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 [email protected] © 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 The court also concluded that the express permission given in the contract was revoked when the contract was terminated.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.