Reports Of Late Payments To Credit Reporting Agencies While Bankruptcy Is Pending Do Not Violate Federal And State Fair Credit Reporting Laws

After filing for Chapter 7 bankruptcy, a consumer discovered that her credit report listed delinquent payments to a bank even though she had been current with her payments up to the date she filed.  After disputing the report without correction by the bank, the consumer sued the bank for violations of federal and state fair credit reporting laws and the state unfair competition law.  The bank filed a motion to dismiss.  The federal district court granted the motion, noting that federal and state laws do not prohibit reporting of late payments during bankruptcy proceedings.  (Giovanni v. Bank of America (Slip Copy, N.D.Cal., April 17, 2013).


In September 2010, Katheryn Giovanni filed for Chapter 7 bankruptcy.  Among the debts listed in her petition was $5,500 owed to Bank of America (“BOA”).  Her payments to BOA were current at the time she filed.  The following year, in January 2011, a discharge order was issued discharging Giovanni’s debts, and the order related back to Giovanni’s September 2010 filing date.  In August 2011, Giovanni found out that credit reports from the three credit reporting agencies, Experian, Transunion, and Equifax, all listed overdue BOA payments in October and November 2010, two months after she filed for bankruptcy and the debt was no longer collectible.  The reports also listed a “charge off” of the debt in December 2010. 

Giovanni wrote to the credit reporting agencies disputing the overdue payment and “charge off” listings and seeking an investigation of her account to remove the inaccurate information.  Transunion reported back to Giovanni that BOA corrected and removed the disputed listings.  However, Experian’s report still listed the October and November 2010 overdue payments, even though in the account balances section of the report BOA listed a “0” balance.  BOA refused to correct the listings in the Experian report.  Under a standard industry format provided by the Consumer Data Industry Association, creditors should report a “no data” listing on a credit report during a bankruptcy, and an account should be listed according to the payment status existing at the filing of a bankruptcy petition.  In other words, under the industry standard, if an account is not overdue at the time the individual files for bankruptcy, it should not be listed as overdue on the credit report. 

Giovanni filed suit in state court and BOA removed the case to the federal district court.  Giovanni asserted violations of state and federal law.  BOA moved to dismiss the case.  The court granted the motion to dismiss, but allowed Giovanni to amend her complaint and re-file her case.  Giovanni did so, claiming that BOA violated the federal Fair Credit Reporting Act (“FCRA”) and two California statutes:  the Consumer Credit Reporting Agencies Act (“CCRAA”) and the California Unfair Competition Law (“UCL”).  She asked the court for a number of forms of relief, including injunctive relief and statutory, actual, and punitive damages.  BOA filed a motion to dismiss, asserting that Giovanni’s pleadings failed to state a claim for relief.


The district court observed that the purpose of the FCRA is to assure that credit reporting agency procedures treat consumers with fairness and equity.  The FCRA governs the behavior of suppliers of information to credit reporting agencies, such as banks.  A consumer may bring a private lawsuit to enforce the provision of the FCRA that requires suppliers of information to notify the credit reporting agencies when a consumer disputes information appearing on a credit report.  However, the consumer may only successfully sue when there is a “bona fide dispute”; that is, when there is no actual debt.  The court stated that the FCRA and the bankruptcy code do not prohibit reporting of payments that a consumer does not make while waiting for a bankruptcy petition to be decided.  So, although Giovanni had not been late with her payments before she filed for bankruptcy, it was not illegal for BOA to report payments missed during bankruptcy as late.

The court also rejected Giovanni’s argument that BOA was liable because it did not follow the industry standard format provided by the Consumer Data Industry Association.  The court stated that Giovanni failed to demonstrate that BOA was legally required to follow the format or that BOA’s lack of adherence to the format resulted in an inaccurate or misleading statement.

Giovanni argued that because her bankruptcy discharge order related back to her bankruptcy filing date in September 2010, BOA’s report of delinquent payments in October and November 2010 were inaccurate because she was never obligated to make payments during those two months.  The court disagreed, stating that it was accurate to report a debtor as being delinquent on payments while a bankruptcy is pending, provided that the creditor also reports “that the account was discharged through the bankruptcy and the outstanding balance on that account is zero.”  Similarly, the court found unpersuasive Giovanni’s argument that BOA’s report was inconsistent because it listed both that she had missed payments and had a zero balance.  The court noted that FCRA liability only occurs when a report is “patently incorrect” or “misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.”

The court rejected Giovanni’s argument that the case Grantham v. Bank of America (N.D.Cal., Nov. 26, 2012), supported an argument for FCRA liability for an inconsistent statement.  The court noted that it was an overdue payment report that could have adversely impacted the consumer, not the inconsistent statement itself that supported FCRA liability in Grantham.

The court quickly dispensed with Giovanni’s claims under the CCRAA.  The court noted that the CCRAA essentially mirrors the federal FCRA, and that since Giovanni’s and BOA’s CCRAA arguments were very similar to their FCRA arguments, the court’s reasoning was also the same.

Giovanni’s final claim was that BOA’s actions were unlawful under California’s UCL.  The court explained that the UCL incorporates other laws, and so a plaintiff must point to a violation of another federal, state, or local law as a basis for a UCL claim for unlawful practices.  UCL claims for “unfair” or “fraudulent” practices may be maintained without reference to another law, but “unlawful” claims require reference to a law outside the UCL.  However, the court found that Giovanni failed to allege that BOA had violated another law that would provide a basis for UCL liability.

The district court dismissed Giovanni’s claims, but allowed her leave to amend almost all her arguments.  The exception was the portion of her claim based on the argument that BOA was prohibited from reporting late payments during the pendency of her bankruptcy; the court dismissed that part of the lawsuit with prejudice.


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