A District Court judge in Pennsylvania has granted preliminary approval of an $8.3 million settlement in a Fair Credit Reporting Act class action accusing the defendant of selling consumer reports that erroneously showed the consumers had filed for bankruptcy.
The background: The case grew out of a mix-up between two men who shared a last name and the last four digits of their Social Security numbers.
- Back in 2020, an individual in Alabama filed for bankruptcy. The plaintiff, a California resident who has never filed for bankruptcy, soon began receiving letters from his bank informing him it was closing his account and suspending his line of credit because he had filed for bankruptcy. A vendor hired to monitor bankruptcy filings had incorrectly matched the two men.
- The plaintiff tracked down the source of the error and got the bank to correct it, but the bank had already furnished a tradeline with a bankruptcy remark to the defendant. The plaintiff sent the defendant a letter with documentation showing he had never filed for bankruptcy, yet the defendant sold his report with the inaccurate notation two months later, and his application to refinance his mortgage was denied.
- The plaintiff filed a class-action lawsuit in 2022, alleging the defendant failed to follow reasonable procedures to assure maximum possible accuracy by selling reports that included a bankruptcy remark on a tradeline with no corresponding bankruptcy in the public record section of the same report.
- Two years ago, the court certified a class covering reports sold between January 2020 and January 2023, later denied the defendant’s motion to decertify, and the parties reached a settlement in principle earlier this year with the help of a Magistrate Judge.
The ruling: Judge Karen Spencer Marston of the District Court for the Eastern District of Pennsylvania granted preliminary approval, finding the deal was negotiated at arm’s length after more than four years of litigation and provides significant benefits to the class.
- The defendant will create an $8.31 million fund covering payments to class members, attorney’s fees and expenses, a service award, and administration costs, with no unclaimed funds reverting to the defendant.
- The settlement splits the class in two. Members with no locatable bankruptcy record at all will receive automatic $100 payments and an estimated $1,000 more if they submit a valid claim, while members whose only bankruptcy record is more than 10 years old will receive an estimated $350 for a valid claim and no automatic payment. Judge Marston approved the tiered structure, which reflects the first group’s stronger litigation position, noting that class members must be treated “equitably, not identically.”
- For five years, the defendant must maintain reasonable procedures to prevent selling reports referencing a bankruptcy unless the bankruptcy appears in the public record section of the report or its records otherwise indicate one should be reflected.
- Class counsel will seek fees of one-third of the fund, plus up to $308,000 in expenses and a service award of up to $50,000 for the plaintiff. The final approval hearing is scheduled for December.
