Is the CFPB Position on Credit Reporting Consistent with Case Law?

Tomio Narita

The CFPB does not want debt collectors to tell consumers that paying their debts might help them to improve their credit score.  Nor does the CFPB want collectors to encourage consumers to pay by informing them that their failure to do so might harm their credit.  The Bureau made this point crystal clear in the Bulletin that it issued in July 2013 entitled “Representations Regarding Effect of Debt Payments on Credit Reports and Scores” where it claimed that making such statements might amount to a deceptive act or practice in violation of the FDCPA and the Dodd-Frank Act.

But is the CFPB’s position on this point consistent with case law on this subject?  Not really. It turns out that courts from around the country have repeatedly recognized that collectors can, and perhaps should, seek to encourage consumers to pay their debts by informing of them of the potential impact on their credit.

Before diving in to the discussion, consider some context on credit reporting provided to us by Congress. As part of the Fair Credit Reporting Act, Congress mandates that certain furnishers of information must provide consumers with a “clear and conspicuous” written notice that negative information is being reported about them to the consumer reporting agencies.  See 15 U.S.C. §§ 1681s-2(a)(7)(A)(i), 1681s-2(a)(7)(C)(ii).  In fact, the CFPB is responsible for formulating a model disclosure that furnishers can use to provide the notice of negative credit reporting.  Id. at § 1681s-2(a)(7)(D). Thus, Congress has already determined that it is important for consumers to be informed about negative information that is being furnished about them, and the CFPB is in charge of crafting a model notice so furnishers can get the word out to consumers.

In its Bulletin issued in July 2013, the CFPB took the position that creditors, debt buyers and third-party collectors often make representations to consumers about credit-related issues in order to persuade them to pay.  These include statements suggesting that paying their debts might improve their credit report, their credit score, or their creditworthiness, or that payments may increase the likelihood that the consumer will receive credit or more favorable credit terms. The Bureau pointed out that consumers often “view credit reporting as an important determinant of their future access to credit and other opportunities” and that representations made by collectors about credit “may be deceptive under the FDCPA, the Dodd-Frank Act, or both.”

According to the CFPB, “in light of the numerous factors that influence an individual consumer’s credit score” payments made to a collector or creditor “may not improve the credit score of the consumer to whom the representation is being made.”  In addition, given the “variety of sources of information to assess the creditworthiness of prospective borrowers,” the Bureau asserted that “debt collectors may well deceive consumers if they make representations about the nature or extent of improved creditworthiness that result from paying debts in collection.”

For these reasons, the CFPB outlined its expectation that “debt collectors should take steps to ensure that any claims that they make about the effect of paying debts in collection on consumers’ credit reports, credit scores, and creditworthiness are not deceptive” and the Bureau made it clear that it would be looking at these issues closely in connection with its supervision activities and enforcement investigations.

The CFPB’s position, however, appears to be directly at odds with decisions issued over the past few decades by courts from around the country.  Courts at both the circuit court level and the district court level have repeatedly recognized that when consumers pay their debts, this is likely to improve their credit.  The courts have also held that collectors can, and probably should, remind consumers of this fact in order to encourage them to pay.

For example, the Ninth Circuit recognized that a collector could “properly” notify a consumer that nonpayment of a debt “could adversely affect her credit reputation” in Wade v. Regional Credit Ass’n., 87 F.3d 1098 (9th Cir. 1996).  There, the collector sent a letter stating “if not paid TODAY, it may STOP YOU FROM OBTAINING credit TOMORROW.  PROTECT YOUR CREDIT REPUTATION.  SEND PAYMENT TODAY . . . DO NOT DISREGARD THIS NOTICE.  YOUR CREDIT REPUTATION MAY BE ADVERSELY EFFECTED.”  Id. at 1099.  The Ninth Circuit rejected the consumer’s claim that the letter violated sections 1692e, 1692e(5) and 1692e(10) of the FDCPA, noting that: “The body of the notice was informational, notifying Wade that failure to pay could adversely affect her credit reputation… .The least sophisticated debtor would construe the notice as a prudential reminder, not as a threat to take action. . .The notice told Wade correctly that she had an unpaid debt, and properly informed her that failure to pay might adversely affect her credit reputation.” Id. at 1100.