District Court (Cal.) Allows FCRA Bankruptcy Reporting Case to Proceed as a Class Action

In Nissou-Rabban v. Capital One Bank (USA), N.A., 2018 WL 538962, at *6 (S.D.Cal., 2018), Judge Houston found that an FCRA plaintiff whose credit card account has passed through bankruptcy sufficiently alleged an “inaccuracy” under the FCRA and that such claim could proceed as a class action.  After allowing the Plaintiff to amend the Complaint to allege a class action, the District Court found that the Plaintiff had sufficiently alleged an inaccuracy.

In dismissing Plaintiff’s FAC, the Court noted specifically, “Plaintiff offered only vague allegations that Defendant ‘reported derogatory information…after November 24, 2014,’ the date Plaintiff filed her bankruptcy petition. Doc. No. 19, ¶¶ 44, 72” and “it is the bankruptcy discharge date, as opposed to the date a bankruptcy petition is filed, that is the crucial date.” See Doc. No. 52. In Plaintiff’s SAC, however, she concedes that prior to February of 2015, when her bankruptcy was successfully discharged, Capital One’s reporting of the Accounts as “charged off” was accurate. See Doc. No. 54, ¶ 163. Plaintiff’s contention in her SAC is the reporting then became inaccurate or misleading after her bankruptcy discharge, and it was Capital One’s failure to remedy the alleged inaccuracies that gave rise to her claims. Based on her clarification of when the inaccuracy began, the dates pled in her SAC are sufficient.

The District Court also discussed whether the Defendant had followed METRO-2 guidelines and the impact of METRO-2 guidelines on the case.

Defendant contends that Metro 2 “does not indicate that a data furnisher’s duty extends in perpetuity such that it would be required to report a new ‘final status’ of an account following a bankruptcy.” See Doc. No. 65–1, pg. 20. However, as alleged by Plaintiff, Metro 2 does extend a duty to report a new post-bankruptcy account status by requiring “furnishers to update the CII indicator status of accounts discharged in Chapter 7 Bankruptcies with an ‘E’ notation, i.e. ‘Discharged in Bankruptcy.’ ” Doc No. 54 ¶ 134 (emphasis added). . . Defendant points out this case involves accurate pre-bankruptcy reporting that subsequently becomes inaccurate or misleading after the bankruptcy is successfully discharged. Defendant cites Sheridan v. FIA Card Services, N.A., in support of its argument that, “…reporting of historically accurate information does not later become inaccurate under the FCRA when the debts are subsequently discharged through bankruptcy.” Sheridan v. FIA Card Servs., N.A., No. C13-01179 HRL, 2014 WL 587739, at *5 (N.D. Cal. Feb. 14, 2014). This Court agrees that historically accurate information should not be deemed inaccurate for purposes of the FCRA when the debt is subsequently discharged through bankruptcy, so long as it provides the complete picture, so as not to affect future credit decisions. In granting summary judgment for the furnisher, the court in Sheridan held that the alleged inaccuracies were “. ..unlikely to adversely affect credit decisions, particularly where the report also clearly notes that the account was discharged in bankruptcy.” Sheridan, 2014 WL 587739, at *5 (N.D. Cal. Feb. 14, 2014) (emphasis added). In other words, unfavorable historical information, such as a history of late or overdue payments, is unlikely to adversely affect decisions by a future potential creditor when they are adequately notified that the debt was subsequently discharged in bankruptcy. Plaintiff’s credit report does not clearly indicate her debt was subsequently discharged in bankruptcy. In fact, that is the sole reason for her bringing this action.  Therefore, a much more accurate statement would be that Plaintiff’s bankruptcy did not render Defendant’s previous reporting inaccurate, but rather incomplete. The Ninth Circuit has held that “…an item on a credit report can be ‘incomplete or inaccurate’ within the meaning of the FCRA’s furnisher investigation provision.” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 890 (9th Cir. 2010) (citing Gorman, 584 F.3d 1147, 1157 (9th Cir. 2009)). Defendant contends that their reporting was accurate on the date it was sent to Equifax, and that is sufficient to defeat Plaintiff’s claim. However, barring a FCRA claim in situations where a subsequent event makes a once accurate reporting incomplete would be contrary to the FCRA’s purpose of “protect[ing] consumers against inaccurate and incomplete credit reporting.” Nelson v. Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1060 (9th Cir. 2002) (emphasis added).  Accordingly, this Court finds Plaintiff alleges sufficient facts to support a prima facie showing that Defendant’s reporting is inaccurate or misleading when assuming all of Plaintiff’s factual allegations are true, and construing them in the light most favorable to her. To prove her case, Plaintiff will need to establish “through admissible evidence that [updating the status of sold or transferred accounts discharged in bankruptcy] is in fact the industry standard, that [Capital One] deviated from it, and that this particular deviation might adversely affect credit decisions….Whether these allegations turn out to be true is a question of proof that is not suited for resolution in a motion to dismiss.” Nissou-Rabban, 2016 WL 4508241, at *5 (S.D. Cal. June 6, 2016).