A federal district judge in California late last month dismissed a lawsuit brought against an ARM firm alleging violations under a number of statutes for its promise to mark an account as “paid in full” on a consumer’s credit report even though the consumer was paying only an amount agreed to in a settlement offer.

The case, Kielty et al v. Midland Credit Management, Inc., sought class action status. It alleged that Midland violated the Credit Repair Organizations Act (CROA) by positioning itself as a credit repair organization, using language like “We can help you get back on track…” in collection letters. The plaintiffs contend that Midland offered a settlement for less than the full amount owed, while promising to mark the accounts as paid in full on their credit reports.

Since this behavior is not allowed under the Fair Credit Reporting Act (FCRA), the suit contends, the promises were also violations of the FDCPA and California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act), as they were deceptive or misleading.

Between April 13, 2012 and January 22, 2014, Midland sent letters and brochures to the plaintiffs that contained language they claim represented that Midland could perform credit repair services for them. These statements included the following:

Your past due balance…with FIRST CREDIT BANK OF  DELAWARE is being reported to the credit reporting bureaus and  remains a negative item on your credit report…We can help you get back on track…Once you make a payment, interest will stop being applied to your account[,] [y]our credit report will be updated with the payments you make[,] [and] [t]he account will appear on your credit report as Paid in Full after you’ve completed your payments[.]


Special offers are now available to help you resolve your unpaid Cit Bank account…[w]e can help you get back on track… [W]e will not sue you for repayment of this obligation. This account may still be reported on your credit report as unpaid, and repaying the obligation may help toward improving your credit.

Because of that language, the plaintiffs contend that Midland violated the CROA because it did not include the appropriate disclosures under that law.

Midland moved to dismiss all of the claims on the grounds that it is not a credit repair organization and thus does not fall within the mandates of the CROA. Since it did not claim to do something it could not do, the company said that it also did not violate the FDCPA or Rosenthal Act.

Judge Cynthia Bashant, in the Southern District of California, wrote that the defendant did not, in fact, fall under the purview of the CROA becase, “Midland does not represent that its services can improve or assist in improving a consumer’s credit record, history, or rating. Midland, as a debt collector, is simply seeking the repayment of debts owed and in doing so encourages the repayment of debts owed to it and acknowledges the benefits of repayment. Seeking the repayment of a debt and utilizing ‘the potential of a lower credit score as motivation to encourage [a person] to pay the debt’ does not make a person a credit repair organization.”

Judge Bashant also noted that that there is no allegation in the complaint that Midland offered services or advice for any additional fee. She granted Midland’s motion to dismiss with leave to amend, should the plaintiffs so choose.

As for the FDCPA and Rosenthal Act claims, Bashant noted that those were predicated on Midland promising something it could not deliver, notably, marking an account as Paid in Full on a credit report when, in fact, a lesser amount was paid. This would make the statements misleading and a violation of both statutes, since the FCRA forbids furnishing inaccurate information to a consumer reporting agency.

Midland argued that it could report the debt as “Paid in Full,” regardless of whether the consumers paid a lesser amount by agreement. Bashant concurred, writing, “The Court agrees that neither the FDCPA nor the FCRA explicitly bar a debt collector from reporting a ‘settled’ debt as having been fully satisfied.”

Judge Bashant likewise dismissed the FDCPA and Rosenthal Act claims, with leave to amend. She noted that if Plaintiffs choose to file an amended complaint, they must do so no later than March 2, 2015.


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