In Hanks v. Talbott Classic National Bank, here, Judge Illston found that a Plaintiff stated a claim against a creditor when a charge-off notation reported to the CRAs pre-Petition was re-inserted post-Discharge. In so doing, Judge Illston implied that the pre-Petition charge-off reporting complied with FCRA, but found that the re-insertion post-Petition did not and that the Plaintiff was not deprived of standing under Walls v. Wells Fargo Bank. Judge Illston also explained what some of the more common terms in consumer finance mean, such as “charge-off” and “trade-line”.
Plaintiff brings her claim under the Fair Credit Reporting Act (the “FCRA”). Plaintiff alleges that on April 22, 2010, she filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Northern California. FAC ¶ 6; In re: Hanks, No. 10-11459 (N.D. Cal. Bankr. 20110). The Bankruptcy was concluded and her debts, including the ones at issue here, were discharged. Id. Defendants were listed as creditors in plaintiff’s bankruptcy and received timely notice of the bankruptcy. FAC ¶ 7.¶ Plaintiff alleges that “sometime after” the defendant was notified of the plaintiff’s bankruptcy case, defendant reported to credit reporting agencies that one or more credit accounts belonging to plaintiff were “charged off.” FAC ¶ 8.2 Plaintiff alleges that this was in violation of the FCRA, because “in fact the account had been included in Plaintiff’s Bankruptcy and Defendants were enjoined from reporting said ‘Charge Off’ on Plaintiffs credit report.” Id. ¶ Due to these alleged errors in credit reporting, plaintiff sent to the three major credit reporting agencies – Trans Union, Equifax, and Experian – letters disputing the “charged off” reporting. FAC ¶ 9. The agencies then forwarded the dispute to defendant. On October 7, 2011, plaintiff received Experian’s reinvestigation report, stating that defendant corrected and removed the “charge off” reporting on her account. The re-investigation report showed the account history to be corrected, “and the trade line account history accurately stopped reporting any and all negative information after March 2010.” FAC ¶ 10.3 Plaintiff alleges that by correcting the inaccurate “charge offs” on her credit report, the defendant “by [its] own admission acknowledged the inaccuracy of the ‘Charge Off’ status.” FAC ¶ 11. However, on January 22, 2012, plaintiff again pulled her Experian credit report, and found that defendants re-inserted the charge off on the credit report trade line sometime during January 2012. FAC ¶ 12. Defendants also reported a $329.00 balance owed on the trade line account history for every month between April 2010 and December 2011. Id. Plaintiff alleges that “because they had no legal basis to access and change plaintiff’s credit report since the debt was discharged in the bankruptcy and the Formal Dispute Process had already been fully executed,” defendants violated the FCRA by accessing and changing her credit report (FAC ¶ 13); by re-inserting the charge off following its removal (FAC ¶ 14); and by “re-aging” the debt in re-inserting the information on her credit report (FAC ¶ 15).
Judge Illston defined “charge-off” as follows:
The parties do not define “Charge Off.” Wikipedia provides the following explanation: A “charge-off” or chargeoff is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment. In the United States, Federal regulations require creditors to charge-off installment loans after 120 days of delinquency, while revolving credit accounts must be charged-off after 180 days. The purpose of making such a declaration is to give the bank a tax exemption on the debt. Bad debts and even fraud are simply part of the cost of doing business. The charge-off, though, does not free the debtor of having to pay the debt. A charge-off is one of the most adverse factors that can be listed on a credit report. It will then be listed as such on the debtor’s credit bureau reports (Equifax, for instance, lists “R9” in the “status” column to denote a charge-off.) The item will include relevant dates, and the amount of the bad debt. While a charge-off is considered to be “written off as uncollectable” by the bank, the debt is still legally valid, and remains as such after the fact. The creditor legally has the right to collect the full amount for a time periods permitted the laws of places of the location of the bank and where the consumer resides. “Charge Off,” Wikipedia, available at http://en.wikipedia.org/wiki/Charge-off (last visited July 31, 2012).
Judge Illston defined a “trade-line” as the “term used to describe information related to a particular account on a credit report. See Bankapedia, “What is a trade line?,” available at http://www.bankapedia. com/mortgage-encyclopedia/faqs/650-what-is-a-tradeline (last visited July 31, 2012).”. Judge Illston found that she need not reach the question of whether it is legally impermissible under the FCRA or any other statute to charge off an account following a filing for bankruptcy (and the concomitant automatic stay) because of the chronological sequence the Plaintiff had pleaded. (Ed.: But see (McCorkell, FTC Official Staff Letter (June 3, 1999) (“Specifically, you ask if we concur in your view that “nothing in the FCRA (a) prohibits a creditor from ‘charging off’ an account, whether before or after the filing of a bankrucy; (b) prohibits a creditor from reporting to a CRA that an account which has been discharged in bankruptcy has also been charged off so long as the credit grantor has in fact charged off the account; or (c) prohibits a CRA from reporting an account which has been discharged in bankruptcy as also having been charged off if the creditor so reported the account to the CRA and the CRA has no reason to believe otherwise.” We agree that the FCRA prohibits none of those practices in the circumstances you describe.”). Judge Illston found that the post-Discharge re-insertion of the charge-off notation by the creditor was not barred by Walls because it did not involve collection activity in violation of the discharge injunction. Judge Illston explained:
Defendant characterizes plaintiff’s allegation as a claim that defendant violated the discharge injunction, and, therefore, it is a “bankruptcy-laden determination” precluded by the Bankruptcy Code. Def.’s MTD at 9. In support of this theory, defendant relies on Walls v. Wells Fargo Bank, 276 F.3d 502, 510 (9th Cir. 2002). ¶ Defendant argues that the same holding applies here: that plaintiff cannot circumvent the contempt remedy of the Bankruptcy Code for violation of the discharge injunction by bringing a cause of action under the FCRA. Though Walls focused on the FDCPA, defendant argues the same reasoning applies to the FCRA. This issue was addressed in Henry v. Saxon Mortg., Inc., 2011 WL 5331679, *3-4 (D. Ariz. Nov. 7, 2011). There, the plaintiffs claimed that the defendant failed to conduct a reasonable investigation pursuant to the plaintiffs’ disputes with the major credit reporting agencies. Applying Walls, the court dismissed plaintiffs’ claims under the FDCPA as “bankruptcy-laden determinations” precluded by the Bankruptcy Code. The court then turned to the plaintiffs’ claims under the FCRA: Although the Ninth Circuit has not addressed whether Walls applies to FCRA claims, this issue has been addressed in the District of Oregon. See Wakefield v. Calvary Portfolio Servs., No. 06–CV–1066–BR, 2006 WL 3169517, at *2 (D.Or. Nov.1, 2006). In Wakefield, the court held that the Bankruptcy Code does not preclude an FCRA claim. Id. The court cited two bankruptcy court decisions in support of its conclusion. See In re Miller, No. 01–02004, 2003 WL 25273851, at *2 (Bankr.D.Idaho Aug.15, 2003) (holding that “there appears to be no conflict in remedies between the FCRA and the [Bankruptcy] Code”); In re Pots, 336 B.R. 731, 733 (Bankr.E.D.Va.2005) (holding that the FCRA and the Bankruptcy Code “co-exist”). Therefore, although the Defendant correctly asserts that the above cases are not binding authority, they are persuasive nonetheless and present conclusions that logically follow the purpose of the FCRA. For example, the court in In re Pots held that there are two reasons why the Bankruptcy Code and the FCRA can co-exist. First, while the FCRA and the discharge stay are similar, they are not identical. They differ in their objectives. The FCRA seeks to minimize credit reporting errors and to cure those that are made in a prompt and efficient manner. Actions under it generally involve mistakes. The discharge stay is directed to enforcing the bankruptcy discharge. Actions under it generally involve intentional acts. The elements that must be proved under each statute may overlap, but they are not identical. The remedies available, while similar, may differ. Second, there is no express provision in either the Fair Credit Reporting Act or the Bankruptcy Code that either supercedes the other. Id. These reasons are sufficient to support a finding that the Bankruptcy Code does not preclude an FCRA claim. 2011 WL 5331679, at *3-4. The Court agrees with that reasoning and adopts it here. Plaintiff is not contending defendant’s actions were an attempt to extract payment in violation of the discharge. See 11 U.S.C. § 524 (discharge enjoins a creditor from attempting to collect payment). Instead, plaintiff argues that “the only relevance the bankruptcy discharge has in this matter is its effect of rendering the ‘charge off’ status and report of an ongoing balance inaccurate.” Pl.’s Opp. at 8. Complaints about inaccuracy in credit reporting fall within the aegis of the FCRA, and involve distinct inquiries from complaints about violations of the discharge injunction. See In re: Pots, 336 B.R. 731, 733 (Bankr.E.D.Va.2005). The Court finds that the FCRA claim is not precluded by the Bankruptcy Code.