In Carvalho v. Equifax Information Services, LLC, (— F.3d —-, C.A.9 (Cal.), December 16, 2010), the United States Court of Appeals for the Ninth Circuit considered whether a debtor must show that a disputed item is inaccurate before he or she can obtain relief for a violation of the reinvestigation provision of California’s Consumer Reporting Agencies Act (“CCRAA”). The court of appeal held that the debtor must show that the disputed item is inaccurate before he or she can recover under the CCRAA.
When Noemia Carvalho (“Carvalho”) received medical treatment from Bayside Medical Group, Inc. (“Bayside”), she signed an agreement pursuant to which she agreed Bayside would bill her insurance but she would be responsible for the balance not paid by her insurance. Carvalho incurred charges of $118 for her treatment. Bayside did not receive payment from Carvalho’s insurance company. Bayside sent Carvalho a bill for $118, which Carvalho did not pay. Bayside assigned the debt to Credit Consulting Services (“CCS”). After CCS sent a series of letters and Carvalho did not pay the debt, CCS reported the debt to three credit reporting agencies, TransUnion LLC, (“TransUnion”), Experian Information Solutions, Inc. (“Experian”), and Equifax Information Services, LLC (“Equifax”).
After Carvalho noticed the debt on her credit report, she had her attorney send CCS a letter that explained “the debt arose from a bill her insurance company ‘wrongfully refused to pay'” and she requested “that CCS ‘immediately investigate and correct the information'” on Carvalho’s credit report. CCS responded that it reported the account correctly and told Carvalho that the matter was between her and her insurance company. Carvalho sent letters to all three credit reporting agencies (“CRAs”) disputing the debt and explaining that the bill “arose out of the medical treatment [she] was covered for by Blue Cross of California.” Carvalho further stated, “For some reason that is unknown to me, they did not pay these medical bills.” Carvalho requested that her explanation be added to her credit report.
The CRAs each sent a consumer dispute verification form to CCS requesting that CCS verify the account information. CCS told the CRAs that the information was accurate. The CRAs updated Carvalho’s credit report to show that the debt was verified but disputed by Carvalho. Equifax added Carvalho’s explanation to her credit report. Carvalho sent letters to the CRAs in which she requested that the CRAs describe how the information was verified and asked the CRAs to place her explanation of the debt on her report. Experian and TransUnion added Carvalho’s statement to her report but did not provide her with a description of how they verified the debt. Carvalho sent another round of letters. Experian and Equifax launched new reinvestigations, but CCS once again verified the debt. TransUnion told Carvalho that it considered her dispute “frivolous” and refused to reinvestigate without instructions from a court or the creditor. Carvalho’s attorney sent another round of letters demanding the entries from CCS be removed and requesting another reinvestigation. All three CRAs contacted CCS, who once again verified the information as correct.
Carvalho filed a class action lawsuit in a California superior court alleging violations of the CCRAA. The superior court found the federal Fair Credit Reporting Act (“FCRA”) preempted Carvalho’s CCRAA claims against CCS. Equifax removed the lawsuit against the CRAs to federal court. The federal district court granted summary judgment in favor of the CRAs.
The FCRA states, “No requirement or prohibition may be imposed under the laws of any State . . . relating to the responsibilities of persons who furnish information to consumer reporting agencies.” However, the FCRA “expressly saves from preemption ‘section 1785.25(a) of the California Civil Code,'” which provides,”‘[a] person shall not furnish information on a specific transaction or experience to any consumer credit reporting agency if the person knows or should know the information is incomplete or inaccurate.'” However, the private right to enforce this section is found in sections 1782.25(g) and 1785.31 of the Civil Code, which the FCRA does not expressly save from preemption. Although some courts have found that the FCRA preempts private consumer actions, the court of appeals held “that the provisions creating a private right of action do not constitute a ‘requirement or prohibition’ within the meaning of [the FCRA] because they merely provide a vehicle for enforcing actual requirements or prohibitions.” The court stated “that it was highly unlikely that Congress ‘explicitly retained the portions of the California statutory scheme that create obligations, without leaving in place any enforcement mechanism.'” The court held “that ‘the private right of action to enforce California Civil Code section 1785.25(a) is not preempted by the FCRA.'”
Carvalho claimed “CCS failed to cooperate with and complete an investigation in response to a reinvestigatory inquiry from a consumer credit reporting agency.” The court found this claim to be preempted by the FCRA. Pursuant to California Civil Code section 1785.25(f), furnishers of credit information who receive notice of a dispute must complete an investigation and review relevant information. However, because section 1785.25(f) is not expressly saved from preemption by the FCRA, the court found Carvalho’s claim against CCS is preempted by the FCRA.
Carvalho claims the CRAs violated the CCRAA’s reinvestigation provision, Civil Code section 1785.16, which requires that, if information is disputed by an alleged debtor, the CRAs must reinvestigate and record the current status of the disputed information. After an agency completes a reinvestigation, “the CRA must provide the consumer with written notice of any results, including ‘a notice that, if requested by the consumer, a description of the procedure used to determine the accuracy and completeness of the information shall be provided.'” The agency is then required to send “such description ‘not later than 15 days after receiving a request from the consumer.'” Carvalho contended inaccuracy is not a required element to state a claim under the reinvestigation provision of the CCRAA. The court found that Carvalho was required to show that the disputed item is inaccurate in order to obtain relief under the CCRAA’s reinvestigation provision.
The CCRAA is substantially based on the FCRA. The FCRA does not provide on its face that an actual inaccuracy must exist before a plaintiff may state a claim under its reinvestigation provision. However, many courts, including the United States Court of Appeals for the Ninth Circuit, have held that a plaintiff must make a showing of inaccurate reporting to state a claim for a reinvestigation violation. The court concluded that California courts would find federal case law persuasive on this issue and hold that the CCRAA likewise has an inaccuracy requirement.
Carvalho did not show a patent inaccuracy as she concedes that on its face, her credit report is correct. Carvalho’s claims the inaccuracy is latent because the CCS item is “misleading because she was not legally obligated to pay the Bayside bill until Bayside had properly billed her insurer.” She asserts the mistake would lead potential creditors to assume she is uncreditworthy.
The court found Carvalho was attempting to collaterally attack the legal validity of the debt. A credit reporting agency “is not required as part of its reinvestigation duties to provide a legal opinion on the merits” of a debt. The CRAs are not tribunals but instead “simply collect and provide information furnished by others.” The CCRAA and the FCRA allow consumers who are not satisfied by a reinvestigation to file a statement regarding the disputed item. Potential creditors are then able to see both sides of the story. However, the reported matter remains on the credit report.
The court held that inaccuracy is a required element of a reinvestigation claim under the CCRAA. Carvalho failed to establish that the CCS entry was inaccurate. Therefore, she could not establish claims against the CRAs for violation of the reinvestigation provision of the CCRAA.
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