Consumer Finance Litigation

In Woods v. LVNV Funding, LLC, --- F. 4th --- (2022), the Seventh Circuit Court of Appeals affirmed the dismissal of FDCPA and FCRA claims based upon the defendants’ collection and reporting of a fraudulently opened account.

The plaintiff, Kevin Woods, alleged someone opened an American Airlines credit card account in his name and purchased a one-way flight. American closed the account and sold it to LVNV Funding, LLC, which placed it with Resurgent Capital Services, L.P. for collection. When Woods received collection letters, he disputed the debt and told Resurgent the account was fraudulently opened. In response, Resurgent asked Woods to provide additional information in support of his identity theft claim, but Woods failed to respond. Instead, Woods contacted American, which investigated his complaint and determined that the account was his.

Woods then filed a police report. In the report, the officer commented that American investigated the dispute and concluded that the account belonged to Woods. Shortly thereafter, Woods disputed the account with CRAs and provided a copy of the police report. The CRAs forwarded a copy of Woods’s dispute, including the police report, to Resurgent for investigation. After conducting its investigation, Resurgent verified the account was Woods’s. American later determined that the account was, in fact, fraudulently opened. Upon receiving this information, Resurgent requested that the CRAs delete the tradeline associated with the account.

Woods filed suit asserting FDCPA and FCRA claims. Concerning his FDCPA claim, Woods alleged that the defendants violated 15 U.S.C. § 1692e(10) by using false representations or deceptive means to collect the debt, as the letters sought to collect a debt that was not his and, therefore, were false. In support of his FCRA claim, Woods alleged that Resurgent failed to conduct a reasonable investigation of his dispute in violation of 15 U.S.C. § 1681s-2(b)(1)(A). The U.S. District Court for the Southern District of Indiana granted the defendants’ motion for summary judgment, and Woods appealed.

The court first addressed Woods’s FDCPA claim. As a threshold matter, the court found that, even in identity theft cases, a plaintiff must show that the debt at issue is a consumer debt. Finding it was unlikely that someone would purchase a one-way flight for business purposes, the court determined that a reasonable jury could conclude that the purchase was made for consumer purposes. Concerning the merits of his claim, Woods urged the court to impose strict liability because defendants sought to collect a debt that American said he did not owe and, as a result, the collection letters were false. Rejecting this argument, the court noted that “literal falsity” is not the standard. The court explained that to be actionable under the FDCPA, a statement must mislead the unsophisticated consumer, even if the statement is technically false. Here, Woods knew that the letters were sent in error and, therefore, they did not influence his decision to pay the debt. Because the letters did not mislead him, they were not “false” within the meaning of § 1692e(10). Thus, the court affirmed the dismissal of the FDCPA claim.

With respect to the FCRA claim, the court found that Resurgent’s receipt of the ACDV triggered its statutory obligation to conduct a reasonable investigation. The court acknowledged that in cases of identity theft, a “reasonable” investigation may require a more thorough investigation. Woods argued that Resurgent’s investigation was not thorough enough, as it should have done more than match his name and address to the information in its files. However, the court rejected this argument, finding that Resurgent also reviewed the police report, which included the officer’s commentary that American investigated the identity theft allegation and determined the account was his. Because this information suggested that there was no fraud, the court found that Resurgent could rely on this representation to some degree. Further, the court determined it was reasonable for Resurgent to request additional information from Woods to support his identity theft claim. Because Woods failed to respond to this request (despite having information that would help his case), the court concluded that Resurgent’s investigation was reasonable. Accordingly, the court affirmed the dismissal of Woods’s FCRA claim.

While the court affirmed the dismissal of the FCRA claim, it cautioned furnishers against offloading their investigation obligations by sending consumers multiple requests for additional information. Thus, the reasonableness of an investigation continues to be a fact-specific inquiry, and furnishers should ensure that all aspects of their investigations are reasonable.

Written by Kristen Peters Watson.