Fair Credit Reporting Act (FCRA) &
Fair and Accurate Credit
Transactions Act: Issues Affecting
Equipment Finance Companies
© Winston & Winston, P.C.
Legal Disclaimer
The information presented is for general informational
purposes only. This presentation is not to be deemed a
substitution for consultation with an attorney. Consultation
is not only recommended, but encouraged.
© Winston & Winston, P.C.
Presented by:
Jay Winston
(President)
Winston & Winston P.C.
295 Madison Avenue, Suite 930
New York, N.Y. 10017
212-922-9482
jwinston@winstonandwinston.com
© Winston & Winston, P.C.
FCRA-FACT ISSUE
• Can I pull a Credit Report on a Guarantor or a
sole proprietor (John d/b/a Truck Company)
– to extend credit?
– to collect a debt?
• Do I need written consent?
• Do I need a debt?
• Do I need a judgment?
© Winston & Winston, P.C.
Permissible Purpose?
• A company may obtain a consumer credit report
when given express permission or when the
company has a “permissible purpose” under 15
U.S.C. § 1681b. One “permissible purpose” for
obtaining a credit report occurs when the
purpose relates to (1) a credit transaction
involving the consumer and (2) the purpose
relates to the extension of credit or
review/collection of the account of the
consumer.
© Winston & Winston, P.C.
Not a permissible purpose
due to FACTA amendments
• Child support. Miller v. Trans Union LLC, 2007
U.S. Dist. LEXIS 14315 (N.D. Ill. Feb. 28, 2007).
• Only because I have a judgment:
– unjust enrichment;
– commercial transaction;
– Taxes.
© Winston & Winston, P.C.
Written Consent
But did it terminate?
• In Vandyke v. Northern Leasing Sys., 2009 U.S. Dist. LEXIS
95757 (E.D. Cal. Oct. 14, 2009), the plaintiff entered into a
software lease agreement in 1999. A month later, the plaintiff
cancelled the agreement.
• The defendant threatened to “pull [the plaintiff’s] credit
report 100 times every 6 months and take her to court.” The
defendant (creditor) obtained six credit reports in 2007.
• The court found no “permissible purpose” because the
business transaction had terminated in 1999. The court also
concluded that the express permission given in the contract
was revoked when the contract was terminated.
© Winston & Winston, P.C.
Can consent end? Verbal termination
• In Drewry v. Starr Motors, Inc., 2008 U.S. Dist. LEXIS 38534 (E.D.
Va. 2008), the plaintiff attempted to obtain financing to purchase
a car. The plaintiff signed two separate contracts giving permission
for financers to obtain credit reports. The financing was rejected.
• The financing was rejected several times because the plaintiff was
self employed. The defendant, a car dealership, offered to finance
the car and obtained a new credit report. However, the plaintiff
rejected the defendant’s offer and returned the car. The plaintiff
alleges that he did not give the defendant permission to obtain
the last credit report. The court concluded that there may be
a FCRA violation if the business relationship between the
parties had ended prior to obtaining the report .The parties
would need to proceed to trial to determine when the business
relationship ended.
© Winston & Winston, P.C.
Can a bankruptcy end consent?
• Another unresolved issue is whether the filing of a
bankruptcy terminates the extension of credit, and,
therefore, the consent.
• The court in Goodby v. Wells Fargo Bank, N.A., 599 F.
Supp. 2d 934 (S.D. Ohio 2008), concluded that Wells Fargo
did not have a ‘permissible purpose’ to obtain a credit
report after the discharge. Obtaining the report was not
related to a credit transaction or the collection of the debt
because the mortgage had been discharged.
© Winston & Winston, P.C.
Furnisher’s Duty to investigate disputes.
• Perception: I only have a duty to investigate a
dispute if I receive a notification from a Credit
Bureau.
• Statute: If you have reason to know the report is
incomplete or inaccurate – furnisher has a duty to
update/correct.
• Law: “The Fourth, Sixth, Ninth, and Tenth Circuits
have all held that § 1681s-2(b) requires furnishers to
correct both "'false information,' which is 'clearly
inaccurate'" and "information provided 'in such a
manner as to create a materially misleading
impression . . . '“Mason v. Chase Home Fin., LLC, 2014
U.S. Dist. LEXIS 1009 (D.N.J. Jan. 6, 2014).
© Winston & Winston, P.C.
Katz v. American Express Co.,
2014 U.S. Dist. LEXIS 116764 (D. Haw. Aug. 20, 2014)
• “Plaintiffs obtained a "corporate credit card" in 1994 in response to a
mailed solicitation from AMEX for their business, Second Equity Concepts,
Ltd. ("SECL).Plaintiffs made almost all of their personal purchases on this
credit card, and made timely payments using their personal joint checking
account. “
• “Moreover, although the credit reports did not reflect the timely credit
card payments, AMEX "recently" reported to unspecified CRA Defendants
that Roseann owed a debt of $6,441.25 to AMEX as a personal liability. “
(SUGGESTS CREDIT REPORTING UPON DEFAULT)
• “Plaintiffs contend that (1) they suffered a credit score that is ‘much lower
than it otherwise would have been had [AMEX] reported personal
payments on the SECL credit card properly;" (2) Pl is unable to buy a new
automobile’ even though she otherwise would qualify….”
© Winston & Winston, P.C.
Katz v. American Express Co., continued
• COURT: “[It] is premature to dismiss this claim
with prejudice. Plaintiffs argue in their Objection
that they ‘applied for and received an [AMEX]
'Corporate Gold Card.'“
• Plaintiff “argue[s] that such a card is not a
"business" card, although such a distinction is not
alleged in the Amended Complaint. The Amended
Complaint -- although unclear -- might be seeking
to allege that Plaintiff used their AMEX card for all
their personal expenses, with AMEX's knowledge
and approval.”
© Winston & Winston, P.C.
Katz v. American Express Co., continued
• “It thus might be possible that Plaintiffs are
claiming that the credit card -- whatever its
title -- was actually ‘consumer credit’ because
it was used not ‘primarily for business
purposes’ but rather primarily for consumer
purposes”
© Winston & Winston, P.C.
.
SBA: New Requirement for Loan Data Reporting
Jeff Dobbins National Account Executive at Business Credit Reports, Inc.
• If you’re not reporting loan data to the major bureaus, you may have an SBA guarantee
issue! For over a year, the Small Business Administration has required that all SBA loans
are to be reported to the major business credit bureaus at least on a quarterly basis. The
updated Standard Operating Procedure 50 57 effective March 1, 2013 says, “Lenders are
required to report information to the appropriate credit reporting agencies whenever they
extend credit via an SBA loan. Thereafter, they should continue to routinely report
information concerning servicing, liquidation, and charge-off activities throughout the
life-cycle of the loan.”
While most SBA lenders are generally familiar with the need to report debt
collection and charge-off, it is clear that lenders must now report during loan
servicing too. Furthermore, both current and delinquent accounts are to be
reported. Also, reporting must be to at least one of the three major bureaus, D&B,
Experian and Equifax. Smaller, industry specific bureaus, while helpful, will not meet
this requirement.
The best practice is to report loan payment experiences on all accounts, regardless of any
Federal guarantee. Lenders who report their payment data to the major bureaus get paid
better. Advising your customers that their payment performance is being reported
provides you more leverage to get paid on time. By reporting good payment behavior,
you’re helping your “good” customers to build their credit record, which enables them to
grow their business. NAGGL suggests strongly that lenders ensure that applicants
understand that payment and loan status information will be reported to the business
credit bureaus.
© Winston & Winston, P.C.
Beware of Bait
• Guarantor disputes debt. Advises you or the bureaus
it is disputed. Guarantor then pays the debt.
• Report the debt as disputed! Or risk being sued.
• Dual use products - even when a stretch –
– Trucks, Car, boats, Airplane’s
– Computers, Printers, etc
• Courtesy leases/ loans of personal vehicles to
owner’s of business.
© Winston & Winston, P.C.
Norcom v. Lease Fin. Group, LLC,
2014 U.S. Dist. LEXIS 82083 (D. Or. June 17, 2014)
• “After she signed the lease, plaintiff [alleges] an unknown party altered the
lease and added equipment to the lease agreement without her knowledge or
consent. Plaintiff claimed she cancelled the lease and returned the equipment.”
• “Here, the personal guaranty appearing in the lease, to which plaintiff agreed,
grants permission to Lease Finance Group ‘to obtain an investigative credit
report from a credit bureau or credit reporting agency and conduct credit checks
concerning my [plaintiff's] credit history.’”
•
“Alternatively, FCRA authorized Lease Finance Group to obtain plaintiff's credit report in order to collect on the
judgment it obtained against her”
This part of the case is bad wrong(You also need a consumer credit
transaction.) – FACTA AMENDMENTS CHANGED OR to AND
Case does not mention FACTA. – good defense attorney
© Winston & Winston, P.C.
Thank You
Jay Winston
Winston & Winston P.C.
© Winston & Winston, P.C.
About Jay Winston
• Admitted in New York, New Jersey, & Connecticut.
• Frequent Speaker at Industry Related Conferences on Credit & Collection
issues including Bankruptcy, Privacy and E-commerce law for the past 10
years.
• Manages an Attorney Network of over 100 firms for its national and
international clientele.
• Regularly writes articles for several publications, including Newsline and has
co-authored a well respected book on credit and collection law.
• Applies a business model / risk management approach when advising
clients on today’s new issues.
© Winston & Winston, P.C.
The Complete Guide to Credit and Collection Law (1996current) Over 2000 pages
2015 Edition to be published by American Bar Association.
© Winston & Winston, P.C.