This week, the U.S. Court of Appeals for the Seventh Circuit issued a decision reversing a summary judgment order in a Fair Debt Collection Practices Act (FDCPA) case. The court found that there were genuine issues of material fact regarding whether the defendant debt collector knew or should have known that the plaintiff disputed the debt, and whether the defendant exercised reasonable care in reporting the debt.

The dispute in Wood v. Security Credit Services, LLC (SCS) arose in 2017 when the plaintiff received a letter from his credit card issuer stating that he was delinquent on his payments. The plaintiff disputed the debt in writing, but the issuer responded, affirming the debt’s validity. In its response, the issuer advised the plaintiff or his counsel “to set up a satisfactory repayment plan.” Neither the plaintiff nor his attorney replied, but, despite the lack of response, the plaintiff claimed he continued to believe the debt was inaccurate.

In 2018, SCS purchased a bundle of debts, including one associated with the plaintiff. In the purchase agreement, the credit card issuer stated that it had used commercially reasonable efforts to remove from the bundle any accounts with “unresolved disputes.” The credit card issuer also did not provide SCS with a copy of the dispute letter or any indication that the debt was ever disputed. Thereafter, SCS reported the plaintiff’s debt to a consumer reporting agency (CRA) without noting that the plaintiff had disputed the debt.

The plaintiff filed a lawsuit against SCS, alleging that it violated the FDCPA by failing to communicate to the CRA that the debt was disputed. In its motion for summary judgment, SCS argued that the district court should grant judgment in its favor because: (1) SCS had no reason to know the plaintiff’s account was disputed; (2) regardless, the bona fide error defense precluded liability; and (3) the plaintiff lacked Article III standing. The district court granted summary judgment in favor of SCS, concluding that the credit card issuer reasonably interpreted the plaintiff’s lack of response to its letter to mean that he no longer disputed the debt. By extension, the plaintiff could not establish that SCS knew or should have known that he still disputed the debt. The Seventh Circuit reversed and remanded the decision.

Court’s Decision

The Seventh Circuit first addressed whether the plaintiff had standing to sue. The court concluded that the plaintiff had standing because the failure to report his debt as disputed caused a concrete and particularized injury. The court noted that the harm the plaintiff suffered was analogous to defamation, which has long been recognized as a basis for a lawsuit in American courts.

The court then examined whether SCS violated the FDCPA. Under §1692e(8) of the FDCPA, a debt collector must not communicate false credit information, including failing to communicate that a disputed debt is disputed. The court found that there was a genuine issue of material fact as to whether SCS knew or should have known that the plaintiff disputed the debt.

The court clarified that §1692e(8) creates a negligence standard, meaning that a debt collector must exercise reasonable care to avoid reporting false information. The court found that SCS may have failed to exercise reasonable care by not investigating the history of the debts it purchased. “Under a negligence standard, and the facts in this case, the question is whether SCS used reasonable care to obtain information on whether the debts it purchased were disputed. Recall that SCS bought the bundle without any dispute history attached to individual accounts, and then categorized all of the purchased debts as ‘undisputed’ for reporting purposes.”

SCS argued that it was entitled to the bona fide error defense, which protects debt collectors from liability if they can show that the violation was unintentional and resulted from a bona fide error despite procedures designed to avoid such errors. However, the court found that this defense was not applicable because the violation stemmed from a mistake of law, not a clerical or factual error.

The case has been remanded for further proceedings consistent with the court’s opinion.