District Court (Cal.) Says Debt Collector’s Statement that Payment Could Help Credit Did Not Trigger CROA; Debt Collector’s Statement that It Could Report “Settled” Account as “Paid-in-Full” Was Not False

In Kielty v. Midland Credit Management, Inc., 2015 WL 400584 (S.D.Cal. 2015), Judge Bashant held that a debt collector stating that payment could help repair the debtor’s credit did not trigger the Credit Repair Organizations Act.

Unlike FreeScore, Midland does not offer any service for the purpose of providing assistance or advice to improve consumers’ credit record in return for payment. Midland does not represent that its ser-vices can improve or assist in improving a consumer’s credit record, history, or rating. Midland, as a debt collector, is simply seeking the repayment of debts owed and in doing so encourages the repayment of debts owed to it and acknowledges the benefits of repayment. Seeking the repayment of a debt and utilizing “the potential of a lower credit score as motivation to encourage [a person] to pay the debt” does not make a person a credit repair organization. See Spencer v. Ariz. Premium Fin. Co., Inc., No. 06–cv–160S, 2011 WL 4473178, at *4 (W.D.N.Y. Sept. 26, 2011); see also Dauval v. Preferred Collection & Mgmt. Servs., Inc., No. 11cv2269, 2012 WL 5928622, at *4–5 (M.D.Fla. Nov. 26, 2012) (holding that a debt collector seeking to collect a debt and offering to restore the debtor’s credit in exchange for payment on the debt was not a credit repair organization).  Rather, any benefit to Plaintiffs’ credit score “would simply be an indirect, collateral effect to the settlement of [their] debt.” Id. . . . There is no allegation in the Complaint that Midland offered services or advice for any additional fee. Cf. Reynolds v. Credit Solutions, Inc., 541 F.Supp.2d 1248, 1249 (N.D.Ala.2008) (finding a debt settlement company which charges a fee of 15% of the total amount of debt to be reduced to be a credit repair organization), vacated by Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir.2009) (holding the question of whether defendant is a credit repair organization is a question for the arbitrator); Kennedy v. CompuCredit Holdings Corp., 9 F.Supp.3d 1314, 1315, 1321 (M.D.Fla.2014) (finding the plaintiff plausibly alleged the defendant was a credit repair organization where the defendant offered debtor plaintiff an opportunity to pay down a debt while at the same time qualifying for a new credit card through its Fresh Start Solution Program, thus giving plaintiff the “net overall impression” that “participation in the Program will provide a ‘Fresh Start’ to improve any consumer’s credit record, credit history, or credit rating”). Rather, the Complaint alleges Midland was merely seeking repayment of debts owed to it, or a potentially lesser amount, if it could work out a plan with Plaintiffs. (See Compl. at ¶ 17.) Given the foregoing, the Court finds that Plaintiffs have failed to plausibly allege that Midland is a credit repair organization.

The District Court disagreed with Plaintiff’s theory that the debt collector could not represent that it would report the accounts as “paid in full” when, according to the debtor’s theory, the FCRA only permitted the debt collector to report the accounts as “settled”.

Midland’s letters to Plaintiffs state that once all agreed-upon payments have been received, their accounts will be considered “Paid in Full” and “the three major credit reporting agencies will be updated accordingly.” (Compl. at ¶ 68, Exs. D–F.) Plaintiffs allege these statements, offering to report the accounts as “Paid in Full,” rather than “Settled,” are “false, deceptive, and misleading,” since the Fair Credit Reporting Act (“FCRA”) forbids furnishing inaccurate information to a consumer reporting agency. (Opp. at 22:6–14 (quoting FCRA, 15 U.S.C. § 1681s–2(a)(1)(A).) . . .Midland contends it could report the debt as “Paid in Full,” regardless of whether the consumers paid a lesser amount by agreement. Midland further contends that Plaintiffs fail to provide any support for their assertion that “a furnisher may not report a settled debt as ‘Paid in Full’ “ under the FDCPA. (Opp. at 22:16–18.) The Court agrees that neither the FDCPA nor the FCRA explicitly bar a debt collector from reporting a “settled” debt as having been fully satisfied. ¶ Plaintiffs cite two unpublished cases to show that “major financial institutions have interpreted this provision to mean … a furnisher may not report a settled debt as ‘Paid in Full.’ “ (See id. at 22:15–23:11.) Neither case, however, supports the broader proposition that the substantive law bars Midland from reporting debts it settled with consumers as “Paid in Full.” See Schiano v. MBNA, No. 05–1771(JLL), 2013 WL 2452681, at *5 (D.N.J. Feb. 11, 2013) (noting in dicta that the bank and consumers agreed the bank could not report that the debt was paid in full because it was settled for less than the amount owed), reconsideration denied, No.2013 WL 2452682 (D.N.J. Apr. 12, 2013), and aff’d, 2013 WL 2455933 (D.N.J. June 3, 2013); Grossman v. Barclays Bank Del., No. 12–6238(PGS), 2014 WL 647970, at *3 (Feb. 19, 2014) (reciting bank’s representation that reporting debts as settled followed the Credit Resource Reporting Guide (“CRRG”)); see also In re Jones, No. 09–14499(BFK), 2011 WL 5025329, at *3 (Bankr.E.D.Va. Oct. 21, 2011) (finding the CRRG consists of “guidelines only” and is not “a national, legally enforceable standard for the reporting of debts”). Thus, the Court finds the Complaint fails to make a plausible allegation that Midland’s represen-tations that Plaintiffs’ accounts will be considered “Paid in Full” and reported as such to the three major credit reporting agencies violates the FDCPA.