District Court (Cal.) Finds Collection Agency Violated FDCPA By Reporting Debt Without Validation and Failing to Report as “Disputed”

In Moscona v. California Business Bureau, Inc., 2011 WL 5085522 (S.D.Cal. 2011), Judge Benitez granted summary judgment in favor of a debtor and against a debt collection agency on a number claims arising out of collection and reporting on a debt.

Judge Benitez held that the debt collector’s reporting of the Account to the credit reporting agencies before it verified a debt in response to a consumer’s objection violated the FDCPA:

Plaintiff alleges that Defendant continued its collection activity by reporting Plaintiff’s debt to credit reporting agencies before Defendant validated the debt, in violation of 15 U.S.C. § 1692g(b) and California Civil Code § 1788.17. If a consumer notifies a debt collector in writing that a debt is disputed, then “the debt collector shall cease collection of the debt … until the debt collector obtains verification of the debt” and mails a copy of the verification to the consumer. 15 U.S.C. § 1692g(b). If a debt collector reports a debt to the credit reporting agency before validating the debt, this is a violation of Section 1692(g). Purnell v. Arrow Fin. Servs., LLC, 303 Fed. App’x 297, 304 n. 5 (6th Cir.2008); Quale v. Unifund CCR Partners, 682 F.Supp.2d 1274, 1279 (S.D.Ala.2010); Edeh v. Midland Credit Mgmt., Inc., 748 F.Supp.2d 1030, 1035–36 (D.Minn.2010); Semper v. JBC Legal Group, No. C04–2240L, 2005 WL 2172377, at *4 (W.D.Wash. Sept.6, 2005); but see Breed v. Nationwide Ins. Co., No. 3:05CV–547–H, 2007 WL 1408212, at *1 (W.D.Ky. May 8, 2007); Jackson v. Genesys Credit Mgmt., No. 06–61500–CIV, 2007 WL 2113626, at *3 (S.D.Fla. July 23, 2007). ¶ On January 1, 2010, Plaintiff sent Defendant a certified letter, in which Plaintiff advised Defendant that the letter was “a notice sent pursuant to the Fair Collection Practices Act, 15 USC 1692g Sec. 809(b) that your claim is disputed and validation is re-quested…. During the validation period your offices must cease and desist from any collection activity on the alleged debt. Further, please be advised that reporting to the credit bureaus an invalidated debt is a violation of the Fair Credit Reporting Act and carries a fine, payable to me.” (Mot., Exh. A.) Before validating the debt, however, Defendant reported the debt to credit reporting agencies on January 10, 2010. (Id., Exh. D, at 93.) Defendant admits that it did not validate the debt until January 20, 2010. (Opp. at 4–5.) By reporting the debt to the credit reporting agencies before validating the debt, Defendant violated Section 1692(g).

Judge Benitez also held that the debt collector violated the FDCPA by failing to report the debt as disputed:

Plaintiff alleges that Defendant violated 15 U.S.C. § 1692e(8) and California Civil Code § 1788.17 by failing to notify the credit reporting agencies that Plaintiff disputed the debt when it reported Plaintiff’s debt to these agencies. The FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. This includes “[c]ommunicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” 15 U.S.C. § 1692e(8). Section 1692e(8) “requires a debt collector who knows or should know that a given debt is disputed to disclose its disputed status to persons inquiring about a consumer’s credit history.” Brady v. Credit Recovery Co., Inc., 160 F.3d 64, 67 (1st Cir.1998). As stated above, on January 1, 2010, Plaintiff sent Defendant a certified letter, in which Plaintiff advised Defendant that the letter was “a notice sent pursuant to the Fair Collection Practices Act, 15 USC 1692g Sec. 809(b) that your claim is disputed and validation is requested.” (Mot., Exh. A.) Defendant reported the debt to credit reporting agencies on January 10, 2010, without informing the credit re-porting agencies that the debt was disputed. (Id., Exh. D, at 93.) This was a violation of Section 1692e(8).

ED. COMMENT: Section 1692e(8) requires a threat and a sequence: a “dispute” of credit information by the consumer communicated to the debt collector, and then either a “threat” to the consumer once the debt collector learns of the dispute, or a “subsequent” communication to the credit bureaus. See FTC Staff Commentary, §807(8) (“Disputed debt. If a debt collector knows that a debt is disputed by the consumer, either from the receipt of written notice (§809) or other means, and reports it to a credit bureau, he must report it as disputed. Post-report dispute. When a debt collector learns of a dispute after reporting the debt to a credit bureau, the dispute need not also be reported” (emphasis added)). See also Black v Asset Acceptance LLC (ND Ga, Dec. 9, 2005, No. 1:05-cv-1588-BBM) 2005 US Dist Lexis 43264; Hoffman v Partners in Collections, Inc. (ND Ill, Sept. 12, 1994, No. 93 C 4182) 1994 US Dist Lexis 12884 (district court required plaintiff under 15 USC §1692e(8) to establish that (1) he had called defendant (2) to dispute his debt and (3) defendant subsequently sent reports to credit bureaus).