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Financial Services Law Insights and Observations

District Court: Identity theft alone is not enough to remove allegedly fraudulent debt from credit report

Courts Debt Collection FDCPA Consumer Finance Consumer Reporting Agency State Issues

Courts

On April 20, the U.S. District Court for the Southern District of California granted a defendant debt collector’s motion for summary judgment, ruling that claiming to be a victim of identity theft alone is not enough to have a collection item removed from a credit report, or to give rise to an FDCPA violation. In 2014, the plaintiff purportedly obtained a payday loan from a lender who ultimately assigned the loan to the defendant for collection. In 2019, the plaintiff called the defendant to verbally dispute the debt as fraudulent after seeing the loan on her credit report. The defendant continued to report the loan to the consumer reporting agencies (CRAs), but marked the account as disputed, and informed the plaintiff of measures she needed to take to have the item removed from her credit report, including instructions for filing an identity theft affidavit. After an attorney representing the plaintiff submitted a formal written dispute of the debt, the defendant responded with the required verification and continued reporting the debt until the account was recalled by the lender. At this point the loan record was deleted and the defendant stopped reporting the loan account to the CRAs. The plaintiff filed suit alleging the defendant violated FDCPA Sections 1692e and 1692f and various state laws by continuing to report the debt after it was notified of the potential fraud. The court disagreed, stating, “there was nothing about [the defendant’s] statements that would confuse or mislead even the least sophisticated debtor’s attempt to remove the fraudulent account from their credit report,” the court wrote, adding that none of the defendant’s communications were false, deceptive, or misleading, nor did they undermine the plaintiff’s “ability to intelligently choose her action concerning the loan account.”

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