A debt collector that bought charged-off debts for collection purposes could not respond to a consumer’s dispute by simply rechecking the limited information in the electronic file it purchased, the U.S. Court of Appeals for the Eleventh Circuit has decided. While what constitutes a “reasonable investigation” of a consumer’s dispute will vary depending on the circumstances, concluding that a debt was verified without looking at any account-level information or documentation or verifying the electronic file contents in some other manner could not be considered to be reasonable, the court said (Hinkle v. Midland Credit Management, Inc.).
The decision has the potential to impose higher Fair Credit Reporting Act compliance burdens on debt buyers when consumers dispute entries in their consumer reports.
Junk debt purchases. Midland Credit Management bought two charged-off debts from other debt collectors, receiving only electronic files that gave the amount of the debt, original creditor’s name, charge-off date, and personal information about the account-holder. In neither case did Midland receive any account-level documentation, but in both cases the debt seller had at least some obligation to help Midland obtain that documentation if it was requested. Charged-off debts that may be sold from one debt buyer to another, usually at increasing discounts, sometimes are referred to as “junk debts,” the court noted.
Consumer’s disputes. The company sent separate dunning letters for each of the debts, with each letter offering a settlement for less than the full amount claimed. The first settlement offer apparently was accepted, as Midland marked the account “paid in full” and stopped reporting it to consumer reporting agencies. However, the consumer said she hadn't received the letter and hadn't made any payment.
In fact, the consumer claimed that she knew nothing about the account or the settlement until she obtained a copy of her credit report several years later and saw that the report listed the debt as having previously been in collection. She disputed the debt with the national consumer reporting agencies, which passed the dispute to Midland for reinvestigation.
Not long after, Midland sent a collection letter for the second debt, which the consumer acknowledged having received. In a subsequent telephone conversation, she told Midland that she had not opened the account in question and did not owe the debt. Midland, by letter, asked the consumer for any documentation she could provide to support her dispute but, according to the court, did nothing else.
Six months later, the consumer disputed the second debt with the three CRAs, which again referred the dispute to Midland for reinvestigation. The court said that Midland never took any steps to investigate either dispute beyond, at most, reviewing the electronic files it had purchased and asking the consumer if she could supply any more information. Specifically, it never invoked its ability to ask the sellers for help in obtaining account-level information.
Reasonable reinvestigation. The Fair Credit Reporting Act requires a company that furnishes information to CRAs to perform a reasonable reinvestigation if it is told a consumer has disputed that information (15 U.S.C. §1681i). According to the appellate court, what Midland did wasn’t enough to be considered reasonable.
What constitutes a reasonable reinvestigation depends in part on who the information furnisher is—the original creditor, the creditor’s collection agency, a debt buyer, or a “down-the-line” debt buyer like Midland, the court said. Under the FCRA, there are three possible ends of a reinvestigation—the debt claim could be found to be verified, the debt claim could be found to be inaccurate, or the information could be inadequate to reach a conclusion.
The statute does not define either “verify” or “investigation,” the court noted. However, in this context, “verify” calls for “some degree of careful inquiry.” If Midland did not have information showing that the contents of the electronic files were accurate, it should have obtained such information before reporting the debt was verified.
An information furnisher, including a junk-debt buyer, has two choices, the court said:
- It could verify the information it had reported through documentary evidence or some individual’s personal knowledge.
- If the necessary evidence was not available or would be “too burdensome to acquire,” it could report that the information it had reported could not be verified.
Shifting the burden. The court also rejected Midland’s argument that its suggestion the consumer should furnish information to support her claim could effectively shift the burden to her and, if she did nothing, allow it to report the debt as verified. Nothing in the FCRA allowed Midland to shift the burden of its investigation to the consumer. Moreover, even if doing so was possible, Midland at least would have had to tell the consumer that additional information was required, not just that it would be “helpful.”
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