
(1)(A) directed against "[a] person" furnishing information
"relating to a consumer" to a CRA "if the person knows or
consciously avoids knowing that the information is inaccurate."
This prohibition is reinforced in subsection (1)(B) by a
prohibition of furnishing inaccurate information after notice
of actual inaccuracy from the affected consumer. Subsection
(2) imposes a duty on regular furnishers of credit information
to correct and update the information they provide so that the
information is "complete and accurate." Subsection (3)
imposes a duty on such furnishers to notify CRAs if a consumer
disputes the information furnished. Subsection (4)
obliges furnishers to notify the CRA of the closure of a consumer's
account, and subsection (5) imposes a similar obligation
to notify the CRA of delinquent accounts.
Most of the provisions of § 1681s-2(a) are for the protection
of consumers. There would be no doubt that a consumer
could sue for their violation under sections 1681n & o
were it not for §§ 1681s-2(c) and (d). Subsection (c) expressly
3391
provides that sections 1681n & o "do not apply to any failure
to comply with subsection (a) of this section, except as provided
in section 1681s(c)(1)(B) of this title." The referenced
section permits certain suits by States for damages. This limitation
on liability and enforcement is reinforced by subsection
(d) of § 1681s-2, which provides that subsection (a) "shall be
enforced exclusively under section 1681s of this title by the
Federal agencies and officials and the State officials identified
in that section." Consequently, private enforcement under
§§ 1681n & o is excluded.
We turn to subsection 1681s-2(b). This section specifies
what happens after a CRA receives notice "pursuant to section
1681i(a)(2) . . . of a dispute with regard to the completeness
or accuracy of information provided by a person " to the
CRA. The person, i.e., the furnisher of the disputed information,
has four duties: to conduct an "investigation with respect
to the disputed information;" to review all relevant information
provided by the CRA; to report the results of its investigation
to the CRA; and if the investigation finds the
information is incomplete or inaccurate to report those results
"to all [nationwide] consumer reporting agencies to which the
person furnished the information."
Chase argues that as consumers are unmentioned by name
in § 1681s-2(b), this section does not impose a requirement
"with respect to any consumer," so the private right of action
under §§ 1681n & o do not apply to § 1681s-2(b). The argument
has a specious plausibility. It overlooks the fact that the
notice which starts the process provided by (b) is notice of a
dispute as to the accuracy or completeness of information
"contained in a consumer's file." See 15 U.S.C.
§ 1681i(a)(1)(A). The information to be investigated does not
exist in the air. It is hard to say that, when information in a
consumer's file is the issue, there is no requirement "with
respect to a consumer." The information is disputed by the
consumer. See id. Its completeness or accuracy is of prime
concern to the consumer.
3392
This reading of the statute might be challenged by the
observation that § 1681s-2(a) carefully prevents a consumer
from suing a furnisher of even information known by the furnisher
to be inaccurate. If Congress didn't want the irresponsible
furnisher privately sued under (a), why should Congress
have provided for private suit under (b)? This doubt chimes
with the argument that subsections (c) and (d) of§ 1681s-2
don't mention (b) because (b) creates no private right of
action at all.
The answer to the objection was given in oral argument
by counsel for amicus Federal Trade Commission, as follows.
It can be inferred from the structure of the statute that Congress
did not want furnishers of credit information exposed to
suit by any and every consumer dissatisfied with the credit
information furnished. Hence, Congress limited the enforcement
of the duties imposed by § 1681s-2(a) to governmental
bodies. But Congress did provide a filtering mechanism in
§ 1681s-2(b) by making the disputatious consumer notify a
CRA and setting up the CRA to receive notice of the investigation
by the furnisher. See 15 U.S.C. § 1681i(a)(3) (allowing
CRA to terminate reinvestigation of disputed item if CRA
"reasonably determines that the dispute by the consumer is
frivolous or irrelevant"). With this filter in place and opportunity
for the furnisher to save itself from liability by taking the
steps required by § 1681s-2(b), Congress put no limit on private
enforcement under §§ 1681n & o.
This answer is strengthened by the amendment of
§§ 1681n & o effected in 1996. Before amendment, §§ 1681n
& o provided for suit against a CRA or against a user of credit
information, but not against a furnisher. When the statute was
amended, "any person" was made open to suit. See Pub.L.
104-208 at § 2412; 110 Stat. 3009 at §2412 (1996) ("section
616 of the [FCRA] . . . is amended by striking`Any consumer
reporting agency or user of information which' and inserting
`(a) IN GENERAL, any person who' "). As counsel for the
FTC observed, there are involved in any credit transaction
3393
only the consumer, the CRAs, the user of the credit reports
and the furnishers of the credit information. As consumers
would not be made subject to suit by consumers, and as CRAs
and users were already suable, who else except furnishers
could Congress have had in mind when it introduced"any
person" into the statute? Where, other than under§ 1681s-
2(b) would furnishers be suable by consumers? In oral argument,
counsel for Chase conceded that Chase had no answers
to these questions. We cannot suppose that Congress made an
amendment without a purpose.
That purpose, to provide some private remedy to injured
consumers, coheres with what we see as a primary purpose
for the FCRA, to protect consumers against inaccurate and
incomplete credit reporting. The statute has been drawn with
extreme care, reflecting the tug of the competing interests of
consumers, CRAs, furnishers of credit information, and users
of credit information. It is not for a court to remake the balance
struck by Congress, or to introduce limitations on an
express right of action where no limitation has been written
by the legislature.
REVERSED and REMANDED.
3394

sample court case letters

The Cass-Lefevre letter
Opinion letter #1: Regarding whether or not a collection agency can report your listing to a CRA if they have not validated the debt.

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580

Federal Trade Commission

December 23, 1997

Robert G. Cass
Compliance Counsel
Commercial Financial Services, Inc.
2448 E. 81st Street, Suite 5500
Tulsa, OK 74137-4248

Dear Mr. Cass:

Mr. Medine has asked me to reply to your letter of October 28, 1997, concerning the circumstances under which a debt collector may report a "charged-off debt" to a consumer reporting agency under the enclosed Fair Debt Collection Practices Act. In that letter, you pose four questions, which I set out below with our answers.

I. "Is it permissible under the FDCPA for a debt collector to report charged-off debts to a consumer reporting agency during the term of the 30-day validation period detailed in Section 1692g?" Yes. As stated in the Commission's Staff Commentary on the FDCPA (copy enclosed), a debt collector may accurately report a debt to a consumer reporting agency within the thirty day validation period (p. 50103). We do not regard the action of reporting a debt to a consumer reporting agency as inconsistent with the consumer's dispute or verification rights under § 1692g.

II. "Is it permissible under the FDCPA for a debt collector to report, or continue to report, a consumer's charged-off debt to a consumer reporting agency after the debt collector has received, but not responded to, a consumer's written dispute during the 30-day validation period detailed in § 1692g?" As you know, Section 1692g(b) requires the debt collector to cease collection of the debt at issue if a written dispute is received within the 30-day validation period until verification is obtained. Because we believe that reporting a charged-off debt to a consumer reporting agency, particularly at this stage of the collection process, constitutes "collection activity" on the part of the collector, our answer to your question is No. Although the FDCPA is unclear on this point, we believe the reality is that debt collectors use the reporting mechanism as a tool to persuade consumers to pay, just like dunning letters and telephone calls. Of course, if a dispute is received after a debt has been reported to a consumer reporting agency, the debt collector is obligated by Section 1692e(8) to inform the consumer reporting agency of the dispute.

III. "Is it permissible under the FDCPA to cease collection of a debt rather than respond to a written dispute from a consumer received during the 30-day validation period?" Yes. There is nothing in the FDCPA that requires a debt collector to continue collecting a debt after a written dispute is received. Further, there is nothing in the FDCPA that requires a response to a written dispute if the debt collector chooses to abandon its collection effort with respect to the debt at issue. See Smith v. Transworld Systems, Inc., 953 F.2d 1025, 1032 (6th Cir.
1992).

IV. "Would the following action by a debt collector constitute continued collection activity under § 1692g(b): reporting a charged-off consumer debt to a consumer reporting agency as disputed in accordance with § 1692e(8), when the debt collector became aware of the dispute when the consumer sent a written dispute to the debt collector during the 30-day validation period, and no verification of the debt has been provided by the debt collector?" Yes. As stated in our answer to Question II, we view reporting to a consumer reporting agency as a collection activity prohibited by § 1692g(b) after a written dispute is received and no verification has been provided. Again, however, a debt collector must report a dispute received after a debt has been reported under § 1692e(8).

I hope this is responsive to your request.

Sincerely,
John F. LeFevre
Attorney

The Wollman letter
FTC Opinion Letter #2: Sending a computerized print out of a debt does not constitute debt validation.

Jeffrey S. Wollman
Vice President and Controller
Retrieval Masters Creditors Bureau, Inc.
1261 Broadway
New York, New York 10001

Dear Mr. Wollman:

This is in response to your letter of February 9, 1993 to David Medine regarding the type of verification required by Section 809(b) of the Fair Debt Collection Practices Act. You ask whether a collection agency for a medical provider will fulfill the requirements of that Section if it produces "an itemized statement of services rendered to a patient on its own computer from information provided by the medical institution . . .” in response to a request for verification of the debt. You also ask who is responsible for mailing the verification to the consumer.

The statute requires that the debt collector obtain verification of the debt and mail it to the consumer (emphasis mine). Because one of the principal purposes of this Section is to help consumers who have been misidentified by the debt collector or who dispute the amount of the debt, it is important that the verification of the identity of the consumer and the amount of the debt be obtained directly from the creditor. Mere itemization of what the debt collector already has does not accomplish this purpose. As stated above, the statute requires the debt collector, not the creditor, to mail the verification to the consumer.

Your interest in writing is appreciated. Please be aware that since this is only the opinion of Commission staff, the Commission itself is not bound by it.

Sincerely,


John F. LeFevre
Attorney

JENNIFER CUSHMAN, Appellant v. TRANS UNION CORPORATION

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

115 F.3d 220

April 17, 1997, Argued
June 9, 1997, Filed

PRIOR HISTORY: On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. No. 95-cv-01743).

COWEN, Circuit Judge.

This appeal concerns, among other issues, the extent of a consumer reporting agency's obligation, pursuant to section 611(a) of the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681i(a) (1982), to conduct a reasonable reinvestigation of information on a consumer's credit report alleged by the consumer to be inaccurate. We hold that the district court erred to the extent that it concluded as a matter of law that defendant Trans Union Corporation ("TUC") fulfilled its obligation under § 1681i(a). Therefore, we will reverse and remand the district court's grant of judgment as a matter of law on plaintiff-appellant Jennifer Cushman's claim for negligent noncompliance with that section.

We also hold that Cushman has produced sufficient evidence from which a reasonable jury could find that she has proved the publication element of her defamation claim and her claims pursuant to the Vermont Fair Credit Reporting Act ("VFCRA"), VT. STAT. ANN. tit. 9, §§ 2480a et seq. (1993). We will reverse and remand the district court's grant of judgment as a matter of law on those claims. Finally, we remand to the district court to determine whether Cushman has produced evidence sufficient to justify an award of punitive damages and to avoid preemption of her defamation claim.

I.

To the extent the facts are disputed, we view them in the light most favorable to Cushman. Cushman has a permanent residence in Pennsylvania but attended college in Vermont during the time period pertinent to this litigation. In the summer of 1993, an unknown person, possibly a member of her household in Philadelphia, applied under Cushman's name for credit cards from three credit grantors: American Express ("Amex"), Citibank Visa ("Citibank"), and Chase Manhattan Bank ("Chase"). The person provided the credit grantors with Cushman's social security number, address, and other identifying information. Credit cards were issued to that person in Cushman's name, and that person accumulated balances totaling approximately $ 2400 on the cards between June of 1993 and April of 1994. All this occurred without Cushman's knowledge.

In August of 1994, an unidentified bill collector informed Cushman that TUC was publishing a consumer credit report indicating that she was delinquent on payments to these three credit grantors. Cushman notified TUC that she had not applied for or used the three credit cards in question, and suggested that a third party had fraudulently applied for and obtained the cards. In response, a TUC clerk called Amex and Chase to inquire whether the verifying information (such as Cushman's name, social security number, and address) in Amex's and Chase's records matched the information in the TUC report. The TUC clerk also asked if Cushman had opened a fraud investigation with the credit grantors. Because the information matched, and because Cushman had not opened a fraud investigation, the information remained in the TUC report. TUC was unable to contact Citibank so TUC deleted the Citibank entry from the report. TUC's investigations are performed by clerks paid $ 7.50 per hour and who are expected to perform ten investigations per hour.

There is no evidence that TUC took the necessary steps to obtain access to pertinent documents from the credit grantors that would enable TUC to perform a handwriting comparison. TUC did allow Cushman the opportunity to complete a form requesting that a special handling statement be placed on her report, and that form required her signature. However, a TUC employee testified that the form would not have been used for a handwriting comparison had Cushman completed it. TUC advises consumers in Cushman's position to communicate with the credit grantors and complete signature verifications and affidavits of fraud with the credit grantors.

Cushman was sent a copy of the updated report still containing the Amex and Chase delinquencies. She sent a second letter to TUC reiterating her disagreement with the facts contained in the report and offering to sign affidavits for TUC to the effect that the delinquencies were not hers. TUC subsequently performed a reinvestigation identical to the first one but did nothing more. The credit report was not changed. At no time did TUC provide Cushman with a description of its reinvestigation procedures.

Cushman brought this action in the district court alleging negligent and willful failure to reinvestigate the disputed entries in violation of sections 611(a), 616, and 617 of the FCRA, 15 U.S.C. §§ 1681i(a), 1681n, 1681o; violations of the VFCRA, VT. STAT. ANN. tit. 9, §§ 2480a et seq.; and defamation. Subsequently, in April of 1995, TUC verified the information with Citibank, and placed the Citibank entry back onto Cushman's report. TUC notified Cushman of the reinsertion through her attorneys.

That September, Cushman for the first time disputed the delinquencies with the three credit grantors. A Citibank employee, comparing a handwriting sample provided by Cushman with the credit card application, determined that the card had been fraudulently obtained. The other two credit grantors came to a similar conclusion. TUC has since deleted the entries from Cushman's report.

TUC subsequently moved for summary judgment pursuant to Fed. R. Civ. P. 56, raising several issues addressed by this appeal. The district court denied the motion. See Cushman v. Trans Union Corp., 920 F. Supp. 80, 83-84 (E.D. Pa. 1996). However, at the close of Cushman's presentation of her case at trial, the district court sua sponte granted TUC judgment as a matter of law pursuant to Fed. R. Civ. P. 50(a) on all claims. Cushman timely appealed.

II.

A.

As this Court recently wrote:

The FCRA was enacted in order to ensure that "consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." The FCRA was prompted by "congressional concern over abuses in the credit reporting industry." In the FCRA, Congress has recognized the crucial role that consumer reporting agencies play in collecting and transmitting consumer credit information, and the detrimental effects inaccurate information can visit upon both the individual consumer and the nation's economy as a whole.

Philbin v. Trans Union Corp., 101 F.3d 957, 962 (3d Cir. 1996) (quoting 15 U.S.C. § 1681(b) and Guimond v. Trans Union Credit Information Co., 45 F.3d 1329, 1333 (9th Cir. 1995)) (citations omitted).

Title 15 U.S.C. § 1681i(a) provides in relevant part:

If the completeness or accuracy of any item of information contained in [her] file is disputed by a consumer, and such dispute is directly conveyed to the consumer reporting agency by the consumer, the consumer reporting agency shall within a reasonable period of time reinvestigate and record the current status of that information unless it has reasonable grounds to believe that the dispute by the consumer is frivolous or irrelevant. If after such reinvestigation such information is found to be inaccurate or can no longer be verified, the consumer reporting agency shall promptly delete such information.

"Sections 1681n and 1681o of Title 15 respectively provide private rights of action for willful and negligent noncompliance with any duty imposed by the FCRA and allow recovery for actual damages and attorneys' fees and costs, as well as punitive damages in the case of willful noncompliance." Philbin, 101 F.3d at 962. n1

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n1 The Fair Credit Reporting Act has since been amended, effective September 30, 1997, by the Consumer Credit Reporting Reform Act of 1996, Pub. Law 104-208, Div. A, Title II, §§ 2401 et seq., 110 Stat. 3009, - . The amendments are not relevant to the issues raised in this appeal.

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1.

As an initial matter, we reject the suggestion made by TUC that no cause of action lies pursuant to § 1681i(a) on the ground that § 1681i(b) and (c) provide the exclusive remedy when a consumer disputes information that has been placed on her credit report. Those subsections provide that in the event a dispute under subsection (a) is not resolved, "the consumer may file a brief statement setting forth the nature of the dispute," 15 U.S.C. § 1681i(b), and the statement or a summary must be included in the consumer's credit report. See 15 U.S.C. § 1681i(c).

Subsections (b) and (c) have not been read as providing the exclusive remedy for a consumer in Cushman's position. See Henson v. CSC Credit Servs., 29 F.3d 280, 286 (7th Cir. 1994); Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1160 (11th Cir. 1991); Pinner v. Schmidt, 805 F.2d 1258, 1261-62 (5th Cir. 1986); see also Guimond, 45 F.3d at 1335 (dictum); cf. Thompson v. San Antonio Retail Merchants Assoc., 682 F.2d 509, 514-15 (5th Cir. 1982) (consumer need not pursue remedies under § 1681i before suing under § 1681e). The obligations prescribed by subsections (b) and (c) are triggered only after "the reinvestigation [pursuant to subsection (a)] does not resolve the dispute." 15 U.S.C. § 1681i(b). This presupposes that a reasonable reinvestigation has already been completed and the dispute nonetheless remains unresolved. See Guimond, 45 F.3d at 1335. A consumer alleging that no reasonable reinvestigation has taken place has a separate claim pursuant to § 1681i(a).

2.

We now turn to the questions of a consumer reporting agency's obligations pursuant to § 1681i(a) and a plaintiff 's burden of proving a claim of negligent noncompliance with that section. TUC contends that § 1681i(a) did not impose on it an obligation to do any more than perform the reinvestigation it performed in this case. That is, TUC believes that when a consumer informs a consumer reporting agency that information contained in her consumer report is inaccurate, the consumer reporting agency is obliged only to confirm the accuracy of the information with the original source of the information. According to TUC, it is never required to go beyond the original source in ascertaining whether the information is accurate.

This position has been rejected by the United States Courts of Appeals for the Fifth and Seventh Circuits. See Henson, 29 F.3d at 286-87; Stevenson v. TRW Inc., 987 F.2d 288, 293 (5th Cir. 1993). In Henson, a state court judgment docket erroneously stated that an outstanding judgment had been entered against the plaintiff. Two credit reporting agencies included the erroneous entry on their consumer reports regarding the plaintiff. See Henson, 29 F.3d at 282-83. The plaintiff sued those credit reporting agencies pursuant to both § 1681e(b) and § 1681i. See id. at 284, 286. Section 1681e(b) requires consumer reporting agencies "to follow 'reasonable procedures to assure maximum possible accuracy' of the information" contained in the credit report. Id. at 284 (quoting 15 U.S.C. § 1681e(b)).

The Seventh Circuit upheld the district court's dismissal of the § 1681e(b) claim. See id. at 285-86. However, the court reversed the district court's dismissal of the § 1681i claim, distinguishing between the duties imposed by the two sections of the statute. It stated:

A credit reporting agency that has been notified of potentially inaccurate information in a consumer's credit report is in a very different position than one who has no such notice. . . . [A] credit reporting agency may initially rely on public court documents, because to require otherwise would be burdensome and inefficient. However, such exclusive reliance may not be justified once the credit reporting agency receives notice that the consumer disputes information contained in his credit report. When a credit reporting agency receives such notice, it can target its resources in a more efficient manner and conduct a more thorough investigation.

Id. at 286-87 (emphasis added).

The Fifth Circuit came to a similar conclusion in Stevenson, 987 F.2d at 293. In that case, similar to the situation here, the consumer's son had fraudulently obtained accounts in the consumer's name. See id. at 291. Other inaccurate information appeared on the credit report as well. See id. The credit reporting agency sent written forms to the credit granting agencies that had originally supplied information concerning the consumer, and relied on those credit grantors to make the conclusive determination of whether the information was accurate. See id. at 293. Holding that this was insufficient, the court wrote: "In a reinvestigation of the accuracy of credit reports [pursuant to § 1681i(a)], a credit bureau must bear some responsibility for evaluating the accuracy of information obtained from subscribers." Id. (citing Swoager v. Credit Bureau of Greater St. Petersburg, 608 F. Supp. 972, 976 (M.D. Fla. 1985)).

The court reasoned that such a result was the only one consistent with the language of § 1681i(a), which requires "that the 'consumer reporting agency shall within a reasonable period of time reinvestigate' and 'promptly delete' inaccurate or unverifiable information." Id. (quoting 15 U.S.C. § 1681i(a)) (emphasis in Stevenson). The court expressly rejected the same argument made here by TUC: "that where fraud has occurred, the consumer must resolve the problem with the creditor." Id. Rather, "the statute places the burden of investigation squarely on" the consumer reporting agency. Id.

We agree with the conclusions reached by these courts. We assume for the sake of argument, as the Seventh Circuit concluded, that the costs of requiring consumer reporting agencies to go beyond the original source of information as an initial matter outweigh any potential benefits of such a requirement. Thus, we can assume that absent any indication that the information is inaccurate, the statute does not mandate such an investigation. However, as the Henson court explained, once a claimed inaccuracy is pinpointed, a consumer reporting agency conducting further investigation incurs only the cost of reinvestigating that one piece of disputed information. In short, when one goes from the § 1681e(b) investigation to the § 1681i(a) reinvestigation, the likelihood that the cost-benefit analysis will shift in favor of the consumer increases markedly. Judgment as a matter of law, even if appropriate on a § 1681e(b) claim, thus may not be warranted on a § 1681i(a) claim.

We also agree with the cogent observation by the Fifth Circuit that the plain language of the statute places the burden of reinvestigation on the consumer reporting agency. See Stevenson, 987 F.2d at 293. The FCRA evinces Congress's intent that consumer reporting agencies, having the opportunity to reap profits through the collection and dissemination of credit information, bear "grave responsibilities," 15 U.S.C. § 1681(a)(4), to ensure the accuracy of that information. The "grave responsibility" imposed by § 1681i(a) must consist of something more than merely parroting information received from other sources. Therefore, a "reinvestigation" that merely shifts the burden back to the consumer and the credit grantor cannot fulfill the obligations contemplated by the statute.

In addition to these observations, we note that TUC's reading of § 1681i(a) would require it only to replicate the efforts it must undertake in order to comply with § 1681e(b). Such a reading would render the two sections largely duplicative of each other. We strive to avoid a result that would render statutory language superfluous, meaningless, or irrelevant. See Sekula v. F.D.I.C., 39 F.3d 448, 454 n.14 (3d Cir. 1994); Pennsylvania Dept. of Public Welfare v. United States Dept. of Health and Human Servs., 928 F.2d 1378, 1385 (3d Cir. 1991).

TUC contends that Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 1997 WL 220320 (2d Cir. 1997), compels that we affirm. TUC is mistaken. In Podell, after being notified by a consumer of a dispute, a consumer reporting agency had performed the same sort of perfunctory reinvestigation that TUC performed here. See id. at *3. As here, the consumer sued the consumer reporting agency pursuant to 15 U.S.C. § 1681i. See id. n2

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n2 Podell also concerned a claim against a different consumer reporting agency pursuant to 15 U.S.C. § 1681e(b). That portion of the opinion is not relevant to our discussion.

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However, the consumer in Podell did not contend that the extent of the reinvestigation was unreasonably narrow, as Cushman argues here. Rather, the consumer's position in that case was that the consumer reporting agency never sent him an updated credit report or any other notice that a reinvestigation had been performed. See id. Therefore, he argued, he never had an opportunity to place a statement of dispute in his file pursuant to § 1681i(b) and (c). See id.

As the consumer in Podell never took issue with the reasonableness of the scope of the consumer reporting agency's reinvestigation, the Court of Appeals for the Second Circuit had no occasion to address this issue.

We hold that in order to fulfill its obligation under § 1681i(a) "a credit reporting agency may be required, in certain circumstances, to verify the accuracy of its initial source of information." Henson, 29 F.3d at 287. We further hold that "whether the credit reporting agency has a duty to go beyond the original source will depend" on a number of factors. Id. One of these is "whether the consumer has alerted the reporting agency to the possibility that the source may be unreliable or the reporting agency itself knows or should know that the source is unreliable." Id. A second factor is "the cost of verifying the accuracy of the source versus the possible harm inaccurately reported information may cause the consumer." Id. Whatever considerations exist, it is for "the trier of fact [to] weigh these factors in deciding whether [the defendant] violated the provisions of section 1681i." Id.

In this case, the district court initially denied TUC's motion for summary judgment and relied on Henson in doing so, stating:

The scope of the agency's duty to reinvestigate depends upon (1) the cost of verifying the accuracy of the source versus the potential harm to the consumer; and (2) the extent of the information the credit reporting agency possesses. . . . Once the credit reporting agency receives . . . notice [from the consumer that the credit report is inaccurate] it may be required to conduct a more thorough investigation, one that requires it to make inquiries beyond the original source of the information. . . .

. . . The decisive inquiry is whether Trans Union could have determined that the accounts were opened fraudulently if it had reasonably investigated the matter.

Cushman, 920 F. Supp. at 83 (citing Henson, 29 F.3d at 286-87).

This was in accord with our holding today. However, after the close of plaintiff 's case the court stated, without further elaboration:

I have entertained the evidence in this case to this point, and I tell you I am not persuaded that the plaintiff has met [her] burden to this Court in any claim that is before it at this juncture.

Based on that, I'm going to grant a 50(a) motion in favor of the defendant.

App. at 256-57. As far as we can tell, the evidence before the court on defendant's summary judgment motion was not materially different from the evidence produced at trial. Most importantly, there was evidence produced at trial concerning the inaccuracy of the information, Cushman's notification to TUC of the inaccuracy and the underlying fraud, the nature of TUC's reinvestigation and the costs incurred by it in performing that reinvestigation, and the damages suffered by Cushman.

A reasonable jury weighing this evidence in light of the factors identified in Henson and endorsed by us today could have rendered a verdict for Cushman. The jury could have concluded that after TUC was alerted to the accusation that the accounts were obtained fraudulently, and then confronted with the credit grantors' reiteration of the inaccurate information, TUC should have known that the credit grantors were "unreliable" to the extent that they had not been informed of the fraud. See Henson, 29 F.3d at 286; see also Pinner, 805 F.2d at 1262 (where consumer informed consumer reporting agency of his personal dispute with manager of credit grantor, it was unreasonable under § 1681i(a) for consumer reporting agency to rely solely on manager for information); cf. Bryant v. TRW, Inc., 689 F.2d 72, 79 (6th Cir. 1982) (similar efforts insufficient under § 1681e(b)). Similarly, the jury could have concluded that seventy-five cents per investigation was too little to spend when weighed against Cushman's damages. See Henson, 29 F.3d at 287. It was for "the trier of fact [to] weigh these factors." Id. (emphasis added). The district court arrogated that role to itself, and in doing so, it erred. Therefore, the judgment of the district court granting judgment as a matter of law on Cushman's claim for negligent noncompliance with § 1681i(a) will be reversed and remanded.

3.

Cushman also claims that she is entitled to punitive damages pursuant to 15 U.S.C. § 1681n because TUC's alleged noncompliance with § 1681i(a) was willful. "To show willful noncompliance with the FCRA, [Cushman] must show that [TUC] 'knowingly and intentionally committed an act in conscious disregard for the rights of others,' but need not show 'malice or evil motive.' " Philbin, 101 F.3d at 970 (quoting Pinner, 805 F.2d at 1263). The Fifth Circuit has held that "only defendants who have engaged in 'willful misrepresentations or concealments' have committed a willful violation and are subject to punitive damages under § 1681n." Stevenson, 987 F.2d at 294 (quoting Pinner, 805 F.2d at 1263). Other courts have allowed punitive damages in cases involving concealments or misrepresentations without necessarily limiting the availability of punitive damages to such cases. See, e.g., Millstone v. O'Hanlon Reports, Inc., 528 F.2d 829, 834 (8th Cir. 1976); Collins v. Retail Credit Co., 410 F. Supp. 924, 931-32 (E.D. Mich. 1976).

Although we decline to adopt the Fifth Circuit's holding in Stevenson, we conclude that to justify an award of punitive damages, a defendant's actions must be on the same order as willful concealments or misrepresentations. If Cushman can prove, as she argues, that TUC adopted its reinvestigation policy either knowing that policy to be in contravention of the rights possessed by consumers pursuant to the FCRA or in reckless disregard of whether the policy contravened those rights, she may be awarded punitive damages.

The district court concluded that Cushman had not made out a case even of negligent noncompliance with § 1681i(a). It therefore did not consider whether she had shown TUC's alleged noncompliance to be willful. Because the district court is more intimately familiar with the record in this matter, it is better situated than we to determine whether Cushman has produced sufficient evidence for a reasonable jury to find willfulness on the part of TUC pursuant to the standards we have set forth above. Therefore we will remand to the district court for such a determination.

B.

Cushman also claims that TUC has violated the VFCRA. Vermont Statutes Annotated Title 9, § 2480d is similar to 15 U.S.C. § 1681i, providing, in pertinent part:

(a) If the completeness or accuracy of any item of information contained in the consumer's file is disputed by the consumer and the consumer notifies the credit reporting agency directly of such dispute, the agency shall reinvestigate free of charge and record the current status of the disputed information on or before 30 business days after the date the agency receives notice from the consumer.

. . . .

(e) If, after a reinvestigation under subsection (a) of this section of any information disputed by the consumer, the information is found to be inaccurate or cannot be verified, the credit reporting agency shall promptly delete such information from the consumer's file. . . .

(f) If any information is deleted after a reinvestigation under subsection (a) of this section, the information may not be reinserted in the consumer's file after deletion unless the person who furnishes the information reinvestigates and states in writing or by electronic record to the agency that the information is complete and accurate. . . . Upon such reinvestigation and statement by the furnisher, the credit reporting agency shall promptly notify the consumer of any reinsertion.

(g) A credit reporting agency shall provide written notice of the results of any reinvestigation under this subsection [which] shall include:

. . . .

(5) a description of the procedure used to determine the accuracy and completeness of the information, including the name, business address, and, if available, the telephone number of any person contacted in connection with such information . . . .
1.

As a threshold matter, we must determine whether Cushman's relation to the state of Vermont is sufficient to bestow on her the protections of the VFCRA. Vermont Statutes Annotated Title 9, section 2480a(1) defines "consumer" as "a natural person residing in this state." Thus, we must determine, pursuant to Vermont law, whether Cushman "resided" in that state for purposes of the statute. We have stated that "the term 'resident' has no precise meaning. Rather, its definition varies with each statutory usage." Government of Virgin Islands ex rel. Bodin v. Brathwaite, 459 F.2d 543, 544 (3d Cir. 1972) (citations omitted); see also Willenbrock v. Rogers, 255 F.2d 236, 237 (3d Cir. 1958); United States v. Stabler, 169 F.2d 995, 998 (3d Cir. 1948). Unfortunately, the word "residing" is not defined in the VFCRA and we have uncovered no cases addressing what constitutes residency for purposes of the VFCRA.

It is perhaps telling that the Vermont legislature left the word "residing" undefined in the VFCRA. It could have rendered a technical definition of residency for these purposes as it has for state income tax purposes. See VT. STAT. ANN. tit. 32, § 5811(11)(A). Alternatively, it could have issued guidelines for the use of a state agency or the courts to establish their own definition of residency for these purposes, as it has for purposes of determining who is entitled to lowered tuition rates at state-supported institutions of higher learning. See VT. STAT. ANN. tit.16, §§ 2282, 2282a.

Because it did neither of these things, we conclude that the Vermont legislature intended "residing" in VT. STAT. ANN. tit. 9, § 2480a(1) to have its common legal meaning. In ordinary legal parlance, residency merely means "living in a particular locality" but not necessarily with the intent to make that locality "a fixed and permanent home." BLACK'S LAW DICTIONARY 1308-09 (6th ed. 1990); see also Wolinsky v. Bradford Nat'l Bank, 34 B.R. 702, 704 (D. Vt. 1983) (pursuant to Vermont law, " 'domicile' . . . means living in a locality with the intent to make it a fixed and permanent home, while 'residence' simply requires bodily presence as an inhabitant in a given place") (citation omitted); Piche v. Department of Taxes, 152 Vt. 229, 565 A.2d 1283, 1285 (Vt. 1989) (residence is something less than domicile); Walker v. Walker, 124 Vt. 172, 200 A.2d 267, 269 (Vt. 1964) (same). But cf. Bonneau v. Russell, 117 Vt. 134, 85 A.2d 569, 570 (Vt. 1952) (equating residency and domicile for purposes of VT. STAT. ANN. tit. 47, § 2713). n3 On the other hand, residency implies something more than "merely transitory in nature," such as the happenstance of passing through a state on one's way to some other destination. BLACK'S LAW DICTIONARY at 1309 (defining "resident"); see also Guessefeldt v. McGrath, 342 U.S. 308, 312, 72 S. Ct. 338, 341, 96 L. Ed. 342 (1951) (residence, for purposes of Trading with the Enemy Act of 1917, 50 U.S.C. App. § 2(a) (1990), "implies something more than mere physical presence and something less than domicile"). TBrathwaite is instructive in this regard. In that case, we were charged with the task of interpreting the word "resident" in V.I. CODE ANN . tit. 16, § 291(a) (1995), in order to determine whether the petitioner could bring a paternity proceeding under that section. As in this case, we had little guidance in that endeavor. We noted that "residence may be taken to indicate merely one's momentary factual place of abode." Brathwaite, 459 F.2d at 544. We held that physical presence in a locality "coupled with [an] intent to remain there for a measurable period of time," satisfied the statute's requirement of residency. Id. at 544-45. We further concluded that the four-month period during which the petitioner had continuously lived in the Virgin Islands prior to the conclusion of the trial in that case sufficed to confer resident status upon her. See id. at 545. Thus, to be a resident of a locale, one need intend to live there not permanently nor indefinitely, but only "for a measurable period of time." Id. Moreover, presence for a period as short as four months will suffice. See also Stabler, 169 F.2d at 998 (defendant's "presence in New Jersey over a period of weeks . . . was sufficient to give him a residence in New Jersey" for purposes of 8 U.S.C. § 738(b) (repealed 1952), relating to revocation of naturalization).

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n3 Bonneau v. Russell, 117 Vt. 134, 85 A.2d 569, 570 (Vt. 1952), has been criticized for "failing to recognize the distinction in Vermont law between residence and domicile." Wolinsky v. Bradford Nat'l Bank, 34 B.R. 702, 704 n.1 (D. Vt. 1983).

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The record reflects that during the period that TUC allegedly failed to fulfill its obligations pursuant to the VFCRA (roughly from the autumn of 1994 through the spring of 1995), Cushman was in her senior year at the University of Vermont in Burlington. See App. at 147-56. It appears that she had been living in Vermont at least since the summer of 1993, except for "a brief few days at the end of the summer." Id. at 148. Moreover, she still lived in Vermont at the time of trial, in the spring of 1996. See id. at 147. The jury could reasonably infer from the evidence that, at the time of TUC's alleged violation of the VFCRA, (1) Cushman had already lived in Vermont for over a year, and (2) she intended to remain in Vermont at least until she graduated from the University and perhaps indefinitely. Thus, there was sufficient evidence from which a reasonable jury could conclude that Cushman was "residing" in Vermont during the relevant time period, pursuant to the ordinary legal meaning of that term. A jury could therefore conclude that Cushman may invoke the protections of the VFCRA. n4

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n4 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985), and International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945), cited by TUC, are inapposite. The question raised is whether Cushman may invoke the protections of a Vermont statute, regardless of where the action is brought. This issue is entirely separate and distinct from the question whether a state or federal court located in Vermont would be able, consistent with due process principles, to assert personal jurisdiction over TUC.

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2.

Cushman claims that TUC violated VT. STAT. ANN. tit. 9, § 2480d(f), by not "promptly notifying" her of the reinsertion of the Citibank entry. A TUC employee testified that it did notify her through her attorneys, see App. at 223-24, and Cushman has pointed to no contrary evidence in the record. Cushman claims that this notification occurred only during discovery in this litigation and therefore was not sufficiently "prompt[ ]" to satisfy § 2480d(f). The record does not indicate when the notification was made to Cushman's attorneys. Accordingly, we cannot conclude as a matter of law that TUC fulfilled its obligations pursuant to that section. The district court's grant of judgment as a matter of law on this claim will be reversed and remanded for a jury determination of whether the notification was sufficiently prompt pursuant to § 2480d(f).

3.

Cushman also claims that TUC violated VT. STAT. ANN. tit. 9, § 2480d(g)(5), by not providing her with a description of its reinvestigation procedures. There is evidence that TUC did fail in this regard. See App. at 224-26. Therefore Cushman's claim pursuant to that section of the VFCRA must stand, as must her claims under those portions of the VFCRA that merely duplicate the FCRA. n5

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n5 TUC contends that the VFCRA claim should be dismissed on the additional ground that Cushman proved no damages stemming from the alleged violation of that statute. TUC points to a "concession" by Cushman's counsel in the district court that Cushman has not "pointed to any damage evidence specifically [with regard] to" the Vermont statute. App. at 260. As we read this, however, it appears that counsel merely stated that any damages caused by the alleged violations of the VFCRA were identical to those caused by the alleged violations of the FCRA. Thus, TUC's contention that Cushman conceded away any claim that she was damaged by a violation of the VFCRA is meritless.

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C.

1.

The district court dismissed Cushman's defamation claim on the ground that she had not produced any evidence of malice and because the FCRA preempts state law defamation claims except where the plaintiff proves "malice or willful intent to injure" her. 15 U.S.C. § 1681h(e); see Bloom v. I.C. Sys., Inc., 972 F.2d 1067, 1069 (9th Cir. 1992); Thornton v. Equifax, Inc., 619 F.2d 700, 703 (8th Cir. 1980). The parties have assumed that a showing of "malice or willful intent to injure" pursuant to § 1681h(e) is identical to proof of willfulness under § 1681n. This is contrary to the holding of the United States Court of Appeals for the Eighth Circuit in Thornton, 619 F.2d at 706, that § 1681h(e) establishes a "higher requirement of proof." However, because neither the parties nor the district court addressed this issue, we will assume without deciding that the requirements for the two showings are identical. We have explained above that we will remand to the district court for a determination of whether Cushman has produced evidence sufficient to justify a finding of willfulness on the part of TUC pursuant to § 1681n. See Part II.A.3 supra. We must likewise remand for a determination of whether Cushman has produced evidence of "malice or willful intent to injure" sufficient to avoid preemption of her defamation claim pursuant to § 1681h(e).

2.

The district court granted TUC judgment as a matter of law on Cushman's defamation claim on the alternative ground that she had not produced any evidence of publication. In order to prove defamation pursuant to Pennsylvania law, n6 Cushman must prove, inter alia, publication of the defamatory matter by TUC. See 42 PA. CONS. STAT. ANN. § 8343(a)(2) (1982); U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 923 (3d Cir. 1990); Ertel v. Patriot-News Co., 544 Pa. 93, 674 A.2d 1038, 1043 (Pa.), cert. denied, U.S. , 117 S. Ct. 512, 136 L. Ed. 2d 401 (1996).

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n6 Neither party has argued that the defamation claim is governed by the laws of Vermont or any other jurisdiction. In the absence of such a contention, we apply the laws of the forum state. See Publicker Indus., Inc. v. Roman Ceramics Corp., 652 F.2d 340, 343 n.6 (3d Cir. 1981). Publication consists of the communication of the information to at least one person other than the person defamed. See Flaxman v. Burnett, 393 Pa. Super. 520, 574 A.2d 1061, 1066 (Pa. Super. 1990).

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A TUC employee testified that the allegedly defamatory information was published to Chase and Citibank. See App. at 222, 338-39. Moreover, Cushman testified that an unidentified bill collector initially informed her of the allegedly defamatory information, from which a jury could infer that the information had been published to him as well. See id. at 149. A reasonable jury could conclude that Cushman has satisfied the publication element of her defamation cause of action. n7 Thus, this was not a proper basis upon which to grant TUC judgment as a matter of law on the defamation claim.

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n7 We express no opinion as to whether Cushman has set forth evidence sufficient to prove the other elements of her defamation claim.

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III.

The judgment of the district court will be reversed and remanded for further proceedings consistent with this opinion.


197 F. Supp. 2d 1233, *; 2002 U.S. Dist. LEXIS 7451, **


JUDY C. THOMAS, Plaintiff, vs. TRANS UNION LLC, a foreign corporation, Defendant.


CV 00-1150-JE


UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON


197 F. Supp. 2d 1233; 2002 U.S. Dist. LEXIS 7451


March 21, 2002, Decided

DISPOSITION: [**1] Magistrate judge recommended that Defendant's motions to strike certain of plaintiff's exhibits be denied as moot, and plaintiff's motion for partial summary judgment be denied.

CASE SUMMARY

PROCEDURAL POSTURE: Plaintiff individual sued defendant credit reporting agency for alleged violations of the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., claiming that the reporting agency failed to follow reasonable procedures to assure maximum possible accuracy of the information in its credit reports. The individual moved for partial summary judgment. The matter was referred a magistrate judge.

OVERVIEW: The individual argued that the reporting agency failed to comply with the requirement in 15 U.S.C.S. § 1681i(a)(1) that information disputed by a consumer be reinvestigated within 30 days and failed to provide a timely written notice of the results of reinvestigation and a statement that the reinvestigation was completed. The magistrate judge concluded that the defense of reasonable procedures was available to the reporting agency with respect to a claim under 15 U.S.C.S. § 1681i because there was no reason not to apply that defense to the maintenance of accurate information through the dispute and reinvestigation procedures. Although the magistrate judge agreed that the reporting agency did not timely reinvestigate one of the individual's accounts, given the availability of the defense of reasonableness, the individual was not entitled to summary judgment. Moreover, the claim related to the timeliness of the notice of reinvestigation was not resolvable on summary judgment because even if the notice did not comply with the statute, fact issues were raised by the reasonable procedures defense.


OUTCOME: The magistrate judge recommended that the motion for partial summary judgment be denied.


CORE TERMS: reinvestigation, credit report, disputed, consumer, notice, summary judgment, updated, accuracy, credit reporting agency, reinvestigate, reporting, reinvestigated, revised, failed to comply, written notice, inaccurate, partial, maximum possible, strict liability, matter of law, moving party, reasonableness, preparation, recommend, duty, issues of material fact, consumer reports, jury question, completion, incomplete


CORE CONCEPTS - Hide Concepts

Civil Procedure : Summary Judgment : Summary Judgment Standard
Summary judgment should be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).


Civil Procedure : Summary Judgment : Burdens of Production & Proof
If the party moving for summary judgment shows that there are no genuine issues of material fact, the non-moving party must go beyond the pleadings and designate facts showing an issue for trial. A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact.


Civil Procedure : Summary Judgment : Summary Judgment Standard
The substantive law governing a claim determines whether a fact is material for purposes of summary judgment. Reasonable doubts as to the existence of a material factual issue are resolved against the moving party. Inferences drawn from facts are viewed in the light most favorable to the non-moving party.


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
The elements of a claim for failure to reinvestigate under 15 U.S.C.S. § 1681i(a) of the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., are: (1) the plaintiff's credit file contains inaccurate or incomplete information, 15 U.S.C.S. § 1681i(a)(1); (2) the plaintiff notified the credit reporting agency directly of the inaccurate or incomplete information, 15 U.S.C.S. § 1681i(a)(1); (3) the plaintiff's dispute is not frivolous or irrelevant, 15 U.S.C.S. § 1681i(a)(3); (4) the credit reporting agency failed to respond to the plaintiff's dispute, 15 U.S.C.S. § 1681i(a)(1), (2), and (6); (5) the failure to reinvestigate caused the consumer to suffer damages; and (6) actual damages resulted to the plaintiff. Actual damages may include damages for humiliation, mental distress, and injury to reputation and credit worthiness, even if the plaintiff has suffered no out-of-pocket losses.


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
If a consumer notifies a credit reporting agency of a dispute concerning the completeness or accuracy of any item of credit information, the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., requires the agency to reinvestigate free of charge and record the current status of the disputed information, or delete the item within 30 days of receiving the dispute. 15 U.S.C.S. § 1681i(a)(1)(A).


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
Under the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., a credit reporting agency must provide written notice to a consumer of the results of a reinvestigation not later than five business days after the completion of the reinvestigation. 15 U.S.C.S. § 1681i(a)(6)(A).


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
As part of, or in addition to, the notice under 15 U.S.C.S. § 1681i(a)(6)(A) of the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., a consumer reporting agency must provide to the consumer a statement that the reinvestigation is completed, and a consumer report that is based on the consumer's file as that file is revised as a result of the reinvestigation. 15 U.S.C.S. § 1681i(a)(6)(B).

Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
Courts regularly hold that the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., does not impose strict liability on an agency.


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
Under 15 U.S.C.S. § 1681e(b) of the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., the credit reporting agency is required to follow reasonable procedures to assure maximum possible accuracy of the information in the consumer reports it prepares. 15 U.S.C.S. § 1681e(b).


Banking Law : Bank Activities : Consumer Protection : Fair Credit Reporting
The Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., imposes liability on a consumer reporting agency for negligent failure to comply with any requirement imposed by the Act. 15 U.S.C.S. § 1681o.



COUNSEL: For Judy C Thomas, Plaintiff: Michael Charles Baxter, Baxter & Baxter, Robert S. Sola, Portland, OR.

For Trans Union LLC, Defendant: Donald E. Bradley, Theresa C. Archuletta, Crowell & Moring LLP, Irvine, CA.

For Trans Union LLC, Defendant: Emi A. Murphy, Francis T. Barnwell, Bullard Smith Jernstedt Harnish, Portland, OR.

For Defendant: Emi A. Murphy, Portland, Oregon.

JUDGES: John Jelderks, U.S. Magistrate Judge.

OPINIONBY: John Jelderks

OPINION: [*1234] FINDINGS AND RECOMMENDATION

JELDERKS, Magistrate Judge:

The matter before the court is plaintiff's motion (doc. 62) for partial summary judgment. Oral argument was held March 19, 2002.

Plaintiff brings this action against defendant for alleged violations of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, et seq. In her moving papers, plaintiff states that most of her claims involve allegations that defendant violated 15 U.S.C. § 1681e(b) (Compliance Procedures) by failing to follow [**2] reasonable procedures to assure maximum possible accuracy of the information in its credit reports. Plaintiff states that she does not move for summary judgment on the claims arising under section 1681e(b) because the reasonableness standard raises a question of fact.

[*1235] At issue in this motion is plaintiff's claim that defendant violated 15 U.S.C. § 1681i(a) (Procedures in Case of Disputed Accuracy). She moves for summary judgment on two claims arising under section 1681i(a), arguing that as a matter of law:

(1) Defendant failed to comply with the requirement of 15 U.S.C. § 1681i(a)(1) that information disputed by a consumer be reinvestigated within 30 days; and

(2) Defendant failed to comply with the requirement of 15 U.S.C. § 1681i(a)(6) that written notice of the results of reinvestigation and a statement that the reinvestigation has been completed be provided to the consumer no later than five days after completion of the reinvestigation.

SUMMARY JUDGMENT STANDARDS

Summary judgment should be granted if there are no genuine issues of material fact and the moving party is entitled to judgment [**3] as a matter of law. Fed. R. Civ. P. 56(c). If the moving party shows that there are no genuine issues of material fact, the non-moving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact. United Steelworkers of America v. Phelps Dodge, 865 F.2d 1539, 1542 (9th Cir. 1989).

The substantive law governing a claim determines whether a fact is material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); see, also, T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). Reasonable doubts as to the existence of a material factual issue are resolved against the moving party. T.W. Elec. Service, 809 F.2d at 631. Inferences drawn from facts are viewed in the light most favorable to the non-moving party. Id. at 630-31.

FACTUAL BACKGROUND

On February 19, 1999, by [**4] facsimile to defendant, plaintiff disputed 14 items that defendant was reporting on her credit reports. One of the accounts disputed was Gulf State # 3707922961 (Gulf State account), which was a collection account related to GTE Mobil # 5039106464941028 (GTE Mobil account). Defendant explains that GTE Mobil appears to be the underlying creditor, while Gulf State appears to be the collection agency to which the GTE Mobil account was eventually transferred.

Less than 30 days after the February 19th dispute, on March 8, 1999, plaintiff sent defendant another letter (received by defendant on March 12th) disputing a number of items appearing on her credit report. Included with the letter were pages from a credit report that contained information reported by defendant. Plaintiff had written the word "delete" across some 24 items reported that she disputed as not being hers. Plaintiff admits that most of the accounts disputed in March 8th were already being reinvestigated by defendant pursuant to her February 19th dispute, and she does not contend that defendant should have initiated new investigations of those accounts. However, plaintiff asserts that one of the items disputed on March [**5] 8th, the GTE Mobil account, was not already being investigated and defendant was obligated to reinvestigate within 30 days of its receipt of plaintiff's dispute on March 12, 1999, which it did not do.

Defendant contends that it completed the reinvestigations of the February 19th disputes on March 22, 1999, and that same day prepared a notice of the results of the reinvestigations. However, defendant says that because it had received another [*1236] dispute letter from plaintiff between February 19th and March 22nd, it then updated the information in the report based on plaintiff's March 8th dispute. Once the information was updated, defendant generated a second updated credit report on that same day, March 22nd, and sent the second report to plaintiff.

Plaintiff asserts that the March 22nd report she received contained defective notices in violation of FCRA in that it described the results of the reinvestigation of only one account that she had disputed on February 19th, the Bank of America account. Defendant disagrees, arguing that the second March 22nd updated credit report complied with section 1681i because it stated that defendant had completed its reinvestigation and the credit report [**6] itself was the "notice" because it incorporated the results of the reinvestigation into the body of the report.

Thereafter, defendant sent plaintiff a credit report dated April 15, 1999, that still reported the GTE Mobil account as adverse information. After plaintiff received that credit report, she again disputed the account to defendant. Defendant reinvestigated after this dispute and deleted the GTE Mobil account on May 18, 1999.

Defendant has moved to strike many of the exhibits plaintiff submitted in support of her motion for partial summary judgment. I have reviewed the motions and objections to exhibits. None of the materials at which defendant's motions are directed were necessary for the resolution of plaintiff's motion. Defendant's motions are denied as moot.


APPLICABLE LAW

A. Elements of FCRA Claim.

The elements of a claim for failure to reinvestigate under section 1681i(a) are:

(1) The plaintiff's credit file contains inaccurate or incomplete information. 15 U.S.C. § 1681i(a)(1).

(2) The plaintiff notified the credit reporting agency directly of the inaccurate or incomplete information. Id.

(3) The plaintiff's dispute [**7] is not frivolous or irrelevant. 15 U.S.C. § 1681i(a)(3).

(4) The credit reporting agency failed to respond to the plaintiff's dispute. 15 U.S.C. § 1681i(a)(1), (2), and (6).

(5) The failure to reinvestigate caused the consumer to suffer damages. Cousin v. Trans Union Corp., 246 F.3d 359, 368-69 (5th Cir.), cert. denied, 151 L. Ed. 2d 261, 122 S. Ct. 346 (2001).

(6) Actual damages resulted to the plaintiff. Actual damages may include damages for humiliation, mental distress, and injury to reputation and credit worthiness, even if the plaintiff has suffered no out-of-pocket losses. Id. at 369 n.15.

B. Reinvestigation - 15 U.S.C. § 1681i(a)(1)(A).

If a consumer notifies a credit reporting agency of a dispute concerning the completeness or accuracy of any item of credit information, FCRA requires the agency to reinvestigate free of charge and record the current status of the disputed information, or delete the item within 30 days of receiving the dispute. 15 U.S.C. § 1681i(a)(1)(A).

C. Notice of Reinvestigation [**8] - 15 U.S.C. § 1681i(a)(6).

A credit reporting agency must provide written notice to a consumer of the results of a reinvestigation not later than five business days after the completion of the reinvestigation. 15 U.S.C. § 1681i(a)(6)(A).

Further, "as part of, or in addition to, the notice under subparagraph (A), "a consumer [*1237] reporting agency must provide to the consumer a statement that the reinvestigation is completed, and a consumer report that is based on the consumer's file as that file is revised as a result of the reinvestigation. 15 U.S.C. § 1681i(a)(6)(B).

D. Defenses.

An important issue raised by plaintiff's motion is what defenses are available to a credit reporting agency that violates one of the provisions of section 1681i. In her motion, plaintiff argues that under the facts here there is no defense available to defendant for alleged violations of section 1681i, which is essentially an argument for strict liability. Courts regularly hold that FCRA does not impose strict liability on an agency. Guimond v. Trans Union Credit Information Company, 45 F.3d 1329, 1333 (9th Cir. 1995); [**9] Dalton v. Capital Associated Industries, Incorporated, 257 F.3d 409, 417 (4th Cir. 2001); Pettus v. TRW Consumer Credit Service, 879 F. Supp. 695, 697 (W.D. Texas. 1994).

In its answer to plaintiff's second amended complaint, defendant asserts as its first affirmative defense that it "followed reasonable procedures to assure maximum possible accuracy of the information concerning plaintiff in preparing consumer reports related to her." Def. Answer, P 16, p.4. Section 1681e(b) of FCRA requires the credit reporting agency to "follow reasonable procedures to assure maximum possible accuracy of the information" in the consumer reports it prepares. 15 U.S.C. § 1681e(b). Because there is not a similar provision in section 1681i dealing with reinvestigation, the question arises as to whether the defense of reasonable procedures is available to a consumer reporting agency in relation to its reinvestigation obligations under section 1681i. I conclude that it is available, and the discussion of plaintiff's motion that follows relies on that conclusion.

It is logical that a consumer reporting agency should not be liable under FCRA [**10] for an employee's isolated mistakes in the face of the agency having and enforcing reasonable procedures to fulfill its FCRA obligations. Indeed, the reasonable procedures defense "is designed to protect users of credit information who consistently abide by the law but who, in dealing with hundreds or thousands of instances, ultimately, by commission or omission, inadvertently violate the law in isolated instances. Mathews v. Government Employees Insurance Co., 23 F. Supp.2d 1160, 1163 (S.D. Cal. 1998). There is no reason to restrict the reasonable procedures defense to the initial preparation of credit reports, but not permit the defense as to the maintenance of accurate information through the dispute and reinvestigation provisions of section 1681i(a). The two sections overlap -- the reinvestigation process is a part of the agency's duty to maintain accurate credit reports. Thus, although section 1681i does not contain explicit reasonable procedures provisions, I conclude that such a defense is available with respect to a claim under section 1681i.

I have found no cases directly holding that the reasonable procedures defense is available to an agency with respect [**11] to its section 1681i obligations. However, there are cases that touch on the issue. For example, the Fifth Circuit discusses updating procedures as part of an agency's continuing duty under section 1681e(b) to insure accuracy of a credit report. Thompson v. San Antonio Retail Merchants Association, 682 F.2d 509 (5th Cir. 1982). As discussed above, I view dispute and reinvestigation as part of the ongoing process of insuring accuracy of credit reports. In Thompson, the court said:

Section 1681e(b) does not impose strict liability for any inaccurate credit report, but only a duty of reasonable care in preparation of the report. That duty [*1238] extends to updating procedures, because "preparation" of a consumer report should be viewed as a continuing process and the obligation to insure accuracy arises with every addition of information. [Citation omitted]. The standard of conduct by which the trier of fact must judge the adequacy of agency procedures is what a reasonably prudent person would do under the circumstances.

682 F.2d at 513.

In Stewart v. Credit Bureau, Inc., 236 U.S. App. D.C. 146, 734 F.2d 47 (D.C. Cir. 1984), [**12] plaintiff argued that the defendant's reinvestigation violated section 1681e(b)'s requirement that the agency follow reasonable procedures to assure accuracy. The court assumed, arguendo, that a section 1681e(b) challenge to reinvestigation procedures was cognizable, and held that defendant's motion for summary judgment on the claim was properly granted because the agency's reinvestigation procedures were reasonable as a matter of law. 734 F.2d at 55-56.

In Bruce v. First U.S.A. Bank, National Association, 103 F. Supp.2d 1135 (E.D. Missouri 2000), the court adopted the "reasonableness standard applied in cases addressing reinvestigations under § 1681i(a)" to determine whether the defendant failed to comply with an investigation requirement under another section of FCRA, section 1681s-2(b)(1)(A) (duties of furnishers of information upon notice of dispute). 103 F. Supp.2d at 1143. The court noted that "courts interpreting § 1681i(a) have imposed upon credit reporting agencies a duty to conduct a reasonable reinvestigation." Id.

There are other cases that touch on the relationship between sections 1681i and 1681e(b). See, e.g. [**13] , Stevenson v. TRW, Inc., 987 F.2d 288 (5th Cir. 1993) (credit reporting agency's reinvestigation did not violate section 1681e(b) even though inaccurate information continued to appear on consumer's reports); Yelder v. Credit Bureau of Montgomery, L.L.C., 131 F. Supp.2d 1275 (M.D. Ala. 2001) (court rejected "maximum accuracy" reasonableness standard of section 1681e(b) in favor of lower standard to be used to evaluate defendant's section 1681i procedures for reinvestigations).

The reasonable procedures defense creates a jury question. Guimond, 45 F.3d at 1333; Dalton v. Capital Associated Industries, Incorporated, 257 F.3d 409, 417 (4th Cir. 2001); Mathews v. Government Employees Insurance Co., 23 F. Supp.2d at 1164.

PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Plaintiff moves for partial summary judgment on her claims that defendant negligently violated the provisions of section 1681i(a) of FCRA relating to reinvestigations of accounts disputed by a consumer. FCRA imposes liability on a consumer reporting agency for negligent failure to comply "with any requirement imposed" by the [**14] Act. 15 U.S.C. § 1681o.

A. Reinvestigation - 15 U.S.C. § 1681i(a)(1)(A).

1. Plaintiff's Arguments.

Plaintiff argues that defendant violated section 1681i(a)(1)(A) by failing to reinvestigate the GTE Mobil account within 30 days of her first dispute of the account that defendant received on March 12, 1999.

Plaintiff argues that under FCRA, a credit reporting agency has no discretion whether to reinvestigate once it receives notification of a dispute from a consumer. The agency must complete the investigation within 30 days. 15 U.S.C. § 1681i(a)(2). In this case, defendant did not even begin to reinvestigate until plaintiff disputed the GTE Mobil account a [*1239] second time on April 19, 1999. Thus, plaintiff contends that defendant failed to comply with the reinvestigation requirements of FCRA on the GTE Mobile account, there is no defense available for that failure, and she is entitled to summary judgment.

2. Defendant's Arguments.

Of the 14 items included in plaintiff's February 19th dispute, only the GTE Mobile account remained on her credit report on March 22nd after defendant had [**15] completed its investigations and updated plaintiff's identifying information.

Defendant asserts that because of plaintiff's overlapping disputes, it was required to review plaintiff's February 19th and March 8th disputes together, to parse the old from the new for the purpose of its reinvestigation. In doing so, an employee mistakenly identified the GTE Mobil account as an old dispute. Defendant says the confusion was created by the fact that on February 19th, plaintiff had disputed the Gulf State account (the collection agency trade line for the GTE Mobil account that lists GTE Mobil as the originating creditor). Because the Gulf State account included the name of GTE Mobil on the trade line, defendant's employee who conducted the review did not realize the GTE account in the March 8th dispute was a different one from the Gulf State account in the February 19th dispute. It is for this reason that the reinvestigation of the GTE Mobil account was not initiated at that time.

In addition to the name confusion, defendant asserts that if there was a breakdown in its reinvestigation process, it was largely due to the fact that plaintiff had submitted multiple and overlapping disputes that [**16] hindered its investigation. Defendant asserts that between February 4, 1999 and May 18, 1999, it received 11 disputes from plaintiff, some just days apart, and almost all the disputes pertained to the same accounts previously disputed. In sum, defendant contends that its reinvestigation was reasonable given the situation.

3. Discussion.

I agree that defendant did not timely reinvestigate the GTE Mobil account. However, I disagree that no defense is available to defendant. As discussed above, the reasonable procedures defense is available to defendant for a claim under section 1681i. The reasonable procedures defense creates a jury question. Guimond v. Trans Union Credit Information Company, 45 F.3d at 1333. Therefore, I recommend that plaintiff's motion for summary judgment on this issue be denied.

B. Notice of Reinvestigation - 15 U.S.C. § 1681i(a)(6).

1. Plaintiff's Arguments.

Plaintiff argues that defendant violated FCRA by failing to provide her with (a) notice of the results of the reinvestigations of her February 19th disputes (except for the Bank of America account), and (b) a statement that the reinvestigations [**17] were completed.

Plaintiff argues that she never got notice that 13 of the accounts she disputed had been reinvestigated or what the results of those reinvestigations were. She asserts that sending her a revised credit report does not satisfy defendant's FCRA obligation to provide her with a written notice of the results of the reinvestigation. She argues that because the statute requires that a revised credit report be sent "as part of, or in addition to" the written notice of the results of the reinvestigation (15 U.S.C. § 1681i(a)(6)(B)), the notice and the revised report must be two separate things. She also argues the notice in the revised credit report is in any event defective [*1240] because it indicates that only one disputed account had been reinvestigated and states only that result.

Plaintiff argues that defendant violated the FCRA requirement that it provide in writing "a statement that the reinvestigation is completed." 15 U.S.C. § 1681i(a)(6)(B)(i). She argues that the March 22nd credit report that she received stated that defendant had completed only one reinvestigation (the Bank of America account) because of the way the notice [**18] was written. Under the "Investigation Results" section, the report said: "We have completed our investigation of the item(s) you disputed. Our findings are summarized as follows:" Then, the only item following the statement is the Bank of America account. Plaintiff argues this notation was insufficient to inform her if reinvestigation had been completed with respect to the 14 accounts she disputed on February 19th.

2. Defendant's Arguments.

Defendant argues the March 22nd second updated credit report sent to plaintiff was sufficient to comply with FCRA because it incorporated the results of the reinvestigation into the body of the credit report.

Defendant argues that FCRA does not require a credit reporting agency to provide the consumer with a "summary" of its investigation results. Rather, section 1681i(a)(6)(A) requires only a written "notice" of the results. Further, the statute does not specify the form the notice must take, nor does it require a separate letter, or an updated credit report, or an updated credit report with a separate "notice of results of investigation" section. Therefore, what defendant sent to plaintiff complies with 15 U.S.C. § 1681i [**19] (a)(6)(A).

According to defendant, as a practical matter, a simple review of the report would have shown plaintiff that, other than the Bank of America account noted on the first page as containing new information, all of the other challenged accounts had been removed from plaintiff's credit report. Defendant argues that someone as concerned about the disputed accounts as plaintiff claims she was would have noted that 13 of the 14 disputed accounts were no longer on her credit report.

Defendant argues that it did, in fact, provide plaintiff with a statement that it had completed its investigation of her February 19th dispute. Appearing on page 1 of the updated report it sent to plaintiff is the statement "We have completed our investigation and the results are shown below." Defendant argues that no matter what investigation results were shown below the notice, it fulfilled its obligation under section 1681i(a)(6)(B)(i) to tell plaintiff it had completed its investigation.

3. Discussion.

It does not appear that the updated credit report that plaintiff received was in full compliance with the statute. Even so, I conclude that that issue can best be resolved by the trial [**20] judge in this matter. This claim cannot be resolved on summary judgment because even if the notice does not comply with the statute, fact issues are raised by the reasonable procedures defense. Therefore, I recommend that plaintiff's motion for summary judgment on this issue be denied.

CONCLUSION

Defendant's motions (docs. 86 and 87) to strike certain of plaintiff's exhibits are DENIED as moot, and I recommend that plaintiff's motion (doc. 62) for partial summary judgment be DENIED.

SCHEDULING ORDER

The above Findings and Recommendation are referred to a United States District [*1241] Judge for review. Objections, if any, are due April 8, 2001. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date.

A party may respond to another party's objections within 10 days after service of a copy of the objection. If objections are filed, review of the Findings and Recommendation will go under advisement upon receipt of the response, or the latest date for filing a response.

DATED this 21st day of March, 2002.

/s/ John Jelderks

U.S. Magistrate Judge


FOR PUBLICATION


ATTORNEY FOR APPELLANT: ATTORNEYS FOR APPELLEE:

CLIFFORD W. SHEPARD THOMAS J. GRAU
Consumer Protection Law Offices CAROL A. NEMETH
Indianapolis, Indiana White & Raub
Indianapolis, Indiana


IN THE COURT OF APPEALS OF INDIANA

GREG A. SPEARS, )

)
Appellant-Plaintiff, )
)
vs. ) No. 49A02-0003-CV-169
)
TIMOTHY L. BRENNAN, )
)
Appellee-Defendant. )


APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Kenneth Johnson, Judge
Cause No. 49D02-9802-CP-236




March 26, 2001


OPINION - FOR PUBLICATION


NAJAM, Judge


STATEMENT OF THE CASE

Greg A. Spears challenges the trial court’s entry of summary judgment in favor of attorney and debt collector Timothy R. Brennan on Spears’ complaint alleging violations of the Fair Debt Collection Practices Act (“the FDCPA” or “the Act”), 15 U.S.C. § 1692 et seq. Spears presents four issues for our review, which we restate as:
1. Whether Brennan misrepresented the amount of attorney’s fees to which he was entitled for the collection of Spears’ debt in violation of 15 U.S.C. §§ 1692e(2)(B) and 1692f(1).

2. Whether Brennan’s debt collection notice to Spears complied with 15 U.S.C. § 1692g(a).

3. Whether Brennan violated 15 U.S.C. § 1692g(a) when he scheduled two hearing dates on the debt collection claim and obtained a default judgment against Spears
within the thirty-day debt validation period.

4. Whether Brennan violated 15 U.S.C. § 1692g(b) when he obtained a default judgment against Spears after Spears had notified Brennan in writing that he was
disputing the debt and before Brennan had mailed verification of the debt to Spears.

We affirm in part, reverse in part and remand for further proceedings.
FACTS AND PROCEDURAL HISTORY

On September 30, 1994, Spears obtained a loan from American General Finance, Inc. (“American General”) in the amount of $2,561.59. The consumer credit contract executed by Spears contained the following collection costs provision: If you don’t make any payment when it is due, you will pay us reasonable amounts permitted by law which we spend trying to collect what you owe or trying to take, foreclose or sell the security. You will also pay our reasonable attorney’s fees, if referred to an attorney who is not our salaried employee, including any for appeals as permitted by law.

Record at 17 (emphasis added). When Spears stopped making the loan payments, American General retained Brennan to collect the unpaid contract balance.

On October 24, 1996, Brennan sent a debt collection notice See footnote to Spears that read:See footnote
RE: Creditor: American General Finance, Inc.
Balance: $2,918.47 less applicable rebates

Dear Mr. Spears:

This communication is from a debt collector and is an attempt to recover a debt owed to the above named Creditor[;] any information obtained will be used for that
purpose. Verification of the debt or the name and address of the original Creditor, if different than the above, will be provided upon written request to this office within
thirty (30) days[;] otherwise the debt will be assumed valid.

Record at 33. On October 30, 1996, Brennan filed a notice of claim against Spears on behalf of American General in small claims court, seeking recovery of the
$2,918.47 unpaid contract balance and $972.82 in attorney’s fees, for a total judgment of $3,891.29. Brennan’s notice of claim further stated:
THIS IS AN ATTEMPT TO RECOVER YOUR DEBT OWED TO [AMERICAN GENERAL][;] ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE. VERIFICATION OF THE DEBT, OR, THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT THAN THE
ABOVE, WILL BE PROVIDED UPON WRITTEN REQUEST TO THIS OFFICE WITHIN 30 DAYS[;] OTHERWISE THE DEBT WILL BE ASSUMED VALID. A REQUEST FOR INFORMATION WILL NOT RESULT IN A DELAY OF LEGAL PROCEEDINGS.

Record at 16. The small claims court set the debt collection claim for hearing on November 13, 1996, and in the notice of claim ordered Spears to appear on that date.

Spears retained attorney Clifford Shepard to represent him in the debt collection claim on November 12, 1996, on which date counsel moved to continue the hearing.
The small claims court granted the motion for continuance, and Shepard subsequently agreed with Brennan by telephone to reschedule the hearing for November 27,
1996. Also on November 12, Shepard sent Brennan a letter informing him that Spears “disputes your debt collection-related allegations, denies the same, and demands
strict proof and verification thereof. This dispute, denial, and demand are made in accordance with federal law.” Record at 21.

On November 26, 1996, Shepard again moved to continue the hearing on grounds that Brennan, on behalf of American General, “has failed or refused to provide the requested validation and verification” of the debt despite Spears’ demand of the same. Record at 22. The small claims court denied the motion for continuance as untimely and proceeded with the hearing on November 27, 1996. Neither Spears nor Shepard attended the hearing, and the trial court entered a default judgment against Spears in the amount of $3,891.29.

After learning that a default judgment had been entered against Spears on the debt collection claim, Shepard contacted Brennan, who agreed not to object to a motion to set aside the default judgment. No such motion was ever filed with the small claims court. Instead, Spears filed for bankruptcy and brought an action against Brennan seeking civil liability under the FDCPA. Brennan and Spears filed cross motions for summary judgment on the FDCPA action. The trial court denied Spears’ motion for summary judgment and entered summary judgment in favor of Brennan, concluding that “[a] careful consideration of the record in this cause discloses that .
. . Brennan, without any issues of material fact[], has not violated the provisions of the [FDCPA.]” Record at 164. This appeal ensued.

DISCUSSION AND DECISION
Standard of Review

Our analysis proceeds from the premise that summary judgment is a lethal weapon and that courts must be ever mindful of its aims and targets and beware of overkill in its use. Bunch v. Tiwari, 711 N.E.2d 844, 847 (Ind. Ct. App. 1999). Summary judgment is appropriate only when the designated evidentiary material shows that there are no genuine issues of material fact and the moving party is entitled to a judgment as a matter of law. Id.; Ind. Trial Rule 56(C). When reviewing an entry of summary judgment, we stand in the shoes of the trial court. Sizemore v. Templeton Oil Co., 724 N.E.2d 647, 650 (Ind. Ct. App. 2000). We do not weigh the evidence but will consider the facts in the light most favorable to the nonmoving party. Id. All doubts as to a factual issue must be resolved in the nonmovant’s favor. Bunch, 711 N.E.2d at 848. A trial court’s grant of summary judgment is “clothed with a presumption of validity,” and the appellant bears the burden of demonstrating that the grant of summary judgment was erroneous. Id. (citation omitted). Nevertheless, we must carefully assess the trial court’s decision to ensure the nonmovant was not improperly denied his day in court. Id.

This case also involves questions of statutory interpretation. The interpretation of a statute is a question of law reserved for the courts. Wayne Metal Prods. Co., Inc. v. Indiana Dep’t of Envtl. Mgmt., 721 N.E.2d 316, 317 (Ind. Ct. App. 1999), trans. denied. Appellate courts review questions of law under a de novo standard and owe no deference to a trial court’s legal conclusions. Id. If the language of a statute is clear and unambiguous, it is not subject to judicial interpretation. Montgomery v. Estate of Montgomery, 677 N.E.2d 571, 574 (Ind. Ct. App. 1997). However, when the language is susceptible to more than one construction, we must construe the
statute to determine the apparent legislative intent. Id.

We ascertain and implement legislative intent by giving effect to the ordinary and plain meaning of the language used in the statute. Clifft v. Indiana Dep’t of State Revenue, 660 N.E.2d 310, 316 (Ind. 1995) (citation omitted); Newsom v. Friedman, 76 F.3d 813, 819 (7th Cir. 1996) (interpreting FDCPA and observing that “[t]he plain meaning of legislation should be conclusive.”); Matter of Voelker, 42 F.3d 1050, 1051 (7th Cir. 1994) (noting that if statute is unambiguous, “we must enforce the plain meaning of the language enacted by Congress.”). The statute is examined and interpreted as a whole, and while the language itself is scrutinized, this court refrains from overemphasizing a strict literal or selective reading of individual words. Clifft, 660 N.E.2d at 316 (citation omitted). Finally, this court is compelled to ascertain and execute legislative intent in such a manner as to prevent absurdity and difficulty and prefer public convenience. Indiana State Teachers Ass’n v. Board of School Comm’rs of City of Indianapolis, 693 N.E.2d 972, 974 (Ind. Ct. App. 1998). In so doing, we are required to keep in mind the objects and purposes of the law as well as the effect and repercussions of such a construction. Id.

The FDCPA

In enacting the FDCPA, Congress stated its findings and declared the purposes of the Act as follows:
(a) There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices
contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.

(b) Existing laws and procedures for redressing these injuries are inadequate to protect consumers.

(c) Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.

* * *

(e) It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

Ziobron v. Crawford, 667 N.E.2d 202, 205 (Ind. Ct. App. 1996) (quoting 15 U.S.C. § 1692), trans. denied. “The FDCPA is a broad statute that was designed to
‘protect consumers from a host of unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors.’”
Blakemore v. Pekay, 895 F. Supp. 972, 977-78 (N.D. Ill. 1995) (citations omitted) (also observing that Act was designed to reach “very broad spectrum of abuses”).

Spears maintains that the trial court erred when it entered summary judgment in favor of Brennan on his complaint alleging violations of the FDCPA. In particular, Spears contends that: (1) Brennan misrepresented the amount of attorney’s fees to which he was entitled for the collection of Spears’ debt in violation of 15 U.S.C. §§ 1692e(2)(B) and 1692f(1); (2) Brennan’s debt collection notice to Spears did not comply with 15 U.S.C. § 1692g(a); (3) Brennan violated 15 U.S.C. § 1692g(a) when he scheduled two hearing dates on the debt collection claim and obtained a default judgment against Spears within the thirty-day debt validation period; and (4) Brennan violated 15 U.S.C. § 1692g(b) when he obtained a default judgment against Spears after Spears had notified Brennan in writing that the debt was being disputed and before Brennan had mailed verification of the debt to Spears. We address each of Spears’ contentions in turn.

Issue One: Misrepresentation of Attorney’s Fees

15 U.S.C. § 1692e provides in pertinent part:
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general
application of the foregoing, the following conduct is a violation of this section:

* * *

(2) The false representation of –

* * *

(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.

15 U.S.C. § 1692e(2)(B). 15 U.S.C. § 1692f further provides:
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the
following conduct is a violation of this section:

(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by
the agreement creating the debt or permitted by law.
15 U.S.C. § 1692f(1).

In his consumer credit contract with American General, Spears agreed to pay “reasonable attorney’s fees” incurred by the company for the collection of any unpaid contract balance. Record at 17. In the notice of claim subsequently filed on behalf of American General, Brennan sought $972.82 in attorney’s fees, equal to one-third of the principal amount of Spears’ $2,918.47 debt. The attorney’s fees requested were added to the judgment against Spears for a total money judgment of $3,891.29. Brennan conceded in response to a request for admissions that he regularly seeks a one-third contingent fee for his debt collection services, and he admitted that he did not spend more than two hours preparing the notice of claim against Spears. Consequently, Spears asserts that Brennan violated the foregoing provisions of the
FDCPA “by misrepresenting the amount of attorney’s fees to which he was entitled.” Brief of Appellant at 14. Spears argues that “[a]lthough . . . Brennan believes multiplying the principal [unpaid contract] balance by one-third . . . is a reasonable fee, . . . this method [is] inappropriate.” Brief of Appellant at 15.

Brennan responds that, regardless of whether a one-third contingent fee was in fact reasonable in the debt collection case, he did not “mispresent” the amount of attorney’s fees to which he was entitled simply “by requesting attorney’s fees in the amount of approximately one-third . . . of the principal loan balance.” Brief of Appellee at 6 (emphasis in original). Brennan points out that Spears “did not avail himself of the opportunity to challenge the reasonableness of the amount of [attorney’s] fees by . . . appealing the [small claims] court’s judgment” on the debt collection claim and argues that Spears “cannot now challenge the award of attorney[’s] fees by asserting a claim under the FDCPA.” Brief of Appellee at 6. We agree with Brennan.

This court held in Valparaiso Technical Inst., Inc. v. Porter County Treasurer, 676 N.E.2d 416 (Ind. Ct. App. 1997), that a contingent fee agreement in a collection case that is the product of a bargain between the attorney and client is presumed to be reasonable as between them. Id. at 420 (citing Waxman Indus., Inc. v. Trustco Dev. Co., 455 N.E.2d 376, 382 (Ind. Ct. App. 1983)). We explained that where such a fee is subtracted from the amount recovered, the third-party debtor is unaffected by the fee agreement. Id. We noted, however, that it is an entirely different matter when the fee is added to the judgment against the debtor, as was the case here. Under such circumstances, the debtor has a direct pecuniary interest in how the fee is determined. Id. Thus, a one-third contingent fee that is reasonable when deducted from a client’s recovery may be unreasonable when added to a debtor’s judgment. Id. As this court observed in Waxman:

A contingent fee, even between an attorney and his client, is not enforceable unless it is founded upon a prior agreement. It then follows inexorably that a contingent fee contract of the obligee on an instrument with his attorney cannot be enforced against the party obligor who has merely agreed in the instrument to pay a “reasonable attorney fee” for the fundamental reason that the obligor has never agreed or has never even been consulted concerning the arrangement.

Waxman, 455 N.E.2d at 381. Accordingly, without “other objective evidence of reasonableness[,]” a contingent fee cannot be added to a judgment against a third party. Valparaiso Technical Inst., 676 N.E.2d at 420-21; see also Venture Enters. v. Ardsley Distr., 669 N.E.2d 1029, 1034 (Ind. Ct. App. 1996) (holding that contingency fee agreements are not controlling as to third parties).

Here, Brennan sought a one-third contingent fee of $972.82 for the collection of Spears’ debt to American General, an amount “presumed to be reasonable” as between Brennan and American General. See footnote See Valparaiso Technical Inst., 676 N.E.2d at 420. Contrary to Spears’ apparent position, Brennan was not prohibited as a matter of law from seeking a contingent fee, but he was required to present “other objective evidence of reasonableness” in order for the attorney’s fees to be added to the judgment against Spears. See id. (observing that award of attorney’s fees as percentage of money judgment against third party for collection of
delinquent real property taxes is not per se unreasonable).

Moreover, as Brennan suggests, “the determination of the reasonableness of the amount of attorney[’]s fees requested in the notice of claim was a decision for the small claims court.” Brief of Appellee at 7. The small claims court awarded the full amount of attorney’s fees requested by Brennan, and Spears’ subsequent claim of misrepresentation under the FDCPA is tantamount to a collateral attack on that award. See Zsamba ex rel. Zsamba v. Community Bank, Abilene, Kansas, 63 F. Supp. 2d 1294, 1300 (D. Kan. 1999) (concluding that debtors could have informed state court of ownership dispute of collateral prior to entry of default judgment in debt collection action; observing that plaintiffs were using FDCPA claim as collateral attack on state court order giving bank possession of and right to sell collateral to satisfy debt). If Spears had wanted to challenge the propriety of the small claims court’s award of attorney’s fees, he should have moved to set aside the default judgment on the debt collection claim or appealed from that determination. An action under the FDCPA is not the proper remedy.

We hold, therefore, that Brennan did not violate 15 U.S.C. §§ 1692e or f(1) when he merely requested $972.82 in attorney’s fees in his debt collection claim against Spears. The trial court’s entry of summary judgment on this issue is affirmed.

Issue Two: Debt Collection Notice

Next, we address Spears’ claim that Brennan’s debt collection notice failed to comply with 15 U.S.C. § 1692g(a). That provision governs the verification rights of consumers and requires debt collectors, at the outset, to send consumers a written notice containing the following information:
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be
assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector
will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt
collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the
original creditor, if different from the current creditor.

15 U.S.C. § 1692g(a)(1)-(5); Walker v. National Recovery, Inc., 200 F.3d 500, 501 (7th Cir. 1999). Debt collection notices sent to consumers must not confuse them about the verification rights established by the FDCPA. Walker, 200 F.3d at 501; Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000) (noting that key consideration is that unsophisticated consumer is to be protected against confusion, whatever form it takes). Indeed, the Act “leaves no room for deviation in the language of the . . . notice.” Jang v. A.M. Miller & Assoc., 122 F.3d 480, 482 (7th Cir. 1997).

Here, Brennan’s debt collection notice stated that “[v]erification of the debt . . . will be provided upon written request to this office within thirty (30) days[;] otherwise the debt will be assumed valid.” Record at 33. Spears alleges that this notice violated 15 U.S.C. § 1692g(a) in three respects: (1) it failed to inform Spears that he could dispute a portion of the debt; (2) it failed to inform Spears adequately that he had thirty days from the date of receipt to dispute the debt; and (3) it imposed an invalid requirement that Spears dispute the debt in writing. We address each alleged violation in turn.

Spears initially contends that Brennan’s debt collection notice violated 15 U.S.C. 1692g(a)(3) because it failed to inform Spears that he could dispute any portion of the debt. He cites the Ninth Circuit’s decision in Baker v. G.C. Servs. Corp., 677 F.2d 775, 778 (9th Cir. 1982), where the court held that, based on the clear language of the statute, “Congress clearly required the notice to inform the debtor that he could dispute any portion of the debt.” The Baker court concluded that absent a specific directive that a debtor may dispute not just the entire debt but any portion thereof, “[a] debtor who does owe a valid obligation to the creditor but could dispute finance charges, interest, or have some valid defense, might not be put on notice that he could dispute these additional charges.” Id. Brennan, in turn, relies on the Sixth Circuit’s opinion in Smith v. Transworld Sys., Inc. 953 F.2d 1025 (6th Cir. 1992), for the proposition that it is “implicit” within the meaning of a notice advising a debt may be disputed “that the claim can be wholly, or partially challenged.” Id. at 1028-29.

While recognizing these competing authorities, we need not decide whether a debt collection notice must explicitly inform the consumer he can dispute any portion of a debt within thirty days of receiving the notice because we conclude, as a matter of law, that Brennan’s notice did not adequately advise Spears he could dispute the debt to American General at all. In so doing, we observe that Brennan’s debt collection notice is virtually identical to the notice in Baker. The Baker court declared that the notice “barely informs the debtor that he may even dispute the entire debt[,]” much less any portion thereof. Baker, 677 F.2d at 778. In particular, while both
notices contain a statement that verification of the debt will be provided if requested in writing, as required by 15 U.S.C. § 1692g(a)(4), the only statement that refers remotely to a dispute regarding the validity of the debt, as required by 15 U.S.C. § 1692g(a)(3), is the sentence “otherwise the debt will be assumed valid.” Record at 33; see Baker, 677 F.2d at 778. Further, before concluding that it was “implicit” in a debt collection notice that a claim can be wholly or partially challenged, the court in Smith specifically noted that the notice at issue there “adequately informs the reader that the debt must be disputed, if at all, within thirty days[.]” Smith, 953 F.2d at 1029. Unlike the notices in this case and in Baker, the notice in Smith unequivocally informed the debtor that “All portions of this claim shall be assumed valid unless
disputed within thirty days of receiving this notice[.]” Id. In evaluating the tendency of language to confuse or mislead, we look not to the most sophisticated consumers but to the unsophisticated consumer. Pettit v. Retrieval Masters Creditors Bureau, 211 F.3d 1057, 1060 (7th Cir. 2000). See footnote The language of Brennan’s debt collection notice was insufficient on its face to put Spears on notice that he could dispute the validity of the debt, as required by 15 U.S.C. § 1692g(a)(3).

We also conclude that Brennan’s debt collection notice did not adequately inform Spears that he had thirty days from his receipt thereof to dispute the validity of the debt and, thus, failed to comply with 15 U.S.C. § 1692g(a)(3). The debt collection notice advised Spears only that he must seek verification of the debt “within thirty days[;] otherwise the debt will be assumed valid.” Record at 33 (emphasis added). It is unclear from the face of the notice whether Spears had thirty days from the date the notice was sent, October 24, 1996, or the date it was received, See footnote to seek verification of the debt. See Cavallaro v. Law Office of Shapiro &
Kreisman, 933 F. Supp. 1148, 1154 (E.D.N.Y. 1996) (holding that notice advising debtor should dispute debt within thirty days from date of “this notice” rather than within thirty days of receipt of notice violated FDCPA). This facial confusion is compounded by the fact that Brennan’s notice of claim, filed in small claims court on October 30, 1996, contains an identical advisement that “VERIFICATION OF THE DEBT . . . WILL BE PROVIDED UPON WRITTEN REQUEST TO THIS
OFFICE WITHIN THIRTY DAYS[;] OTHERWISE THE DEBT WILL BE ASSUMED VALID.” Record at 16 (emphasis added).

Finally, Spears maintains that Brennan’s notice advising him that “verification of the debt . . . will be provided upon written request” imposed an invalid requirement that he dispute the validity of the debt to American General in writing. Record at 33. Without deciding whether the FDCPA prohibits a debt collector from requiring a debtor to dispute the validity of a debt in writing, See footnote we determine only that Brennan did not violate the FDCPA by advising Spears that verification of the debt would be provided if requested in writing. 15 U.S.C. § 1692g(a)(4) clearly requires that a debt collector’s notice contain a statement that verification of the debt will be provided if requested in writing within thirty days of receipt of the debt collection notice. Brennan properly advised Spears of this verification right under the
FDCPA.

We thus hold that Brennan’s debt collection notice failed, as a matter of law, to comply with 15 U.S.C. § 1692g(a) and, specifically, with 15 U.S.C. § 1692g(a)(3). It did not adequately advise Spears of his right to dispute the validity of the debt or of his right to do so within thirty days from receipt of the debt collection notice. We therefore reverse the trial court’s entry of summary judgment in favor of Brennan on this issue.

Issue Three: Thirty-day Debt Validation Period

As discussed above, 15 U.S.C. § 1692g(a) requires a debt collector to send a debt collection notice stating, among other things, that unless the debtor disputes the validity of the debt within thirty days from receipt of the debt collection notice, the debt collector will assume the debt is valid. Johnson v. Revenue Mgmt. Corp., 169 F.3d 1057, 1058 (7th Cir. 1999). This section of the FDCPA “obliges the collector to refrain from confusing the debtor by undercutting the required notice or implying a different obligation.” Id. For example, an unelaborated demand that the debt be paid “immediately” would violate the FDCPA by implying that the debtor does not have
thirty days to dispute the validity of the debt, “unless accompanied by additional reconciling language, such as that payment is due ‘immediately’ only when the debt is uncontested.” Id. at 1059. Moreover, while “the creditor is entitled to file suit [against the debtor] whenever it chooses, . . . progress in the suit may be delayed by verification.” Id.

In this case, Brennan’s notice of claim contained an order for Spears to appear in small claims court and answer to the debt owed American General on November 13, 1996, only twenty days after the debt collection notice had been sent. Spears argues that Brennan “overshadowed, undermined, and truncated” the FDCPA-required thirty-day debt validation period when he scheduled the hearing for November 13, 1996. Brief of Appellant at 27. Brennan responds that it was the small claims court, not he, that ordered Spears to appear at the hearing, and, therefore, that he could not have violated the FDCPA. We cannot agree with Brennan.

15 U.S.C. § 1692g(a) mandates in no uncertain terms that a debtor has thirty days to dispute the validity of a debt. Accordingly, Brennan was obligated under the Act not to infringe upon this thirty-day debt validation period. While it is true that the small claims court set the hearing on the debt collection claim for November 13, 1996, and ordered Spears to appear on that date, it was Brennan’s duty, as a debt collector under the FDCPA, to obtain a hearing date outside the thirty-day debt validation period so as not to undercut Spears’ verification rights. Having filed suit and required Spears to answer to the debt owed American General on November 13,
1996, Brennan violated the FDCPA by implying that Spears did not have thirty days to dispute the same. See Johnson, 169 F.3d at 1058.

Spears similarly asserts that Brennan undercut his verification rights under 15 U.S.C. § 1692g(a) when he rescheduled the small claims hearing for November 27, 1996, a date Spears alleges also falls within the thirty-day debt validation period. We observe, however, that the thirty-day debt validation period commences from the date of receipt of the debt collection notice. See 15 U.S.C. § 1692g(a)(3). Because Brennan sent the debt collection notice to Spears on October 24, 1996, the hearing, rescheduled thirty-four days after the debt collection notice was sent, could well have been scheduled outside the thirty-day debt validation period. If Spears received the debt collection notice on or before October 27, 1996, there could have been no undercutting of the thirty-day debt validation period and no violation of the FDCPA when Brennan scheduled the November 27, 1996 hearing. If, on the other hand, Spears received the debt collection notice after October 27, 1996, Brennan violated the FDCPA by scheduling the November 27, 1996 hearing on the debt collection claim and obtaining a default judgment against Spears on that date, thereby undercutting the thirty-day debt validation period.

Nevertheless, the record is devoid of any evidence indicating when Spears received the October 24, 1996 debt collection notice from Brennan. It is well settled that the party moving for summary judgment carries the burden of establishing that there is no issue as to any material fact and that he is entitled to judgment as a matter of law. Avco Fin. Servs. Of Indianapolis, Inc. v. Metro Holding Co., 563 N.E.2d 1323, 1326 (Ind. Ct. App. 1990). The moving party must fulfill these two requirements before any burden shifts to the nonmovant. Id. The nonmovant may rest upon his pleadings until the moving party establishes no genuine factual issue exists. Id.
Brennan had the burden of showing that he scheduled the November 27, 1996 hearing and obtained a default judgment against Spears outside the thirty-day debt validation period. It was therefore necessary for him to prove the date on which Spears received the debt collection notice. Having failed to meet that burden, Brennan was not entitled to summary judgment. There remains a genuine issue of material fact as to whether the hearing and default judgment on November 27, 1996, undercut Spears’ verifications rights under 15 U.S.C. § 1692g(a). The trial court’s entry of summary judgment in favor of Brennan on this issue must be reversed.

Although we reverse the trial court’s entry of summary judgment, in the interest of judicial economy we will address Brennan’s contentions, which are likely to be raised again on remand. Brennan alleges that, even assuming he scheduled the November 27, 1996 hearing on the debt collection claim and obtained a default judgment within the thirty-day debt validation period, he cannot be found liable under the FDCPA because Shepard, Spears’ attorney, agreed to the hearing date and because the default judgment was entered against Spears only after Spears and Shepard failed to appear. Stated otherwise, Brennan suggests that by consenting to a hearing date within the thirty-day debt validation period and then failing to appear on that date to answer to the debt owed American General, Spears waived any future claim under the FDCPA. Brennan does not provide, nor have we found, any authority for the proposition that consumers may waive the protections of the FDCPA. To the contrary, several courts have addressed this very issue and determined that consumers may not waive their rights under the Act.

In Oglesby v. Rotche, No. 93-C-4183, 1993 WL 460841, at *10 (N.D. Ill. Nov. 5, 1993), and again in Blakemore v. Pekay, 895 F. Supp. 972, 983 (N.D. Ill. 1995), the district court addressed whether consumers could waive an FDCPA claim under 15 U.S.C. § 1692i, the venue section which mandates in part that a debt collector bring legal action on a debt only “in the judicial district or similar legal entity . . . in which such consumer signed the contract sued upon[.]” In Oglesby, the debtors defended themselves in the debt collection suit rather than moving for a change of venue while in Blakemore, the debtor appeared in the debt collection proceeding and
consented to judgment against him on the debt. In deciding that consumers cannot waive the protections afforded by 15 U.S.C. § 1692i, the Illinois district court concluded that requiring an unsophisticated consumer to “exercise his rights under the FDCPA immediately or lose them is contrary to the basi[c] premise of the Act, which is to protect unsophisticated debtors from debt collectors who may use the legal system, about which the consumer has little knowledge, to bludgeon them into submission.” Blakemore, 895 F. Supp. at 983 (quoting Oglesby, at *10). The district court explained that 15 U.S.C. § 1692i “is . . . more in the nature of a statutory tort
which is completed upon the filing of an action in an improper venue.” Oglesby, at *10.

We believe that 15 U.S.C. § 1692g(a) is also in the nature of a statutory tort which is completed once the debt collector undercuts the thirty-day debt validation period or implies the debtor does not have thirty days from receipt of the debt collection notice to dispute the validity of the debt. Spears was not required to invoke his rights under the FDCPA during the course of the debt collection claim or risk waiving those rights altogether. An FDCPA claim “has nothing to do with whether the underlying debt is valid. An FDCPA claim concerns the method of collecting the debt. It does not arise out of the transaction creating the debt[.]” Azar v. Hayter, 874
F. Supp. 1314, 1318 (N.D. Fla. 1995) (refusing to find waiver of FDCPA claim as compulsory counterclaim to state court action on the debt because claim “does not arise out of the transaction creating the debt, and thus was not a compulsory counterclaim under state law in the action to collect the debt.”), affirmed, 66 F.3d 342 (11th Cir. 1995), cert. denied, 516 U.S. 1048 (1996). The Act makes debt collectors liable for various “abusive, deceptive, and unfair debt collection practices” regardless of whether the debt is valid. McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992). Our analysis is further consistent with the well-settled principle
that the FDCPA is a strict liability statute and that a consumer need not show intentional conduct by the debt collector to be entitled to damages. See Russell v. Equifax A.R.S., 74 F.3d 30, 33 (2nd Cir. 1996); Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 63 (2nd Cir. 1993) (observing that degree of debt collector’s culpability may only be considered in computing damages). In light of the foregoing authority and the “broad remedial purpose of the FDCPA[,]” we conclude that Spears did not waive his verification rights under 15 U.S.C. § 1692g(a) when Shepard agreed to the November 27, 1996 hearing date and when he and Shephard failed to appear for the hearing. See Blakemore, 895 F. Supp. at 984.

Accordingly, we hold that Brennan violated 15 U.S.C. § 1692g(a) when he scheduled the November 12, 1996 hearing on the debt collection claim against Spears. For this reason, the trial court’s entry of summary judgment in favor of Brennan is reversed. Additionally, we conclude that there remains a genuine issue of material fact as to when Spears received the October 24, 1996 debt collection notice from Brennan. We must therefore reverse the trial court’s entry of summary judgment on Spears’ claim that Brennan undercut his verification rights under 15 U.S.C. § 1692g(a) by scheduling the November 27, 1996 hearing and obtaining a default judgment
against him on that date. Upon remand, we instruct the trial court to determine, in accordance with the principles set forth in this opinion, the date on which Spears received the October 24, 1996 debt collection notice and whether Brennan violated the FDCPA by scheduling the November 27, 1996 hearing on the debt collection claim and obtaining a default judgment against Spears within the thirty-day debt validation period.

Issue Four: Failure to Cease Debt Collection

Finally, we address Spears’ claim that Brennan violated 15 U.S.C. § 1692g(b) when he failed to cease collection of the debt after receiving Spears’ written notification, within the thirty-day debt validation period, that Spears was disputing the debt. 15 U.S.C. § 1692g(b) reads:
If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

15 U.S.C. § 1692g(b) (emphasis added). On November 12, 1996, nineteen days after the date of Brennan’s debt collection letter, Spears’ counsel Shepard sent Brennan a letter declaring that Spears “disputes your debt collection-related allegations, denies the same, and demands strict proof and verification thereof.” Record at 21. As such, Brennan should have ceased his debt collection efforts immediately upon receiving that letter. Instead, Brennan proceeded to obtain a default judgment against Spears on the debt collection claim before he had mailed Spears the necessary verification and, thus, violated 15 U.S.C. § 1692g(b).

Brennan maintains, however, that there was no violation of the FDCPA because he “sent adequate verification of the debt [to Spears] in the October 30, 1996 notice of claim.” Brief of Appellee at 13. Specifically, Brennan claims that a copy of the consumer credit contract between Spears and American General attached to the notice of claim provided sufficient verification of the debt within the meaning of 15 U.S.C. § 1692g(b). We cannot agree.

The contract in no way provides sufficient verification of the debt. A review of the document reveals that it identifies only the terms of Spears’ loan, including a 17.99% annual interest rate and the original loan amount of $2,561.59. The loan agreement contains no accounting of any payments made by Spears, the dates on which those payments were made, the interest which had accrued, or any late fees which had been assessed once Spears stopped making the required payments. Indeed, the existing unpaid contract balance at the time Brennan sent the debt collection notice was at least $350.00 more than the original loan amount. Therefore,
Brennan violated 15 U.S.C. § 1692g(b) when he failed to cease collection of the debt by obtaining a default judgment against Spears after Spears had notified Brennan in writing that he was disputing the debt but before Brennan had mailed verification of the debt to Spears. See footnote We reverse the trial court’s entry of summary judgment in favor of Brennan on this issue.

CONCLUSION

In sum, we affirm the trial court’s entry of summary judgment in favor of Brennan on Spears’ claim that Brennan falsely represented the amount of attorney’s fees to which he was entitled for the collection of Spear’s debt, because we find no violation of 15 U.S.C. §§ 1692e(2)(B) or 1692f(1).

We reverse the trial court’s entry of summary judgment in favor of Brennan on Spears’ claim that Brennan violated 15 U.S.C. § 1692g(a) when he scheduled the November 27, 1996 hearing on the debt collection claim and obtained a default judgment against Spears on that date. Having found the existence of a genuine issue of material fact with respect to this issue, we remand to the trial court with instructions to determine, in accordance with the principles set forth in this opinion, when Spears received Brennan’s debt collection notice and whether Brennan violated the FDCPA by scheduling the November 27, 1996 hearing and obtaining a default judgment against Spears within the thirty-day debt validation period.

We reverse the trial court’s entry of summary judgment in favor of Brennan with respect to the remainder of Spears’ claims as identified herein. Having found, as a matter of law, multiple violations of 15 U.S.C. §§ 1692g(a) and (b), we further remand to the trial court for a determination of damages in accordance with the FDCPA. See footnote

Affirmed in part, reversed in part and remanded for further proceedings.
SULLIVAN, J., and BROOK, J., concur.

Footnote: Also known as a dunning letter. See The American Heritage Dictionary 570 (3d ed. 1996).


Footnote: The record does not disclose when Spears received the debt collection notice.

Footnote: This is, of course, assuming that this contingency fee was “founded upon a prior agreement” between Brennan and American General. See
Waxman, 455 N.E.2d at 381.

Footnote: Seventh Circuit jurisprudence dictates that practices which might violate the FDCPA must be viewed from the objective standard of an “unsophisticated debtor.” See Pettit, 211 F.3d at 1060. An unsophisticated debtor is “not as learned in commercial matters as are federal judges, . . . but neither is he completely ignorant.” Id. An unsophisticated debtor is “uninformed, naïve, or trusting.” Id. (citation omitted). The Seventh Circuit has rejected the “least sophisticated debtor” standard adopted by other circuit courts of appeal tying the debtor to “the very last rung on the sophistication ladder.” Id. (citation omitted).

Footnote: There is no evidence in the record of the date the notice was received.

Footnote: There is competing authority governing this issue. See Brady v. The Credit Recovery Co., Inc., 160 F.3d 64, 66 (1st Cir. 1998) (interpreting related provision of FDCPA and holding that “ordinary usage of [the term] ‘dispute’ does not contemplate a writing.”); cf. Graziano v. Harrison, 950 F.2d 107, 112 (3rd Cir. 1991) (holding that “given the entire structure of section 1692g, subsection (a)(3) must be read to require that a dispute, to be effective, must be in writing.”).

Footnote: We observe additionally that, Spears did not waive his verification rights under 15 U.S.C. § 1692g(b) by failing to appear at the November 27, 1996 hearing. Like 15 U.S.C. §§ 1692g(a) and 1692i, 15 U.S.C. § 1692g(b) is in the nature of a statutory tort which is completed once the debt collector fails to cease his debt collection efforts after receiving written notification that a debtor is disputing the debt but before mailing verification of the debt to the debtor. See Blakemore, 895 F. Supp. at 984. As discussed previously, an FDCPA claim “has nothing to do with whether the underlying debt is valid. An FDCPA claim concerns the method of collecting the debt. It does not arise out of the transaction creating the debt[.]” Azar, 874 F. Supp. at 1318.

Footnote: See 15 U.S.C. § 1692k (governing civil liability under the Act).

This opinion by the US Court of Appeals, 9th circuit court overturns a ruling stating that Chase Manhattan is not responsible for reporting incorrect information.


FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

No. 00-15946
CV-99-00290-D.C. No.
OPINION

TOBY D. NELSON,
Plaintiff-Appellant,

v.

CHASE MANHATTAN MORTGAGE JBR(RLH) CORP.,
Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada

Johnnie B. Rawlinson, District Judge, Presiding

Argued and Submitted
January 16, 2002--San Francisco, California

Filed March 1, 2002

Before: Alfred T. Goodwin, John T. Noonan and
Stephen S. Trott, Circuit Judges.

Opinion by Judge Noonan

COUNSEL
Richard J. Rubin, Santa Fe, New Mexico, and Michael D.
Gliner, Las Vegas, Nevada, for the plaintiff-appellant.

Gerald D. Waite and Nikki Baker, Kummer Kaempfer Bonner
& Renshaw, Las Vegas, Nevada, for the defendant-appellee.

John F. Daly, Federal Trade Commission, Washington, D.C.,
for the amicus in support of the appellant.
OPINION

NOONAN, Circuit Judge:

Toby D. Nelson ("Nelson") appeals the judgment of the district court for the District of Nevada dismissing his suit under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681u ("the FCRA") for failure to state a cause of action against the defendant Chase Manhattan Mortgage Corporation ("Chase"). Holding that section 1681s-2(b) does create a cause of action for a consumer against a furnisher of credit information, we reverse the judgment of the district court.

FACTS

According to his complaint and attached exhibits, Nelson on February 2, 1995 became a co-signatory with Anthony Proietti ("Proietti") on a mortgage loan of $119,950 from Chase. On February 15, 1998, Proietti declared bankruptcy. Nelson continued to pay the amounts due on the mortgage in a timely manner.

Nelson, however, experienced difficulty in obtaining financing after Proietti's bankruptcy. In September 1998, Nelson asked Experian Information Solutions, Inc. ("Experian") for his credit profile. Experian provided him with a report referring to the account with Chase. Regular payments were shown made up to January 8, 1997, with a balance of $110,011 then showing. The report stated: "As of 2/15/98 this account is included in a discharge through bankruptcy chapter 7, 11 or 12."

On December 2, 1998, Nelson wrote Experian requesting it to investigate "disputed matters" in the credit report. Nelson stated that he had never declared bankruptcy and that the bankruptcy noted was that of the co-obligor. He asked for deletion of the bankruptcy reference. He copied this letter to Chase.

On January 4, 1998, Chase wrote Nelson stating: "At the time we receive notice of a bankruptcy filing, we are required to note the appropriate account is in bankruptcy, regardless of whether the account is current or past due, to prevent contact with the party[ies] involved in violation of the bankruptcy laws . . . . This status is not a reflection of which of the borrowers actually filed bankruptcy, but merely a statement that the account itself is affected by the bankruptcy filing." Chase went on to say that prudent lenders should follow up on the report and determine whether the consumer in question "had actually filed the bankruptcy action." Chase apologized for "any inconvenience" to Nelson. It promised to inform credit bureaus that "the account has been affected by a bankruptcy filed by one, but not all, of the borrowers." Nelson continued to have difficulties getting credit. On March 5, 1999, Nelson received a report from Equifax showing his credit history with the notation "included in bankruptcy 8/98," opposite the entry for Chase. On March 6, 1999, U.S. Bank of Minneapolis denied his application for a truck loan "due to bankruptcy filing on your credit bureau report." On March 7, 1998, Nelson wrote Equifax, like Experian a credit reporting agency ("CRA"), disputing this report and requesting an investigation.
PROCEEDINGS

On March 8, 1999, Nelson filed this suit against Chase, which ultimately moved to dismiss his third amended complaint. On April 14, 2000, the district court granted the motion to dismiss. The court ruled that the FCRA, 18 U.S.C.§ 1681s-2(b) did not create a private action. Nelson appeals.

ANALYSIS

The FCRA was enacted in 1970. It was prefaced with a congressional finding that "unfair credit methods undermine the public confidence which is essential to the continued functioning of the banking system." 15 U.S.C. § 1681(a)(1). Section 1681n provides: "Any person who willfully fails to comply with any requirement imposed under this subchapter with respect to any consumer is liable to that consumer in an amount equal to the sum of any actual damages sustained by the consumer . . . or damages of not less than $100 or more than $1,000" plus reasonable attorney's fees. In similar terms, § 1681o establishes comparable liability for negligent non-compliance.

That with these words Congress created a private right of action for consumers cannot be doubted. That right is to sue for violation of any requirement "imposed with respect to any consumer." What we have to decide is whether sections 1681n and 1681o permit suit against a furnisher of credit reporting information that violates the duties imposed under
section 1681s-2. Inspection of this section in its entirety is necessary. Section 1681s-2(a) begins with a flat prohibition in (1)(A) directed against "[a] person" furnishing information "relating to a consumer" to a CRA "if the person knows or consciously avoids knowing that the information is inaccurate." This prohibition is reinforced in subsection (1)(B) by a prohibition of furnishing inaccurate information after notice of actual inaccuracy from the affected consumer. Subsection (2) imposes a duty on regular furnishers of credit information to correct and update the information they provide so that the information is "complete and accurate." Subsection (3) imposes a duty on such furnishers to notify CRAs if a consumer disputes the information furnished. Subsection (4) obliges furnishers to notify the CRA of the closure of a consumer's account, and subsection (5) imposes a similar obligation to notify the CRA of delinquent accounts.
Most of the provisions of § 1681s-2(a) are for the protection of consumers. There would be no doubt that a consumer could sue for their violation under sections 1681n & o
were it not for §§ 1681s-2(c) and (d). Subsection (c) expressly provides that sections 1681n & o "do not apply to any failure to comply with subsection (a) of this section, except as pro-vided in section 1681s(c)(1)(B) of this title." The referenced section permits certain suits by States for damages. This limitation on liability and enforcement is reinforced by subsection (d) of § 1681s-2, which provides that subsection (a) "shall be
enforced exclusively under section 1681s of this title by the Federal agencies and officials and the State officials identified in that section." Consequently, private enforcement under §§ 1681n & o is excluded.

We turn to subsection 1681s-2(b). This section specifies what happens after a CRA receives notice "pursuant to section 1681i(a)(2) . . . of a dispute with regard to the completeness or accuracy of information provided by a person " to the CRA. The person, i.e., the furnisher of the disputed information, has four duties: to conduct an investigation with respect to the disputed information;" to review all relevant information provided by the CRA; to report the results of its investigation to the CRA; and if the investigation finds the information is incomplete or inaccurate to report those results "to all [nationwide] consumer reporting agencies to which the person furnished the information."

Chase argues that as consumers are unmentioned by name in § 1681s-2(b), this section does not impose a requirement "with respect to any consumer," so the private right of action under §§ 1681n & o do not apply to § 1681s-2(b). The argument has a specious plausibility. It overlooks the fact that the notice which starts the process provided by (b) is notice of a dispute as to the accuracy or completeness of information "contained in a consumer's file." See 15 U.S.C. § 1681i(a)(1)(A). The information to be investigated does not exist in the air. It is hard to say that, when information in a consumer's file is the issue, there is no requirement "with respect to a consumer." The information is disputed by the consumer. See id. Its completeness or accuracy is of prime concern to the consumer.

This reading of the statute might be challenged by the observation that § 1681s-2(a) carefully prevents a consumer from suing a furnisher of even information known by the furnisher to be inaccurate. If Congress didn't want the irresponsible furnisher privately sued under (a), why should Congress have provided for private suit under (b)? This doubt chimes with the argument that subsections (c) and (d) of§ 1681s-2 don't mention (b) because (b) creates no private right of action at all.

The answer to the objection was given in oral argument by counsel for amicus Federal Trade Commission, as follows. It can be inferred from the structure of the statute that Congress did not want furnishers of credit information exposed to suit by any and every consumer dissatisfied with the credit information furnished. Hence, Congress limited the enforcement of the duties imposed by 1681s-2(a) to governmental bodies. But Congress did provide a filtering mechanism in § 1681s-2(b) by making the disputatious consumer notify a CRA and setting up the CRA to receive notice of the investigation by the furnisher. See 15 U.S.C. § 1681i(a)(3) (allowing CRA to terminate reinvestigation of disputed item if CRA "reasonably determines that the dispute by the consumer is frivolous or irrelevant"). With this filter in place and opportunity for the furnisher to save itself from liability by taking the steps required by § 1681s-2(b), Congress put no limit on private enforcement under §§ 1681n & o.

This answer is strengthened by the amendment of §§ 1681n & o effected in 1996. Before amendment, §§ 1681n & o provided for suit against a CRA or against a user of credit
information, but not against a furnisher. When the statute was amended, "any person" was made open to suit. See Pub.L. 104-208 at § 2412; 110 Stat. 3009 at §2412 (1996) "section 616 of the [FCRA] . . . is amended by striking`Any consumer reporting agency or user of information which' and inserting `(a) IN GENERAL, any person who' "). As counsel for the FTC observed, there are involved in any credit transaction only the consumer, the CRAs, the user of the credit reports and the furnishers of the credit information. As consumers would not be made subject to suit by consumers, and as CRAs and users were already suable, who else except furnishers could Congress have had in mind when it introduced "any person" into the statute? Where, other than under§ 1681s-2(b) would furnishers be suable by consumers? In oral argument, counsel for Chase conceded that Chase had no answers to these questions. We cannot suppose that Congress made an amendment without a purpose.

That purpose, to provide some private remedy to injured consumers, coheres with what we see as a primary purpose for the FCRA, to protect consumers against inaccurate and
incomplete credit reporting. The statute has been drawn with extreme care, reflecting the tug of the competing interests of consumers, CRAs, furnishers of credit information, and users of credit information. It is not for a court to remake the balance struck by Congress, or to introduce limitations on an express right of action where no limitation has been written by the legislature.

REVERSED and REMANDED.

This opinion by the US Court of Appeals, 9th circuit court overturns a ruling stating that Chase Manhattan is not responsible for reporting incorrect information.


FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

No. 00-15946
CV-99-00290-D.C. No.
OPINION

TOBY D. NELSON,
Plaintiff-Appellant,

v.

CHASE MANHATTAN MORTGAGE JBR(RLH) CORP.,
Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada

Johnnie B. Rawlinson, District Judge, Presiding

Argued and Submitted
January 16, 2002--San Francisco, California

Filed March 1, 2002

Before: Alfred T. Goodwin, John T. Noonan and
Stephen S. Trott, Circuit Judges.

Opinion by Judge Noonan

COUNSEL
Richard J. Rubin, Santa Fe, New Mexico, and Michael D.
Gliner, Las Vegas, Nevada, for the plaintiff-appellant.

Gerald D. Waite and Nikki Baker, Kummer Kaempfer Bonner
& Renshaw, Las Vegas, Nevada, for the defendant-appellee.

John F. Daly, Federal Trade Commission, Washington, D.C.,
for the amicus in support of the appellant.
OPINION

NOONAN, Circuit Judge:

Toby D. Nelson ("Nelson") appeals the judgment of the district court for the District of Nevada dismissing his suit under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681u ("the FCRA") for failure to state a cause of action against the defendant Chase Manhattan Mortgage Corporation ("Chase"). Holding that section 1681s-2(b) does create a cause of action for a consumer against a furnisher of credit information, we reverse the judgment of the district court.

FACTS

According to his complaint and attached exhibits, Nelson on February 2, 1995 became a co-signatory with Anthony Proietti ("Proietti") on a mortgage loan of $119,950 from Chase. On February 15, 1998, Proietti declared bankruptcy. Nelson continued to pay the amounts due on the mortgage in a timely manner.

Nelson, however, experienced difficulty in obtaining financing after Proietti's bankruptcy. In September 1998, Nelson asked Experian Information Solutions, Inc. ("Experian") for his credit profile. Experian provided him with a report referring to the account with Chase. Regular payments were shown made up to January 8, 1997, with a balance of $110,011 then showing. The report stated: "As of 2/15/98 this account is included in a discharge through bankruptcy chapter 7, 11 or 12."

On December 2, 1998, Nelson wrote Experian requesting it to investigate "disputed matters" in the credit report. Nelson stated that he had never declared bankruptcy and that the bankruptcy noted was that of the co-obligor. He asked for deletion of the bankruptcy reference. He copied this letter to Chase.

On January 4, 1998, Chase wrote Nelson stating: "At the time we receive notice of a bankruptcy filing, we are required to note the appropriate account is in bankruptcy, regardless of whether the account is current or past due, to prevent contact with the party[ies] involved in violation of the bankruptcy laws . . . . This status is not a reflection of which of the borrowers actually filed bankruptcy, but merely a statement that the account itself is affected by the bankruptcy filing." Chase went on to say that prudent lenders should follow up on the report and determine whether the consumer in question "had actually filed the bankruptcy action." Chase apologized for "any inconvenience" to Nelson. It promised to inform credit bureaus that "the account has been affected by a bankruptcy filed by one, but not all, of the borrowers." Nelson continued to have difficulties getting credit. On March 5, 1999, Nelson received a report from Equifax showing his credit history with the notation "included in bankruptcy 8/98," opposite the entry for Chase. On March 6, 1999, U.S. Bank of Minneapolis denied his application for a truck loan "due to bankruptcy filing on your credit bureau report." On March 7, 1998, Nelson wrote Equifax, like Experian a credit reporting agency ("CRA"), disputing this report and requesting an investigation.
PROCEEDINGS

On March 8, 1999, Nelson filed this suit against Chase, which ultimately moved to dismiss his third amended complaint. On April 14, 2000, the district court granted the motion to dismiss. The court ruled that the FCRA, 18 U.S.C.§ 1681s-2(b) did not create a private action. Nelson appeals.

ANALYSIS

The FCRA was enacted in 1970. It was prefaced with a congressional finding that "unfair credit methods undermine the public confidence which is essential to the continued functioning of the banking system." 15 U.S.C. § 1681(a)(1). Section 1681n provides: "Any person who willfully fails to comply with any requirement imposed under this subchapter with respect to any consumer is liable to that consumer in an amount equal to the sum of any actual damages sustained by the consumer . . . or damages of not less than $100 or more than $1,000" plus reasonable attorney's fees. In similar terms, § 1681o establishes comparable liability for negligent non-compliance.

That with these words Congress created a private right of action for consumers cannot be doubted. That right is to sue for violation of any requirement "imposed with respect to any consumer." What we have to decide is whether sections 1681n and 1681o permit suit against a furnisher of credit reporting information that violates the duties imposed under
section 1681s-2. Inspection of this section in its entirety is necessary. Section 1681s-2(a) begins with a flat prohibition in (1)(A) directed against "[a] person" furnishing information "relating to a consumer" to a CRA "if the person knows or consciously avoids knowing that the information is inaccurate." This prohibition is reinforced in subsection (1)(B) by a prohibition of furnishing inaccurate information after notice of actual inaccuracy from the affected consumer. Subsection (2) imposes a duty on regular furnishers of credit information to correct and update the information they provide so that the information is "complete and accurate." Subsection (3) imposes a duty on such furnishers to notify CRAs if a consumer disputes the information furnished. Subsection (4) obliges furnishers to notify the CRA of the closure of a consumer's account, and subsection (5) imposes a similar obligation to notify the CRA of delinquent accounts.
Most of the provisions of § 1681s-2(a) are for the protection of consumers. There would be no doubt that a consumer could sue for their violation under sections 1681n & o
were it not for §§ 1681s-2(c) and (d). Subsection (c) expressly provides that sections 1681n & o "do not apply to any failure to comply with subsection (a) of this section, except as pro-vided in section 1681s(c)(1)(B) of this title." The referenced section permits certain suits by States for damages. This limitation on liability and enforcement is reinforced by subsection (d) of § 1681s-2, which provides that subsection (a) "shall be
enforced exclusively under section 1681s of this title by the Federal agencies and officials and the State officials identified in that section." Consequently, private enforcement under §§ 1681n & o is excluded.

We turn to subsection 1681s-2(b). This section specifies what happens after a CRA receives notice "pursuant to section 1681i(a)(2) . . . of a dispute with regard to the completeness or accuracy of information provided by a person " to the CRA. The person, i.e., the furnisher of the disputed information, has four duties: to conduct an investigation with respect to the disputed information;" to review all relevant information provided by the CRA; to report the results of its investigation to the CRA; and if the investigation finds the information is incomplete or inaccurate to report those results "to all [nationwide] consumer reporting agencies to which the person furnished the information."

Chase argues that as consumers are unmentioned by name in § 1681s-2(b), this section does not impose a requirement "with respect to any consumer," so the private right of action under §§ 1681n & o do not apply to § 1681s-2(b). The argument has a specious plausibility. It overlooks the fact that the notice which starts the process provided by (b) is notice of a dispute as to the accuracy or completeness of information "contained in a consumer's file." See 15 U.S.C. § 1681i(a)(1)(A). The information to be investigated does not exist in the air. It is hard to say that, when information in a consumer's file is the issue, there is no requirement "with respect to a consumer." The information is disputed by the consumer. See id. Its completeness or accuracy is of prime concern to the consumer.

This reading of the statute might be challenged by the observation that § 1681s-2(a) carefully prevents a consumer from suing a furnisher of even information known by the furnisher to be inaccurate. If Congress didn't want the irresponsible furnisher privately sued under (a), why should Congress have provided for private suit under (b)? This doubt chimes with the argument that subsections (c) and (d) of§ 1681s-2 don't mention (b) because (b) creates no private right of action at all.

The answer to the objection was given in oral argument by counsel for amicus Federal Trade Commission, as follows. It can be inferred from the structure of the statute that Congress did not want furnishers of credit information exposed to suit by any and every consumer dissatisfied with the credit information furnished. Hence, Congress limited the enforcement of the duties imposed by 1681s-2(a) to governmental bodies. But Congress did provide a filtering mechanism in § 1681s-2(b) by making the disputatious consumer notify a CRA and setting up the CRA to receive notice of the investigation by the furnisher. See 15 U.S.C. § 1681i(a)(3) (allowing CRA to terminate reinvestigation of disputed item if CRA "reasonably determines that the dispute by the consumer is frivolous or irrelevant"). With this filter in place and opportunity for the furnisher to save itself from liability by taking the steps required by § 1681s-2(b), Congress put no limit on private enforcement under §§ 1681n & o.

This answer is strengthened by the amendment of §§ 1681n & o effected in 1996. Before amendment, §§ 1681n & o provided for suit against a CRA or against a user of credit
information, but not against a furnisher. When the statute was amended, "any person" was made open to suit. See Pub.L. 104-208 at § 2412; 110 Stat. 3009 at §2412 (1996) "section 616 of the [FCRA] . . . is amended by striking`Any consumer reporting agency or user of information which' and inserting `(a) IN GENERAL, any person who' "). As counsel for the FTC observed, there are involved in any credit transaction only the consumer, the CRAs, the user of the credit reports and the furnishers of the credit information. As consumers would not be made subject to suit by consumers, and as CRAs and users were already suable, who else except furnishers could Congress have had in mind when it introduced "any person" into the statute? Where, other than under§ 1681s-2(b) would furnishers be suable by consumers? In oral argument, counsel for Chase conceded that Chase had no answers to these questions. We cannot suppose that Congress made an amendment without a purpose.

That purpose, to provide some private remedy to injured consumers, coheres with what we see as a primary purpose for the FCRA, to protect consumers against inaccurate and
incomplete credit reporting. The statute has been drawn with extreme care, reflecting the tug of the competing interests of consumers, CRAs, furnishers of credit information, and users of credit information. It is not for a court to remake the balance struck by Congress, or to introduce limitations on an express right of action where no limitation has been written by the legislature.

REVERSED and REMANDED.