Weekly Edition

Consumers score under Fair Credit Act

Bank socked for $80K in punitives, despite no actuals

Consumers won big last week in two federal court rulings interpreting the Fair Credit Reporting Act. In one case, the 4th U.S. Circuit Court of Appeals upheld an award of $80,000 in punitive damages under the FCRA even though the jury found no basis for any actual damages. In the other case, a district judge held that a consumer can sue even though more than two years have passed since the first dispute about her credit report.

The 4th Circuit case is Saunders v. Branch Bank and Trust Company of Virginia (VLW 008-2-087). The opinion was written by Judge Diana Gribbon Motz, joined by fellow circuit Judge M. Blane Michael and district Judge Irene M. Keeley of the northern district of West Virginia.

The court approved $80,000 in punitive damages despite the absence of any finding of actual damages and the award of only $1,000 in statutory damages.

The facts of the case could make plaintiff Rex Saunders the poster child for victims of bad lending practices. He traded in a car at a dealership and financed a second car. The dealership paid off his note on the trade-in and financed the second car with the same bank, BB&T.

BB&T apparently misplaced the new loan information, however. Saunders said he never received a new payment book. When he repeatedly contacted the bank, bank representatives told him that he owed nothing. The DMV had no record of a lien on his car title.

Six months later, the bank woke up. BB&T suddenly demanded more than $20,000 in overdue payments, late fees, and other charges. Saunders was willing to meet his loan obligations, but he refused to pay anything until the bank dropped the penalties and late fees. BB&T would not agree. It repossessed the car, torpedoed Saunders’ credit rating, and refused to acknowledge Saunders’ dispute about the legitimacy of his debt.

On that evidence, the jury returned a verdict for Saunders, awarding no compensatory damages but determining that the bank owed $1,000 in statutory damages and $80,000 in punitive damages.

The bank challenged the trial result, arguing that Saunders failed to show a willful violation of FCRA and that the punitives award was unconstitutional when viewed against the limited economic damages. The 4th Circuit held that the jury had sufficient evidence to find that the bank knowingly and intentionally acted in disregard for Saunders’ rights. The court then addressed the punitives award.

According to the court, the law calls for an analysis of the reprehensibility of the defendant’s conduct and the relationship between actual damages and punitive damages. The court did not analyze the initial mishandling of the loan, but focused solely on the credit reporting violations. The court found that “BB&T’s conduct is not extraordinarily blameworthy but is sufficiently reprehensible to justify an award of punitive damages.”

Addressing the disparity between the separate damage awards, the court acknowledged that “punitive damage awards that exceed a single digit ratio when related to compensatory damages generally do present constitutional problems.” The ratio problem does not apply, however, when economic damages are nominal, according to the court. The court then noted other FCRA cases where the punitive damage awards greatly exceeded $80,000.

Finally, the court held that a reduced award would not be a meaningful deterrent to BB&T. “[R]educing the punitive damages award of $80,000 here would leave little deterrent or punitive effect, particularly given BB&T’s net worth of $3.2 billion.”

The punitive damages component is a significant ruling for the 4th Circuit, according to plaintiff’s counsel Leonard Bennett.
Harrisonburg consumer lawyer Tom Domonoske agrees. “It’s really a straightforward application of the statute,” he said, “but it has important ramifications in terms of laying out the rule for applying punitive damages,” he said.

Limitations issue

In the district court case decided May 6, consumers won a favorable reading of the statute of limitations for the FCRA. The limitations period for a claim under the Fair Credit Reporting Act restarts each time that a consumer submits a dispute over a credit report, according to the ruling from U.S. District Judge Henry E. Hudson. Denying a defendant’s motion to dismiss based on the statute of limitations, Hudson rejected conflicting opinions from “a hand full of district courts elsewhere.”

The opinion is Broccuto v. Experian Information Solutions, Inc. (VLW 008-3-177).

In an all-too-familiar story, the plaintiff’s identity was stolen and used to open fraudulent accounts, including one at the Lane Bryant retail chain. The plaintiff discovered the blemishes on her credit record in 2003 and called to dispute the bad reports. She made multiple complaints from 2003 to 2006.

Because the plaintiff did not file suit until 2007, the defendant bank maintained that her claim was barred under the FCRA because more than two years had passed since the plaintiff had learned about and disputed the bad credit reports. Similar cases had been tossed out of court in Texas and Georgia.

If an FCRA claim accrued with each consumer dispute, the bank argued, any consumer could revive a stale claim by simply making a fresh complaint.

Hudson interpreted the FCRA to allow the claim to proceed, however.

“The statute’s construction creates a violation every time a consumer submits a dispute to a credit reporting agency and that agency or the relevant lender does not respond to the complaint as directed by the statute,” the judge wrote.

Precedent on the issue was “sparse,” according to Hudson. He found no case on point in the 4th Circuit.

Even though the obligation to respond appropriately to each and every consumer dispute is “admittedly onerous,” Hudson found that burden to be consistent with the congressional intent underlying the FCRA.

“When Congress enacted FCRA in 1970, it recognized there was a need to ensure that those parties which controlled a consumer’s credit history and therefore access to future credit ‘exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer’s right to privacy.’”

Domonoske praised the ruling as consistent with the language of the FCRA and the ways things ought to work in the marketplace. He noted that if a consumer sends in a new dispute about a bad credit report, and the credit agency handles it correctly, there is no violation to restart the limitations clock.

“The credit industry continues to make this argument. I don’t know why,” Domonoske said. The Broccuto reasoning means only that “you cannot defend a violation of the statute today on the grounds that you violated the statute four years ago,” he said.
Bennett said that the ruling means that consumers can continue to seek correction of their files without having to rush to court each time a dispute is not properly handled.

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