Today's Trends in Credit Regulation

Credit Reporting and Indemnification
By Catherine C. Worthington

In a recent opinion in a case alleging that a finance company violated the Fair Credit Reporting Act in its furnishing of information to credit reporting agencies, the court stated, in its recitation of the facts, that the company "has no policy in place regarding consumers who have rights of indemnification relating to debts on their credit reports."

In written opinions, judges sometimes make statements that can be used to formulate a "best practice." The court's statement above about credit reporting policies addressing indemnification may be such a statement.

Gary Hillis and his former wife obtained financing for a car they bought as co-buyers during their marriage. After the creditor repossessed the car, the ex-wife was awarded the car in the couple's divorce decree, ordered to make all payments, and ordered to indemnify Hillis if she failed to do so.

More than five years later, Santander Consumer USA, the assignee of the obligation, began reporting the account as delinquent and charged off to the three major credit reporting agencies. Hillis disputed the entry, and the three agencies contacted Santander about the dispute, but Santander did not instruct them to change the way they were reporting the account or to mark the item as disputed.

After being denied a credit limit increase on a credit card, Hillis sued Santander for violating the Fair Credit Reporting Act by reporting the debt as his responsibility and by not marking the item as disputed. In a prior decision, the U.S. District Court for the Eastern District of Pennsylvania refused to dismiss the claim, finding that although the divorce decree did not alter Hillis's legal responsibility for the debt, a potential creditor might view the debt more favorably if it knew that Hillis was indemnified in the divorce decree. Because the debt was not marked as disputed, the court believed the report, although accurate, could create a misleading impression.

Later, Santander moved for summary judgment, and the court denied the motion. The court reiterated that information is "inaccurate" for FCRA purposes if it "either is factually incorrect or creates a misleading impression." Although Hillis was technically obligated to pay the balance on the contract to Santander because the divorce decree did not abrogate his obligation, paying the balance was primarily his ex-wife's responsibility under the divorce decree. Thus, the delinquent status of the account, according to the court, more clearly reflected Hillis's ex-wife's inability to repay the debt rather than his. Also, Hillis had an indemnification right against his ex-wife for any portion of the balance he was forced to repay.

The court found that a jury could reasonably find that Santander's omission of details about Hillis not having primary responsibility for the debt and his indemnification right might have an adverse effect on his credit. The court also noted that Santander's reporting of the account could be found to have resulted in the denial of Hillis's request for a credit limit increase on his credit card, especially since his credit score rose and his credit card limit was increased after the credit reporting agencies stopped reporting the delinquent account.

So, even though no court has found that Santander violated the FCRA, this opinion and the court's statement about the creditor lacking a credit reporting policy for consumers with indemnification rights serve as fair warning.

Don't be the next creditor that is called out in a published opinion for not having a credit reporting policy addressing indemnifications.

Hillis v. Trans Union, LLC, 2014 U.S. Dist. LEXIS 79840 (E.D. Pa. June 9, 2014).

Catherine C. Worthington is a managing editor of CARLAW, HouseLaw, and PrivacyLaw and is a lawyer in the Maryland office of Hudson Cook, LLP. She can be reached at 410-782-2349 or by email at

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