Michigan Collection Law Blog

Attorneys, when you file a complaint under the Fair Credit Reporting Act ("FCRA"), be sure that you can make the following allegations in good faith:

a. Your client posited its consumer dispute with the credit reporting agency (and not just the creditor/furnisher directly). You or your client's failure to notify the credit reporting agency of your client's dispute is fatal to your FCRA claim. You see, under the statute, a credit reporting agency's duty to conduct a reasonable reinvestigation does not begin until it receives notice of the dispute. Notifying the furnisher of the dispute is insufficient to trigger any duty to conduct a reasonable reinvestigation by the credit reporting agency.

b. Be sure to plead that that the credit reporting agency notified the furnisher of your dispute. If you are uncertain as to whether this happened, look for facts that would support a good faith believe to allege that this happened "upon information and belief." Under the FCRA, a furnisher's duty to conduct its reinvestigation is not triggered until the credit reporting agency notifies it of your client's dispute. Some courts do not require this to be pled in the complaint, but yet, some courts do. For example, Judge Avern Cohen who sits in the United States District Court for the Eastern District of Michigan requires this allegation in FCRA complaints. I just finished reading an opinion in which he dismissed the Plaintiff's complaint for failing to allege that the credit reporting agency notified the furnisher. I have a world of respect for Judge Cohen and his opinions. I can safely say that he is an incredibly intelligent man and history will undoubtedly remember him as an excellent jurist. BUT......if you are going to file an FCRA complaint in the Eastern District of Michigan and your case is assigned to Judge Cohen, be sure that you follow my advice.

I just read a great article about changes coming to FICO scores this September. Pat Earnhard reports that the practice of using someone else's credit score to boost one's own will be curbed by the Fair Isaac Company, the progenitor of the omniscient FICO score. Most credit grantors use the FICO score to determine whether your loan will be granted or not.

Piggy backing was originally intended to be used by parents helping their children establish credit. The parent would add the adult children to his or her credit accounts and the child would get the benefit of the parents credit score. In recent years, Piggy Backing has been abused. Credit repair companies would pay individuals with excellent credit a sum of money to add their clients to the person's account. The piggy backing exception has resulted in a great deal of piggy back abuse. Naturally, the individual with the artificially inflated credit score obtains credit that he cannot handle. When a debt goes bad, we all pay. The ride will soon be over.

An article in Bank Lawyer's Blog talks about piggybacking credit being "the latest and greatest" way to improve one's FICO score. With Piggybacking, someone with a subprime score ("a Subprime Risk") can become an authorized user of someone else's credit without actually being authorized to incur credit on the better credit risk's ("BCE") accounts. The subprime Risk then gets the benefit of BCE's credit score and resultantly, it raises the Subprime Risk's FICO score. This is called Piggybacking. It is neither the latest nor the greatest.

Piggybacking has been allowed for a number of years. This exception to the Fair Credit Reporting Act was designed to allow an adult child to build credit using the benefit of the parent's credit score. It has, unfortunately, been abused. Indeed, there are companies that will pay hundreds if not thousands of dollars to BCE's for the benefit of leasing their better FICO scores to Subprime Risks. This loophole to allow a young adult to build credit has been hijacked by those who are, for whatever reason, just plain poor credit risks. Common sense would tell you that Piggybacking results in deception to credit grantors and the granting of credit to those who are simply unable or handle or manage the credit responsibly. When this happens, the credit grantor is the first one to eat these losses. However, these losses are ultimately bourne by the consumer.

Fair Isaac, the company that invented the FICO score back is wise to this perceived industry abuse. There is talk in the industry that Fair Isaac is in the process of re-tooling the FICO score to close this exception to the general rule that everyone's credit must be a reflection of one's own credit history. Unfortunately, like any other war, there is collateral damage. In this case, it is our children.

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The Fair Credit Reporting Act ("FCRA") allows potential credit grantors to get your name and address from a credit reporting agency ("CRA") in order to send you a firm offer of credit, if you meet certain criteria. So just what is a firm offer of credit? In the 6th Circuit, that issue is not quite so clear.
Recently, Judge Cleland from the U S District Court for the Eastern District of Michigan held in Phinn v Capital One Auto Finance, that a firm offer of credit does not have to include terms of repayment including an interest rate.

Ken Phinn is a consumer that received a flyer from Capital One Auto Finance. In that flyer, Capital One offered to finance up to $25,000 in credit for an auto purchase to Mr. Phinn. The flyer did not discuss the interest rate, the term or the amount of repayment. Phinn contended that this was not a firm offer of credit as required by FCRA in order to go trolling through a CRA's records for his name. Judge Cleland held that the offer was firm enough to satisfy the requirements of FCRA and dismissed the case.

I don't think this case should give the consumer any reason for alarm. Potential credit grantors simply seek the names and addresses of consumers that meet certain criteria. CRAs only return names and address to the credit grantors. CRAs do not give the credit grantors any other information about the consumer. I think this case was more in the nature of a fund raiser for Mr. Phinn as even if there were a technical violation of the FCRA, so what? He was not harmed. The CRA's identifying him as an individual who met certain criteria did not lower is FICO score.
Again, Judge Cleland wrote another well reasoned and persuasive opinion.

The 6th Circuit has just decided, for the second time, Bach v First Union National Bank. I was very surprised to see the court of appeals cut the punitive damages awarded by an obviously outraged jury from $2.6 million down to $400,000. Ms.Bach obvious had a good case for violation of the Fair Credit Reporting Act against the bank because the jury awarded her $400,000 in damages. Equally obvious is the fact that she was treated maliciously by the bank as the jury also gave her punitive damages of $2.6 million. What is surprising is that the 6th Circuit took what I think is very extraordinary action. It reduced the jury's award of punitive damages of $2.6 million down to $400,000. The court reasoned that there were not enough aggravating factors to support a $2.6 million award. I think differently. I think that it took an incredible amount of nerve for the court to second guess a jury verdict based upon days and days of testimony and deliberation.

So why did the court really reduce a punitive damages verdict to 1/6th of its original value? I don't know. But I can tell you that courts are usually very reticent to supplant a jury verdict for their own. I do have to wonder, however, is this an omen of things to come in consumer litigation in our jurisdiction? Should consumers and their attorneys worry about whether this decision was simply a rogue opinion or is it the beginning of trend that will tend to route consumer rights? Time will tell.