Credit Reporting and Collections
Husband and wife are both named in a
lease as tenants, but the landlord only got one signature.
Are both tenants liable?
Brady v. The Credit Recovery Company Inc., 1st U.S. Circuit Court of
Appeals, No. 98-1497 (1998)
The 1st Circuit has jurisdiction over Maine, Massachusetts, New Hampshire, Puerto Rico,
and Rhode Island.
Tenant's ex-husband sues collection agency after
unpaid rent shows up on his credit report
Plaintiff, Brady's, former wife leased an apartment.
Brady was named in the lease as a tenant but never signed it. The tenants left owing $470
in rent.. The landlord eventually turned the Brady account over to a collection agency.
The agency sent Brady a letter demanding payment. Brady responded that he didn't have to
pay the rent because he didn't sign the lease, his ex-wife did. The agency told Brady to
dispute the debit in writing, but he never did.
The collection agency sent Brady dunning letters and
called him, but he never responded. About a year later it reported Brady's alleged debt to
several credit reporting agencies, but it didn't report Brady's dispute of the debt.
Five years later Brady applied for a mortgage. A credit
check revealed the unpaid rent on his credit report. The mortgage company called the
collection agency, and as it had done before, the agency verified the debt without
reporting its disputed status. The mortgage company then told Brady the mortgage for his
new home was in jeopardy because the unpaid rent was listed on his credit report. Brady
called the collection agency again, but it refused to remove the debt from his report. A
month later, the agency removed the debt for rent from Brady's report on advice of their
attorney.
Brady sued the collection agency. (But not the
landlord)
Brady claimed the collection agency violated the Fair
Debt Collection Practices Act, which prohibited debt collectors from making deceptive or
misleading representations. He claimed the agency violated the Act by not reporting his
dispute. The Act explicitly stated the failure to disclose the disputed status of a debt
was a false or deceptive representation if the debt collector knew or should have known
the debt was disputed.
The agency claimed it didn't have to report Brady's
dispute because he never disputed the debt in writing. It relied on a provision in the Act
requiring consumers to protest a debt in writing to prevent a debt collector from taking
any action while it verified the debt.
Case dismissed
The court dismissed Brady's claims, finding the agency
actions weren't deceptive or misleading because Brady didn't challenge the debt in
writing.
Brady appealed
DECISION: Reversed, and returned for a trial.
The Act didn't require Brady to dispute the debt in
writing. The statutory provisions requiring a consumer to challenge a debt in writing had
nothing to do with providing misleading credit reports.
The Act required debt collectors to communicate the
disputed status of a debt if the debt collector knew or should have known the debt was
disputed. This "knew or should have known" standard required no notification by
the consumer, written or oral; it rested solely on the debt collectors' knowledge that a
debt was disputed, regardless of how or when it acquired that knowledge. If Brady had to
dispute the debt in writing, the "knew or should have known" standard would be
meaningless.
Also see: United States v. Bailey, 516 U.S. 137,133 L.Ed.2d 472,
116 S.Ct. 50](1995).
CASE LAW NOTES:
Although the husband sued the collection agency, not the
landlord in this case, property managers should be familiar with the Fair Credit Reporting Act. Tenants have also sued
landlords, landlords' attorneys, and even their landlords' employees, under the Act. At
least one court has found a notice to quit for nonpayment of rent was a "collection
letter" as defined by the Act - even though state law required the notice.
|