SHELDON et al v. EXPERIAN INFORMATION SOLUTIONS, INC.

Filing 58

MEMORANDUM AND/OR OPINION RE: DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (DOC. NO.39). SIGNED BY HONORABLE EDMUND V. LUDWIG ON 9/28/2010. 9/28/2010 ENTERED AND COPIES MAILED, E-MAILED.(kk, )

SHELDON et al v. EXPERIAN INFORMATION SOLUTIONS, INC.

Doc. 58

IN THE UNITED STATES DISTRICT COURT F O R THE EASTERN DISTRICT OF PENNSYLVANIA J O H N SHELDON v. E X P E R IA N INFORMATION S O L U T IO N S , INC. : : : : : : M EM ORANDUM L u d w ig , J. S e p te m b e r 28, 2010 C IV IL ACTION

N o . 08-5193

T h is is a putative class action arising under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. Jurisdiction is federal question. 28 U.S.C. § 1331. Plaintiffs purport to represent a class of individuals who have been incorrectly c la s s if ie d as "deceased" on credit reports issued by defendant Experian Information S o lu tio n s, Inc. The complaint alleges that the inclusion of this information violates 15 U .S .C . § 1681e(b) because Experian did not implement reasonable procedures to assure the re p o rts ' accuracy. Additionally, it is alleged that the sale of the reports with the incorrect " d e c e a s e d " notation violates 15 U.S.C. § 1681e(a) because Experian's purpose for selling c re d it reports on deceased individuals does not come within a statutorily permitted purpose. These violations are alleged to have been both negligent and wilful. Complaint, Count I. Defendant moves for summary judgment. The motion will be denied as to the a lle g e d ly negligent violations and granted as to those alleged to be wilful.

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The undisputed facts are as follows.1 Experian is a consumer reporting agency. It c o lle c ts information from "furnishers" - such as credit card issuers, auto dealers, lenders, and o th e r creditors - and distributes that information to "subscribers." The latter use the in f o rm a tio n to make decisions as to whether to extend credit to a particular consumer, to re v ie w or collect accounts, and for other purposes permitted under the FCRA. Declaration o f David Browne, Compliance Manager for Experian, ¶ 3. Experian receives information f ro m about 30,000 furnishers. Id., ¶ 4. The information is stored in databases; it is not stored in the form of individual credit reports. Instead, each piece of credit information is kept s e p a ra te ly, along with the individual consumer's identifying information, such as the name, s o c ia l security number, address. Id., ¶ 5. When an inquiry is received, Experian generates a credit report, compiling "trade lines," each of which contains an individual item of credit in f o rm a tio n concerning the specific consumer. Id., ¶ 6. Experian's databases consist of in f o rm ation pertaining to about 200 million consumers. The databases contain approximately 2 .6 billion trade lines. Experian processes some 50 million updates from its furnishers each d a y. Id., ¶¶ 4, 5. It receives data from about 30,000 furnishers. Id. B e f o re accepting information from a particular furnisher, Experian conducts an in v e s tig a tio n to determine whether the furnisher is a source of reliable information. This c o n s is ts of an inspection of the furnisher's physical plant and an audit of the furnisher's data.

The summary judgment record includes the following: the pleadings, responses to interrogatories, documents produced in the course of discovery, affidavits, and deposition transcripts. 2

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After a furnisher is accepted as a reliable source, Experian conducts periodic audits of the f u rn is h e r's data in an effort to assure its continuing reliability. Id., ¶¶ 7, 8. Before furnishing credit reports, Experian requires all potential subscribers to certify th a t they will use the information only for permissible uses as set forth in the FCRA. Id., 9. Experian investigates a subscriber to determine whether its business routinely involves p e rm iss ib le purposes and no impermissible purposes. Once Experian determines that a s u b s c rib e r requested credit information only for permissible purposes, it performs no further in v e s tig a tio n or auditing of this particular point. Id. When a furnisher reports that a consumer is deceased, Experian places a notation on th a t individual trade line to that effect.2 The purpose of the notation is to alert creditors and h e lp prevent identity theft. Id., 11. Experian does not require evidence of the death of the c o n s u m e r. Deposition of Pat Finneran, Exhibit 6 to plaintiffs' opposition, at 166-67, 181-82. Instead, relying on its previous finding of a furnisher's reliability, it accepts the information Creditors may learn of the death of a consumer at the time it occurs, or they may not. A consumer's family or estate may or may not notify the creditor. The consumer may have had a zero balance on a particular account, making communication of the fact of death unnecessary. A consumer's family or estate may continue paying a particular account long after the death without informing the creditor. Browne Decl., 18, 19. For these reasons, not all creditors will necessarily be advised of a consumer's death when it occurs, and, consequently, will not report a consumer as deceased. Only a small percentage, 6-15%, of furnishers reports a consumer to be deceased. Browne N.T., at 119-20. Moreover, continued activity on some accounts of a deceased consumer can be explained by the family or an estate using the account, particularly in the case of joint accounts. As a result, the credit report of a consumer who is actually deceased may reflect activity similar to the report of a consumer mistakenly reported as deceased. Therefore, examining other entries on the credit report of a consumer shown as deceased will not necessarily reveal that the notation is inaccurate. Browne Decl., 20-24. 3
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without more. Experian's ongoing audit process does include consideration of whether, for e x a m p le , a particular furnisher has reported consumers deceased at an unusually high rate. Id., ¶¶ 7, 8, 12. If a consumer disputes a deceased notation on a credit report, Experian (1) contacts th e furnisher to verify the information; (2) requests the consumer to submit a notarized letter as to identity that also states that the individual is not deceased. Once it receives such a c o n f irm a tio n , it deletes the deceased notation, notifies the furnisher of the error, and places a flag on the trade line to prevent another inaccurate report. Id., ¶¶ 13-15. E x p e ria n does not independently verify the death of a consumer, but it does collect in f o rm a tio n pertaining to deceased individuals. Finneran N.T., at 163-64. From the Social S e c u rity Administration, Experian compiles a "Death Master File." Deposition of David B ro w n e , Exhibit 7 to plaintiffs' opposition, at 87-90. This information is stored in

E x p e ria n 's FileOne database and identifies the social security number of every individual the U .S . government believes to be deceased. Finneran N.T., at 89, 91, 147. Additionally, E x p e ria n obtains notifications of death through an automated process known as "Metro 2." Finneran N.T., 147-49. The provenance of the information is furnishers and subscribers. Id. Experian accepts the "X" notation assigned to consumers reported deceased through this p ro c e s s . Finneran N.T., at 174-75. The "X" code data is also stored in FileOne. Finneran N .T ., at 154. The Death Master File and the Metro 2 data are not cross-referenced, though th e y could be. Finneran N.T., 344; deposition testimony of Joyce Hwang, at 81, 82, 85-86,

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Exhibit 8 to plaintiffs' opposition.3 E x p e r i a n sells credit reports as to consumers marked "deceased." It does not, h o w e v e r, promote or prevent the sale of such credit reports, and does not specifically inquire i n to the report's use other than its initial determination of the subscriber's permissible p u rp o s e . Browne N.T., at 108-09. None of Experian's 170 "purpose codes" is designated f o r sales of reports as to a deceased consumer. Purpose codes, Exhibit 12 to plaintiffs' o p p o sitio n . Credit reports for consumers marked deceased do not include credit scores. Interrogatory response no. 9, Exhibit 13 to plaintiffs' opposition; deposition testimony of A n g e la Granger, at 99-100. Without a credit score, consumers generally cannot obtain credit a n d lenders generally will not extend loans. Granger N.T., at 105-08, 114-18. In this case, Experian sold credit reports that mistakenly showed that plaintiffs were d e c e a s e d . Each plaintiff was denied credit because of the error. Excerpts of deposition te s tim o n y of named plaintiffs, Exhibit 1 to plaintiffs' opposition. Four of the plaintiffs re c e iv e d adverse action letters from potential lenders.4 Exhibit 2 to plaintiffs' opposition. In plaintiffs' opinion, Experian did not maintain reasonable procedures to prevent this error

In the course of discovery, Experian was requested to perform a cross-reference and was able to do so by automation. The results were that numerous consumers are not on the Death Master File, but are marked as deceased on their credit reports. Exhibit 2 to Hwang N.T. (Consumers with "X" code: 5,355,031. Of those, 443,673 were not included in the Death Master File.) An "adverse action" notice is a letter that a potential lender must send explaining the reasons why it denied the consumer's credit application or did not offer the best rates and terms. 15 U.S.C. § 1681m 5
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from occurring. Furthermore, Experian lacked a permissible purpose for selling credit re p o rts on deceased consumers and did not have reasonable procedures in place to prevent th e sale of these reports for impermissible purposes. The complaint requests actual and s ta tu to ry damages for both negligent and wilful violations of the FCRA. 15 U.S.C. §§ 1681n a n d 1681o. I. Violations of 15 U.S.C. § 1681e(b) - The Duty to Report Accurate Information U n d e r 15 U.S.C. § 1681e(b): "Whenever a consumer reporting agency prepares a c o n s u m e r report it shall follow reasonable procedures to assure maximum possible accuracy o f the information concerning the individual about whom the report relates." In order to state a claim for negligent violation of § 1681e(b), a consumer's a l le g a tio n s must show that "inaccurate information was included in a consumer's credit re p o rt; (2) the inaccuracy was due to defendant's failure to follow reasonable procedures to a s s u re maximum possible accuracy; (3) the consumer suffered injury; and (4) the consumer's in ju ry was caused by the inclusion of the inaccurate entry." Philbin v. Trans Union Corp., 1 0 1 F.3d 957, 963 (3d Cir. 1996). The credit reporting agency, however, is not strictly liable f o r inaccuracies in a credit report. Id. Instead, "credit reporting agencies are liable only w h e n inaccuracies are the result of their failure to follow reasonable procedures." Id. at 964. See also Henson v. CSC Credit Serv., 29 F.3d 280, 284 (7th Cir. 1994) ("A credit reporting a g e n c y is not liable under the FCRA if it followed `reasonable procedures to assure m a x im u m possible accuracy,' but nonetheless reported inaccurate information in the

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consumer's credit report.") (citations omitted). E x p e ria n 's position is that its procedures - i.e., investigating its furnishers before a c c e p tin g data and maintaining ongoing audits to assure continuing accuracy - are re a s o n a b le . Moreover, having investigated its furnishers and found them reliable, it is e n title d to rely on their data until it discovers a reason not to do so. See, e.g., Sarver v. E x p e r i a n Info. Solutions, 390 F.3d 969, 972 (7th Cir. 2004) ("In the absence of notice of p re v a le n t unreliable information from a reporting lender, which would put Experian on n o tic e that problems exist, we cannot find that such a requirement [to examine each computer g e n e ra te d credit report for anomalous information] would be reasonable given the enormous v o lu m e of information Experian processes daily.") P la in tif f s: whether Experian's procedures were reasonable is for the fact finder. O'Brien v. Equifax, 382 F.Supp.2d 733, 736-38 (E.D. Pa. 2005) ("[t]ypically, the question o f whether a credit reporting agency followed reasonable procedures is reserved for a jury."). In particular, plaintiffs point out that the evidence as to Experian's ability to cross-reference " X " notations against the Death Master File produces a triable issue as to the reasonableness o f its current procedures. The record also evinces that Experian does not check the accuracy o f deceased notations it receives from furnishers. Finneran N.T., at 175-79, 186. Despite th e procedures in place to determine the general reliability of data from a particular furnisher, E x p e ria n is unable to ascertain whether the information that a consumer is deceased is c o rre c t. Browne N.T., at 123. Viewed in the light most favorable to plaintiffs, whether

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Experian negligently violated § 1681e(b) must be submitted to the factfinder. For this re a s o n , Experian's motion on this issue must be denied. E x p e ria n also moves for summary judgment on the claim that it wilfully violated § 1 6 8 1 e (b ) - on the ground that its procedures to assure the accuracy of its credit reports is not c le a rly violative of the FCRA, citing Safeco Ins. Co. of America v. Burr, 551 U.S.47, 70 (2 0 0 7 ). Under Safeco, in order to substantiate a wilful violation under § 1681n, plaintiffs m u s t prove that a consumer reporting agency knowingly violated the FCRA or acted with re c k le ss disregard of the duties imposed by the FCRA. Id., at 57-60. "A company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute's terms, but shows that the company ran a risk of violating th e law substantially greater than the risk associated with a reading that was merely careless." Id., at 69. So long as the conduct adopted by the company "could reasonably have found s u p p o rt in the courts," no wilful violation exists and the reporting agency is entitled to s u m m a ry judgment as a matter of law. Id., at 70 n.20. H e re , plaintiffs argument is that Experian could have checked each deceased notation re c e iv e d from a furnisher for accuracy; its failure to do so constituted a wilful violation of F C R A . Experian maintains, however, that this position is not supported by statutory a u th o rity or appellate caselaw, as required under Safeco. Instead, its reliance on its

f u rn is h e rs ' data, without more, was permitted under Sarver v. Experian Info. Solutions, 390 F .3 d 969, 972 (7th Cir. 2004) (finding as a matter of law that Experian's procedures were

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reasonable, and that FCRA did not require "that each computer-generated report be examined f o r anomalous information . . . [i]n the absence of notice of prevalent unreliable information f ro m a reporting lender, which would put Experian on notice that problems exist."). No a p p e lla te authority appears to contradict Sarver. Accordingly, under Safeco, Experian cannot b e said to have wilfully violated § 1681e(a). Summary judgment will be granted in its favor o n this claim. II. Violations of 15 U.S.C. § 1681e(b) - The Duty to Supply Credit Reports Only For P e rm iss ib le Purposes 5 U n d e r 15 U.S.C. § 1681e(a): Every consumer reporting agency shall maintain reasonable procedures . . . to lim it the furnishing of consumer reports to the purposes listed under section 1 6 8 1 b of this title. These procedures shall require that prospective users of the inf o rm a tio n identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose. Every consumer reporting agency shall make a reasonable effort to verify the id e n t i t y of a new prospective user and the uses certified by such prospective u s e r prior to furnishing such user a consumer report. No consumer reporting a g e n c y may furnish a consumer report to any person if it has reasonable g ro u n d s for believing that the consumer report will not be used for a purpose lis te d in section 1681b of this title. 1 5 U.S.C. § 1681e(a). P la in tif f s : (1) there is no permissible purpose enumerated in FCRA for the sale of a c re d it report concerning a deceased person; and (2) Experian does not have a proper

Experian: plaintiffs lack standing to assert that the sale of credit reports on deceased consumers violates FCRA because they themselves are not deceased. This is a mischaracterization of plaintiffs' position - that Experian had no permissible purpose for selling plaintiffs' credit reports when they showed, albeit mistakenly, that plaintiffs were deceased. 9

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procedure to assure that credit reports noting that the consumer is deceased are sold for p e rm iss ib le purposes. Experian's response is that there are permissible purposes for selling re p o rts showing that a particular consumer is deceased and its procedures to determine if its s u b s c rib e rs are purchasing reports for permissible purposes are reasonable. A s to permissible purposes for selling a report on a deceased consumer, Experian p o in ts to 15 U.S.C. § 1681b(a)(3)(A) that permits the sale of reports for account collection p u rp o s e s . A creditor is entitled to attempt to collect a debt form the estate of a deceased c o n s u m e r, and obtaining a credit report for this purpose is explicitly permissible under F C R A . The same section permits the sale of reports for credit extension purposes. Understandably, a lender is entitled to the information that an applicant has been reported as d e c e a s e d before it makes a decision as to whether to extend credit. Without access to this in f o rm a tio n , an important protection against identity theft would be lost. Plaintiffs proffer n o authority prohibiting the sale of credit reports in cases in which the consumer is deceased. E x p e ria n asserts that the evidence of record demonstrates that it has implemented re a s o n a b le procedures to assure that credit reports are sold only for permissible purposes. The evidence is that, prior to selling credit reports, Experian obtained a blanket certification f ro m potential subscribers. Browne Decl., 9. The certification included, inter alia, a d e c la ra tio n of the permissible purposes for which the credit reports will be used. Id. Experian relied on this certification to assure that credit reports are being sold for permissible p u rp o se s.

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Whether this procedure was reasonable is a decision for factfinder. See, e.g., Pintos v . Pacific Creditors Ass'n., 565 F.3d 1106, 1114 (9th Cir. 2009) ("[A] subscriber's c e rtif ic a tio n cannot absolve the reporting agency of its independent obligation to verify the c e rtif ic a tio n and determine that no reasonable grounds exist for suspecting the impermissible u s e . Blanket certification cannot eliminate all genuine issues of material fact with regard to E x p e ria n 's liability."). Accordingly, summary judgment must be denied with respect to the c la im of negligent violation of § 1681e(a) A s to plaintiffs' claim that the violation of § 1681e(a) was wilful, Experian again p o in ts to Safeco and to the dearth of statutory or appellate authority prohibiting the issuance o f a credit report containing a deceased notation - or requiring further proof as to its use u n le s s it appears that the purpose is not permissible. Instead, Experian relies on caselaw perm itting the reporting of information to sources without further investigation, citing Sarver, 3 9 0 F.3d at 972 and Henson, 29 F.3d at 285. Without clear authority to the contrary, E x p e ria n 's procedures do not amount to a wilful violation of § 1681e(a), and, on this claim, it is entitled to summary judgment. A n order accompanies this memorandum.

B Y THE COURT:

/s/ Edmund V. Ludwig E d m u n d V. Ludwig, J.

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