A District Court judge in California has granted a defendant’s motion to dismiss claims it violated the Fair Debt Collection Practices Act while denying the motion on claims it violated the Fair Credit Reporting Act because it accepted payments for two years after charging off the loan balance.
The background: The case centers on a vehicle loan that was originated and serviced by the defendant before being charged off internally in 2022. Despite the charge off, the plaintiff alleged that the defendant continued to accept monthly payments for more than two years while representing that the account remained “current.”
- After his vehicle was repossessed, the plaintiff was told by the bank that the account could be reinstated, so the plaintiff paid the overdue amounts, fees, and repossession costs. The vehicle was released back to the plaintiff, reinforcing the perception that the account was in good standing.
- However, the plaintiff later discovered that the loan had been charged off. When the bank exited the auto loan business and transferred the account to another entity, the account was still listed as charged off. The new entity repossessed the vehicle, and demanded the full balance of the loan amount and repossession fees to have the vehicle returned.
- The complaint also alleged that credit reporting continued to reflect a charged off status without acknowledging the ongoing payments, which the plaintiff claimed created a misleading picture of the account.
- The plaintiff brought multiple claims, including violations of the FDCPA and FCRA, along with state law claims tied to repossession practices and consumer protection statutes.
The ruling: Judge Christina A. Snyder of the District Court for the Central District of California dismissed the FDCPA claims, finding that the allegations did not sufficiently establish that the entity at issue qualified as a “debt collector” under the statute. The judge noted that entities collecting debts that were not in default at the time they were obtained fall outside the FDCPA’s scope.
- In contrast, she allowed the FCRA claims to proceed, focusing on the plaintiff’s allegations that the defendants furnished inaccurate or misleading information to credit reporting agencies. Specifically, Judge Snyder pointed to claims that the account was reported as charged off without reflecting the ongoing payments, which could create a “misleading impression” about the true status of the debt.
- The ruling also allowed several state law claims to move forward, including claims under California’s Unfair Competition Law, which were tied to allegations of a coordinated scheme involving charge offs, continued collections, and credit reporting practices.
