Ruling in Newport news case may expand credit protection

Associated Press
© February 16, 2004
Last updated: 12:28 PM

NEWPORT NEWS — A federal appeals court, perhaps for the first time, has addressed the issue of how rigorously a credit card company must investigate a consumer complaint about inaccurate credit files.

Consumers could have an easier time disputing information on their credit reports as a result.

The case, brought before the 4th U.S. Circuit Court of Appeals in Richmond by Newport News resident Linda Kay Johnson, clarifies a part of the Fair Credit Reporting Act that says credit issuers must investigate complaints. Until now, "investigate" could have meant a cursory records check. The court's decision demands more in-depth investigations when consumers ask for them. "This is very far-reaching," said Evan Hendricks, publisher of Privacy Times, a newsletter that tracks fair credit reporting and freedom of information news. "It's the first time they've said the law has plain meaning."

For Johnson, who owns Hair Raisers hair salon in Newport News, the ruling ended a three-year ordeal that began when a representative from bank and credit-card issuer MBNA Corp. telephoned her. The representative demanded Johnson pay a MasterCard balance because Johnson's husband had filed for bankruptcy and was removed from the account. Her husband's debt was $17,000.

It was the first time Johnson had heard of either the credit card or her husband's bankruptcy.

Johnson contends her husband applied for the card before the couple married in 1991. MBNA, based in Delaware, argued Johnson co-owned the card with her husband. The company said, however, it could not produce records from when the account was opened in 1987 because such documents are only kept five years.

"I never used it," Johnson said. "Never saw it."

After divorcing her husband, Johnson found she could qualify only for high interest rates on a home loan because MBNA had reported her to the three major credit reporting bureaus. Essentially, said Johnson's attorney, Leonard Bennett of Newport News, the company was using unfavorable credit information to pressure Johnson into paying.

"They disable your borrowing," Bennett said. "Which in many ways is worse than being sued."

A jury last year awarded Johnson $90,300 in damages. MBNA appealed.

An MBNA spokesman and a Richmond attorney who represented the company did not return phone messages left by the Daily Press.

MBNA argued fair credit laws require creditors only to briefly review their records when faced with a complaint.

By law, the appellate judges wrote, if a creditor cannot verify disputed information, credit agencies are to delete the item or modify it after further investigation. A jury, the judges wrote, "could reasonably conclude that if the MBNA agents had investigated the matter further and determined that MBNA no longer had the application, they could have at least informed the credit reporting agencies" that MBNA couldn't verify Johnson was responsible for the account.

Johnson hopes to refinance her home loan, on which she pays 13.99 percent interest because of her damaged credit scores.

"My credit was perfect — pristine," Johnson said. "If you know your rights, you fight for your rights and you will win."

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