Seventh Circuit Reinstates FDCPA Claim Over Disputed Debt Reporting

Troutman Pepper Locke reports on Wood v. Security Credit Services, LLC, in which the US Court of Appeals for the Seventh Circuit reversed a summary judgment in favor of the defendant in a Fair Debt Collection Practices Act (FDCPA) dispute.

The court found that there were genuine issues of material fact regarding whether the defendant Security Credit Services knew or should have known that the plaintiff disputed the debt and whether it exercised reasonable care in reporting the debt.

The court’s decision reinstates the plaintiff’s claims and allows the case to proceed.

The dispute began in 2017 when the plaintiff received a letter from his credit card issuer stating that his account was delinquent. The plaintiff disputed the debt in writing, but the issuer affirmed the debt’s validity and suggested setting up a repayment plan.

The plaintiff did not respond but maintained that he still believed the debt was inaccurate. In 2018, SCS purchased a bundle of debts, including the plaintiff’s, under an agreement stating that the issuer had made reasonable efforts to exclude unresolved disputes.

However, the defendant was not provided with any record of the plaintiff’s dispute and reported the debt to a consumer reporting agency without noting that it was disputed.

The plaintiff sued for violation of the FDCPA by failing to report the debt as disputed. The district court granted summary judgment for Security Credit Services, finding that it had no reason to know the debt was disputed.

The Seventh Circuit reversed, finding that the plaintiff had standing because the failure to report the debt as disputed caused a concrete injury similar to defamation.

The court held that the FDCPA imposes a negligence standard, requiring debt collectors to exercise reasonable care in reporting debts. It also rejected the defendant’s bona fide error defense, concluding that the violation stemmed from a legal mistake rather than a clerical or factual error.

Attorneys should consider verifying debt histories before reporting to consumer reporting agencies. They should also advise debt collectors to exercise reasonable care and consider the limits of a bona fide error defense when errors involve legal judgment.