SEVERE IDENTITY THEFT VICTIMS VINDICATED:
FEDERAL APPEALS COURT UPHOLDS CONSUMER'S RIGHT TO SEEK DAMAGES FOR FALSE ENTRIES ON CONSUMER CREDIT REPORTS

By Robert F. Brennan, Esq.

March 14, 2002

With identity theft and abuse of credit information at epidemic levels, consumers need ready and unrestricted access to the courts to address false and inaccurate information on credit reports which the consumers cannot themselves get removed. The reason is simple: the first injury that the identity thief causes you is the charges you never incurred for items you never bought. The second, and probably the more dangerous, place that the identity thief hurts you is on your credit report. The scars left by the identity thief may take years to heal completely on your credit report, and it may affect your ability to obtain affordable credit for years to come.

Your credit report is controlled primarily by the major credit reporting agencies. One may not believe it, but the major credit reporting agencies recently tried to completely prevent consumers from going to court to get justice where other means have failed. However, this challenge to important consumer rights did not succeed: on March 1, 2002, the Ninth Circuit Court of Appeals-the highest federal court of appeals on the West Coast, lower in rank only to the United States Supreme Court-struck down this effort by major corporations and consumer reporting agencies to eliminate the consumer's right to seek damages for false credit entries on a consumer credit report. This decision firmly opens the door for consumers to seek full and complete justice when corporations which violate the law unfairly ruin a consumer's credit and then fail or refuse to correct the errors.

To understand this court decision, and to understand the law which allows consumers to seek justice for false or incorrect entries on their credit reports, it helps to become familiar with some background about the federal Fair Credit Reporting Act ("FCRA"). The FCRA is found at Title 15, United States Code, Sections 1681 through 1681u. If you were to go to a law library to read the statute, you would request, "15 U.S.C. Section 1681 through 1681u." The full Title 15 of the United States Code is also available on the internet at various legal research sites.

The FCRA was enacted in 1970 by the United States Congress. It was signed into law that same year by then-President Richard Nixon. Congress enacted this law because "unfair credit methods undermine the public confidence which is essential to the continued functioning of the banking system."

In other words, by giving consumers a powerful tool to correct false and inaccurate entries on their credit reports, consumers as a whole will have more confidence in the credit reporting system and in the economy. When you consider that most prominent economists agree that consumer confidence is one of the biggest, if not the biggest, single factor driving the direction of our economy, a law which truly does promote consumer confidence is a very good thing. And, as with anything, confidence is enhanced when all of the participants in the system have access to means to correct injustices.

Basic Definitions

Under the FCRA, there is, of course, the "consumer," who is the subject of the credit report. The "furnisher" is the business (often a retail business of some kind, or a bank or a finance company, a utility or, quite frequently, a debt collection agency) which "furnishes" the credit information to the "CRA", the Credit Reporting Agency. Equifax is an example of a credit reporting agency. There are three major credit reporting agencies: Equifax, Transunion and Experian. These three "CRA's" are the "big three" of the credit reporting agencies. Their function is essentially to collect credit information about consumers and report it to banks or to persons applying for credit when such information is requested. As many consumers know, the "big three" share credit information with each other.

A negative entry on your credit report is normally referred to as a "derogatory". A derogatory can include a late-pay which is reported by one of your creditors, a default on a consumer loan or a mortgage, a default on child support or tax obligations or a bankruptcy, to name a few.

A false derogatory is a derogatory which is on your credit report, but which does not belong to you. This is particularly bad in identity theft cases. The particular cruelty of identity theft is that the thief creates derogatories on your credit by opening consumer loan accounts and then not making the loan payments. Thus, derogatories get placed on your credit account for obligations you never undertook.

There are other ways in which false derogatories can be entered onto your credit report. Sometimes, the CRA simply confuses you with someone else who may share a similar name, a similar address or a similar social security number. Sometimes, a bankruptcy can be included on your credit report when you have co-signed a loan with, say, a family member, and the family member then declares bankruptcy. When this happens, the bankruptcy is not supposed to appear on your credit report. Identity theft is certainly the most well-known source of false derogatories, but there are others.

How the FCRA Protects You

There are two basic ways in which the FCRA protects consumers. First, the FCRA provides a tool for federal and state law enforcement agencies to take action against any furnisher who provides incomplete or inaccurate information to a credit reporting agency. This protection is found at 15 U.S.C. Section 1581s-2(a). Under this section, furnishers must regularly correct and update credit information about consumers and must also notify CRA's if a consumer disputes any credit entry on any credit report.

The problem with 15 U.S.C. Section 1581s-2(a) is that it may only be enforced by federal or state agencies, such as the Federal Trade Commission or the various states' attorney general offices. Individual consumers cannot use this code section in a private action against a furnisher or against a CRA.

The second tool is the one which provides consumers with a private right of action against both furnishers and CRA's. This protection is found in 15 U.S.C. Section 1581s-2(b). This section basically tells what is supposed to happen after a CRA receives notice of a dispute with respect to the completeness or accuracy of information provided by any person, i.e. any furnisher, to a CRA.

When a CRA receives from a consumer a notice that the consumer is disputing a credit entry involving, for example, an alleged K-Mart charge, the CRA is supposed to send all of the information back to K-Mart. K-Mart, as the furnisher, then has four duties: to conduct an investigation with respect to the disputed information; to review all relevant information provided by the CRA; to report the results of its investigation to the CRA; and if the investigation finds the information is incomplete or inaccurate, to report those results to all of the credit reporting agencies to which the furnisher furnished the information. This normally is supposed to happen within 30 to 45 days after the consumer notifies the CRA in writing of the dispute. The CRA has the right to refuse re-investigation if it deems, with good reason, that the consumer's request for reinvestigation is frivolous or unwarranted.

If the furnisher fails to perform any of these duties, the consumer then has a right to bring a lawsuit against the furnisher (and, quite frequently, the CRA) for permitting incomplete or inaccurate information to be reported concerning that consumer, and to let such false information remain on the consumer's credit report.

Steps to Take If You Become Aware of False or Inaccurate Credit Information on Your Credit Report

First, and foremost, remember the cardinal rule of dealing with credit reporting agencies and furnishers of credit information: document everything exhaustively!!! This cannot be emphasized too much or too often. For one thing, if a credit reporting agency or a furnisher sees that you are taking the time and the trouble to create a document trail, that CRA or furnisher is much more likely to straighten out your file first, because the CRA and the furnisher knows that you (and not the hundred other victims of false credit entries sitting on the same desk) are creating the very document trail which will cause them to write a good-sized check at the conclusion of litigation.

Phone calls simply don't protect your rights. Even though it is more trouble, take the time to write out the letter and send it via certified mail.

Never, ever be nasty in your correspondence with CRA's or with furnishers. Always be professional. Bear in mind that every letter you write may someday be shown to a jury, and that you and your lawyer may be asking that same jury for a verdict and damages. If the judge and the jury conclude that you are a yahoo, you are far less likely to receive adequate and just compensation for your credit injuries. On the other hand, if the judge and the jury believe that you are professional and acted reasonably, you are much more likely to receive a just and adequate award.

What to Include in Your Letters, and Where to Send Them

Send the initial letters to the furnisher (or furnishers) in question. The letters should always be sent certified mail to the furnisher in question and to all three credit reporting agencies. The letters should begin and end with a respectful request to investigate and correct incomplete or inaccurate or incomplete credit information which has appeared on your credit report.

The big three CRA's all maintain websites where you can obtain the addresses to which to send your certified letters. The websites are neither hard to find nor remember: www.experian.com, www.transunion.com and www.equifax.com.

You may be tempted to resolve your credit problems via email. I recommend against it, because emails are subject to legal evidentiary objections which may, in some instances, keep them from being admitted into evidence at trial. The certified letter is the best bet. However, if you do try to resolve your problem via email, at least always send the email both to the CRA and to yourself, so you'll have a record of what you have sent.

The information you include should always be complete and factual. Include as much documentation as you can. Remember to never include original documents; always send copies of documents, because you may need your originals if you find yourself needing to file a lawsuit.

You always need to include at least the following information in each correspondence:

1. Your full name, correctly spelled. I have heard of so many credit disputes where the lazy credit reporting agency or furnisher mistakenly entered a derogatory entry on the credit report of "Joe Peter Smith", where the bad credit activity actually occurred on the account of "Joe Paul Smith". However, the problem arose because both used "Joe P. Smith" in applying for credit.
2. Your social security number (might as well give it to them, because they have it anyway if you have ever applied for credit anywhere in the United States.)
3. Your complete address, and your complete address from when the credit transaction occurred if different from your current address.
4. All of the information about the account for which you are requesting an investigation. Usually, this is a false account which you never opened, so the information would include any bills you received, any correspondence to the billing party trying to straighten out the bill, any correspondence with any debt collector trying to straighten out the bill and, of course, a copy of your most recent credit report, with the particular entry highlighted. Arrange all of these letters and documents in chronological order, and write your letter as a chronology of the events leading up to your formal request for an investigation.

As mentioned, send this information certified mail to all three CRA's and to the furnisher.

What Happens Next?

If all goes as planned, the derogatory should be removed promptly and you should be able to go about your life, all within 30 to 45 days.

However, be prepared for all not to go as planned. In real life, you may have to send the same certified letter two or three times to ensure that someone pays enough attention to remove the derogatory.

Also, a word to the wise: never, never, never throw out the information you have compiled to challenge the derogatory mark! Reason is simple: the credit reporting system in this country has "dormant derogatoriess" which reappear sometimes 10 years later. It works like this: let's say in 1996 you had a false derogatory which you successfully removed. However, during the time that the derogatory was still in circulation, let's say that you applied to credit with Bank "A". Somewhere in Bank A's files, some record of that derogatory still exists, laying dormant to ensnare the innocent consumer years later. Let's say Bank A sells its loan portfolio to Bank B later in 1996, which in turn pledges the same portfolio as collateral for a loan in 1997. Let's say Bank C takes over Bank B in 1999. Now it's year 2002, and consumer applies for credit with Bank C. Bank C reports the "credit inquiry" (when you ask for credit) to the CRA's, and also reports that credit has been turned down because of an unresolved derogatory mark from 1996! The only way that this consumer would be able to straighten out this mess would be for him to provide the records from 1996 to Bank C and to the CRA's. The consumer cannot count on the CRA's to keep these records, but they sometimes do. Nevertheless, the consumer is well advised to keep his own copies, as this will enable him to straighten out "dormant derogatories" when they reappear in the future.

When You Need to See a Lawyer…

…when the steps outlined above have failed! FCRA has a "fee-shifting" provision, whereby the CRA's and the furnishers pay for the attorney's fees for the successful consumer, so these cases are usually economical for consumers, and attorneys who practice in this area frequently take such cases on a contingency or semi-contingency basis.

What You Can Expect from a FCRA Lawsuit

The FCRA provides for the consumer to recover his or her actual damages, which includes mental anguish damages, when caused by deliberate or negligent action by furnishers and/or CRA's which cause such damages. The FCRA also provdes for punitive damages under certain circumstances. Finally, the FCRA provides that the CRA's and the furnishers pay the attorney's fees of the successful plaintiff.

While jury awards may vary, juries recently have been returning verdicts in the hundreds of thousands, and even in the millions, for violations of the provisions of the FCRA. This, of course, does not mean that every case has this kind of value, but certainly juries do not tolerate gross neglect of someone's credit standing in this credit-driven society. Understand that juries are more likely to award greater damages where damage has been done to the credit of a truly creditworthy consumer. Where a consumer has a false derogatory on his or her credit amidst numerous true and correct derogatories, that consumer will have a far tougher time claiming that he or she was damaged by the false one.

Our law firm hopes that this information provides some useful guidance to those afflicted with identity theft and false derogatories. For those interested in our services, we represent consumers in California only. For a referral to a credit damage attorney in another part of the country, contact the National Association of Consumer Advocates at www.naca.net or at (202) 332-2500. Don't forget to make a generous donation to this truly worthy organization, dedicated to keeping the flame of consumer rights burning brightly in this country.