A District Court judge in Illinois has granted a pair of motions to dismiss a consumer’s Fair Credit Reporting Act lawsuit against two credit reporting agencies, ruling the agencies accurately reported three debts as charged off because the plaintiff never listed them in his bankruptcy schedules, and ordering the plaintiff’s attorney to show cause why she should not be sanctioned for making frivolous arguments.
The background: The plaintiff filed for Chapter 13 bankruptcy protection and later converted his case to Chapter 7, receiving a discharge order in early 2022.
- After the discharge, the defendants continued reporting three of the plaintiff’s pre-petition debts, owed to a credit union, an online lender, and a bank, as charge-offs.
- Last July, the plaintiff submitted dispute letters to both defendants, asking them to report the debts as discharged. One defendant verified its reporting as accurate; the other refused to process the dispute, citing “suspicious mail.”
- The following month, the plaintiff was denied a credit card and a $10,000 loan, with both lenders citing delinquent credit obligations.
- The plaintiff sued, accusing the defendants of failing to conduct reasonable reinvestigations, failing to follow reasonable procedures to assure maximum possible accuracy, and, as to one defendant, failing to verify his identity before refusing his dispute.
The ruling: Judge Steven C. Seeger of the District Court for the Northern District of Illinois granted the motions to dismiss, calling the filing “an inaccurate complaint about inaccurate reporting” that was “more ironic than meritorious.”
- A review of the bankruptcy filings showed the plaintiff never listed any of the three creditors in his original schedules, his amended schedules, or his creditor matrix. Under the Bankruptcy Code, unlisted debts are generally not discharged, so the debts remained outstanding and the credit reports were accurate. Without an inaccuracy, both FCRA claims failed as a matter of law.
- Judge Seeger noted the claims would have failed anyway under a recent Appeals Court ruling holding that credit reporting agencies must report facts, but have no obligation to make legal determinations about whether a discharge order covers a specific debt.
- On the identity verification claim, the judge wrote that the statute requires agencies to withhold information until a consumer proves who they are, not to investigate further when a dispute looks suspicious. “By the sound of things, the walls were too high, not too low,” he wrote.
- The judge declined to award attorney fees against the plaintiff himself, writing that “Stephenson could be forgiven” for assuming his debts were discharged. But he ordered the plaintiff’s attorney to show cause why she should not be sanctioned under Rule 11 after making arguments the judge called “patently false” and “downright confounding,” noting that when it comes to attorney misconduct, “district courts have a toolbox the size of a Home Depot.”
