04icredit

Reporting Errors

Lawyers Need to Consult Federal Law Before Ordering Credit Reports for Litigation

Posted Apr 28, 2005 2:30 AM CDT
By Steve Seidenberg

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As if losing a court case wasn’t enough, Justin L. suffered an ad­ditional blow: His entire financial history became part of the public record.

Justin L. (not his real name) had no idea his university was suing him for services supposedly rendered until collection proceedings were under way after a default judgment. He quickly hired legal counsel and challenged the default judgment. That mo­tion, alas, soon added insult to injury.

When Justin claimed that service in the underlying suit had been improper because the complaint had been sent to an old address, attorneys for the university introduced into evidence a copy of Justin’s credit report, which indicated that his old address was his address at the time of service. Because the report was entered into evidence without redaction, it was the equivalent of making years of Justin’s personal finances available for perusal by anyone and everyone.

Justin’s case is far from unique. Using credit reports in litigation is not verboten, but restrictions exist, most notably the Fair Credit Reporting Act. This federal legislation sets strict limits on when attorneys may obtain credit reports and on how they can use them.

For starters, the FCRA makes it unlawful for an attorney to order a credit report to uncover information about the other side in a civil lawsuit--meaning it can’t be requested as part of the proverbial discovery “fishing expedition,” says Columbus, Ohio, lawyer Jeffrey Langer, who chairs the ABA’s Consumer Financial Services Committee.

Yet the FCRA does allow attorneys to obtain credit reports on opposing litigants to review or collect on an existing credit account. And once a judgment is secured against an individual, the Federal Trade Commission says a debt­or/creditor relationship has been established, giving the attorney who is seeking to collect on the judgment a green light to get a credit report on the judgment debtor.

Judgments change the situation in family court cases, too. If a divorce or custody battle is under way, an attorney could get in hot water for ordering a credit report on the opposing litigant. But once a judgment has been entered, a debtor/creditor relationship can result if the court has ordered child support or alimony. In these cases, federal law allows a lawyer to use credit reports to collect.

Rules Of Requesting

A lawyer also can get into trouble just for ordering a credit report. The FCRA requires credit-reporting agencies (like Equifax) to only issue credit reports to individuals who have indicated they want them for specific lawful purposes. So if an attorney who orders a report uses it for any other reason, the attorney faces liability for willfully violating the FCRA. This makes the attorney liable for actual damages or $1,000 (whichever is higher), punitive damages and attorney fees.

The courts are quite willing to hold erring attorneys liable. In 1997, a federal court in Arkansas ruled that attorney Laura McKin­non willfully violated the FCRA when she ordered credit reports on the opposing litigant in a medical malpractice suit and on the litigant’s two adult daughters. The court rejected McKinnon’s intended use--to coerce a settlement from the physician’s insurance carrier and ordered her to pay each of the three plaintiffs $500 for actual damages and $5,000 for punitive damages, plus attorney fees and costs. The 8th U.S. Circuit Court of Ap­peals at St. Louis upheld the ruling. Bakker v. Mc­Kin­non, 152 F.3d 1007 (1998).

As for Justin, his attorneys are contemplating suing the university’s lawyers under the FCRA for making his credit report part of the public record. But that’s not his top priority at the moment, says New York City solo practitioner Meyer Silber, one of the two attorneys representing Justin.

For now, Silber says, the focus is on reversing the judgment and getting Justin his day in court.

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