Consumers trying to get out of debt are filing lawsuits in droves disputing information on credit reports, encouraged by what critics say is a proliferation of credit repair firms posting videos on TikTok, Instagram and social media.
Banks, auto loan servicers, credit card issuers and debt collectors have long been targets of disputes alleging a failure to investigate inaccuracies on credit reports. While the three credit reporting bureaus — Equifax, Experian and TransUnion — overwhelmingly bear the brunt of consumer complaints and litigation, more financial institutions are being bombarded with disputes alleging violations of the Fair Credit Reporting Act.
"This area has exploded in litigation," said Ryan DiClemente, an attorney at the law firm Husch Blackwell. "What we've seen in the past three to four years is an exponential growth in FCRA lawsuits. What used to be a small piece of the pie — maybe 10-20% — is now north of 50% for national litigation."
Experts attribute some of the increase to the Consumer Financial Protection Bureau, which has repeatedly called out the credit bureaus and data furnishers for failing to investigate disputes. The CFPB also has questioned whether consumers actually owe their debts and is seeking public comment on
Defense and plaintiff's attorneys also point to the rise of credit repair companies and to consumers being more involved in checking their credit scores on apps like Credit Karma.
"What's driving this is the sheer number of hits for credit repair companies on YouTube, Instagram and social media," said Manny Newburger, founding shareholder and vice president at the law firm Barron & Newburger, P.C.
Newburger said he's also seen a big increase in pro se litigants — plaintiffs who represent themselves in court — who are guided by what he calls "an unseen hand." He said more people are willing to execute false declarations claiming to be victims of identity theft. Others claim harm to their credit that cannot be substantiated by evidence.
"People get desperate and they don't want to lose their homes, they don't want to lose their cars and they go online and get bad legal advice," Newburger said. "People who are not lawyers are filing lawsuits without the benefit of counsel advising them on whether there is any merit to the suit."
Two weeks ago, Rep. Bill Huizenga, R-Mich., asked CFPB Director Rohit Chopra
"It appears that some are using the CFPB's database to discharge legitimate debt that they owe," Huizenga said, citing third-party analyses. "There are videos online that promise results if [consumers] follow certain steps, including using your database, that there is going to be debt relief."
Last year, the U.S. Chamber of Commerce asked the CFPB to conduct more oversight of credit repair companies that file what it called "unsubstantiated disputes."
"Consumers should be entitled to file legitimate disputes, but the system has increasingly become overwhelmed by illegitimate claims that are primarily advanced by a cottage industry of credit repair organizations," wrote Bill Hulse, a senior vice president at the Chamber,
Data show that 2,744 lawsuits have been filed between January and May of this year, a 23% rise from the same period a year ago, according to WebRecon LLC, which tracks state and federal FCRA lawsuits — including those filed by hundreds of serial or repeat filers. More than 5,500 lawsuits were filed last year.
"Nobody gets sued more than the three credit bureaus," said Jack Gordon, the CEO of WebRecon. "They are a massive mess of targets for litigation."
The complexity of credit reporting itself is at the heart of the dispute process.
Data furnishers send information every month on each customer to the credit bureaus and the credit bureaus facilitate credit reporting disputes through an automated system called e-OSCAR, which sends the dispute to furnishers. Under the FCRA, credit bureaus and furnishers have 30 days to respond to a complaint, a short time frame given the massive amount of data involved.
"What's really driving a lot of the cases, along with social media, has to do with the complexity of the ecosystem," said Badri Sridhar, managing director at FTI Consulting, who serves as an expert witness for financial institutions. "Consumers are sending over tens of thousands of disputes every month to the furnisher, who then has to review that information. So there is room for errors, and errors do occur."
Leonard Bennett, founding partner of Consumer Litigation Associates, said many furnishers outsource the entire FCRA dispute process to third party providers, and he questions whether substantive investigations are happening at all.
"The credit industry has failed to create significant protections against inaccuracies, including identity theft or checking to avoid mistakes in recordkeeping and payment history," Bennett said. "What they should be doing is investing in their dispute procedures. For the longest time, the banking industry of creditors and furnishers have taken the duty of investigating under the Fair Credit Reporting Act as perfunctory, with minimal requirements, instead of using investigations as a fact-finding component."
The uptick in litigation is also being spurred by lawyers who seek to profit from more FCRA litigation. Trial lawyers that have jumped into the field are winning substantial verdicts of up to $500,000 for identity theft cases that cause a consumer emotional distress, he said.
Newburger said there is also an uptick in FCRA suits based on fringe legal and political theories, including consumers claiming to be sovereign citizens unobligated to pay their debts or otherwise not be subject to U.S. laws or the authority of state or federal courts.
The litigation has become so out of control that earlier this month Experian PLC, based in Dublin, sued Stein Saks PLLC, a law firm in Hackensack, New Jersey, alleging that it operates a nationwide
At the same time, meritorious claims are going up in value because more lawyers are willing to force the industry to substantiate whether they have actually investigated a dispute. A few years ago, lawyers representing consumers in FCRA lawsuits typically settled cases for between $8,000 to $12,000 each, but are now driving a much harder bargain, asking for between $45,000 to $50,000 per lawsuit, experts said.
"We're seeing a trend where plaintiff's counsel are willing to take their shots with a jury," DiClemente said.
There's also been an uptick in regulatory oversight by the CFPB, which has been conducting specific supervisory exams on credit reporting based on the number of complaints it receives from consumers.
"It's clearly one of the core areas the CFPB is focused on as they're trying to build out and expand their supervisory authority," said Mike Silver, partner at Husch Blackwell and a former CFPB senior counsel.
CFPB Director Chopra is seeking to rein in harmful practices of data brokers under
"When you have the CFPB saying credit reports are inaccurate, then of course you're going to have people suing," said Joann Needleman, leader of the financial services regulatory and compliance practice at the law firm Clark Hill. "It used to be that you could settle on the cheap, but now the demands have gone up. Like everything else, it costs more, and it's a business."
