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Creditors' Scope Of Duty To investigate Under §1681s-2(b) Of The Fair Credit Reporting Act

Earlier in 2016, the Eleventh Circuit addressed an issue of first impression in Hinkle v. Midland Credit Management, Inc., 2016 WL 3672112 (11th Cir. July 11, 2016). The case involved a consumer suing a collection agent for failing to make a proper investigation to resolve the dispute of certain debts by the plaintiff.

The Hinkle case involved two debts which had been sold to Midland, who had first collected on one of the debts in 2008 and marked the account as "paid." Three years later, the plaintiff, Terri Hinkle, filed a dispute with all three credit reporting agencies (CRAs) alleging that the debt to Midland appearing on her credit report was not her debt. Because Midland had classified the debt as "paid," it took no action on Hinkle's dispute.

Then in 2011, Midland attempted to collect a second debt from Hinkle, who again disputed the debt's validity. Since Hinkle's dispute was outside the “validation period” governing a furnisher’s obligations once it has received a written dispute from a consumer as mandated by § 1692g of the Fair Debt Collection Practices Act (“FDCPA”), Midland continued to report the account as “assigned to . . . collections” and as “disputed.”

In 2012, Hinkle disputed the debt with all three CRAs. Upon contact by these agencies, Midland verified the debt solely based upon information it had received when purchasing the debt. It failed to request any account-level information from the seller of the debt or the original creditor, T-Mobile. Midland then requested account information from Hinkle, who, of course, had no such information since it was not her debt. Finally, Hinkle pro se sued Midland alleging violations of the Fair Credit Reporting Act (FCRA) and the FDCPA. The district court granted summary judgment in favor of Midland on all of Hinkle's claims.

Hinkle appealed the grant of summary judgment on her claim under § 1681s-2(b) of the FCRA, which requires that, upon receipt of notice from a CRA of a consumer’s dispute, a furnisher of information must (1) conduct an investigation with respect to the disputed information; (2) review all relevant information provided by the CRA in connection with the dispute; and (3) report the results of the investigation to the CRA.

On appeal, the Eleventh Circuit held that the standard for evaluating an investigation is one of reasonableness and "that what constitutes a ‘reasonable investigation’ will vary depending on the circumstances of the case and whether the investigation is being conducted by a CRA under § 1681i(a), or a furnisher of information under § 1681s-2(b).”

Of significance, the court ultimately found in Hinkle's favor holding that “when a furnisher does not already possess evidence establishing that an item of disputed information is true, § 1681s-2(b) requires the furnisher to seek out and obtain such evidence before reporting the information as ‘verified.’ . . . The requirement to uncover additional facts will be more or less intensive depending on what evidence the furnisher already possesses.”  

Thus, debt collectors as furnishers of credit data must make a reasonable investigation in response to an indirect dispute, and a review of “account-level documentation” may be required. In this case, Midland relied on information it already had in its possession, which obviously contributed to the creation of the lack of clarity over the dispute in the first place. It never went beyond this information, and thus its investigation was unreasonable.

At Loan Lawyers, our South Florida consumer rights and debt defense attorneys help individuals get control over their problems with debt. If you are a consumer with no short-term solution to solving problems from unpaid debts, contact our office today by calling (888) FIGHT-13 (344-4813) and see how we can help.
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