Fourth Circuit Upholds $90,000 Judgment Under Fair Credit Reporting Act For Failure To Conduct Reasonable Investigation

In Johnson v. MBNA America Bank, N.A., No. 03-1235 (4th Cir. Feb. 11, 2004), the Court affirmed a jury verdict in favor of the plaintiff based on an action against the defendant bank for violation of the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable investigation of the plaintiff's dispute concerning a credit card account issued by the bank that appeared on the plaintiff's credit report.

The account in question was a MasterCard account opened by the plaintiff's ex-husband. Apparently the account was originally opened prior to the marriage; and during the marriage the plaintiff was listed as an authorized user and was placed on the billing address. However, the plaintiff claimed that she was merely an authorized user and was never a co-applicant.

After the divorce, the ex-husband filed for bankruptcy, and the bank promptly removed his name from the account. At the same time, the bank contacted the plaintiff, and informed her that she was reponsible for the approximately $17,000 balance on the account.

The plaintiff disputed the account with each of the three major credit reporting agencies. Each credit reporting agency sent the bank an automated consumer dispute verification. In response, the bank reviewed its records and notified the credit reporting agencies that the disputed information was correct.

The plaintiff then brought suit on the grounds that the bank violated the FCRA by failing to conduct a proper investigation of her dispute. A jury found that the bank had negligently failed to comply with the FCRA, and awarded the plaintiff $90,300 in actual damages.

The bank appealed on the grounds that the FCRA only imposed a minimal duty on creditors to briefly review their records to determine whether the disputed information is correct, and that the Act does not contain any qualitative component that would allow courts or juries to assess whether the creditor's investigation was reasonable.

The 4th Circuit held that section 1681s-2(b)(1) of the Act requires creditors, after receiving notice of a consumer dispute from a credit reporting agency, to conduct a reasonable investigation of their records to determine whether the disputed information can be verified.

The 4th Circuit also held that a jury could reasonably conclude based on the evidence that the bank acted unreasonably in failing to verify the accuracy of the information in dispute. The bank's agents testified that in investigating consumer disputes generally, they do not look beyond the information contained in its computer system and never consult underlying documents such as account applications.