[Posted May 14, 2008] The Fourth Circuit gives us new guidance on a couple of Fair Credit Reporting Act issues, in Saunders v. BB&T, handed down today.

Rex R. Saunders is an honest man. Because that characteristic isn’t as common as it should be, and because it’s so laudable, let me say it again: Rex R. Saunders is an honest man. His honesty got him in hot water with a bank, eventually concluding with today’s ruling.

In 2003, Saunders bought a car from a Richmond dealership. He signed a note on the spot, and the dealer assigned the note to BB&T. But the car didn’t work out for him, so he returned it to the dealer and bought a new car. The dealer paid off the original note, and Saunders signed a new one, which was also assigned to BB&T. So far, so good.

Except Saunders never got a payment coupon from the bank for the second loan. Instead of ignoring the matter, he did the responsible thing and called the bank, essentially telling it, “I want to send you money.” But the bank only had a record of the first loan, which had been paid off; it pleasantly assured Saunders that he owed no money at all.

Now, a man with less integrity might have chuckled to himself and walked away with a smile, a wave, and a free car. After all, the DMV title showed no liens. But we already know what kind of man Saunders is, so you won’t be surprised to learn that he continued to press the matter, repeatedly offering to BB&T to make payments on his car loan. The bank continued to insist that he owed nothing.

Four months after the second purchase, and after several contacts from Saunders, someone at BB&T fell awake and found this unpaid loan. (The bank admitted that it was Saunders’s repeated efforts to pay that led them to discover the loan.) You might think that such a discovery would produce a phone call from a bank officer to Saunders, humbly apologizing for the mix-up and enclosing a first payment voucher. But you would be very wrong. The bank instead sent Saunders a nastygram, calling his payments “seriously delinquent,” accelerating his note for the default, and giving him ten days to pay back an amount over $20,000. This was the first time BB&T had ever contacted Saunders to ask him to pay anything; up to this point, the bank had steadfastly insisted that he owed nothing.

Instead of throwing the letter into the trash, Saunders again did the responsible thing, going to the bank and meeting with a loan officer to explain what he had been trying to do all this time. “I’ll pay the loan as scheduled,” he offered, but was told that he would also have to pay late fees and penalties. Ex-cuse me? “Look,” Saunders told the banker, “I’m not going to pay anything if you’re going to take that approach.” But the banker was firm, so Saunders left.

It gets worse. The bank reported the loan as being in default, and eventually reported it as a charge-off, which is the worst possible thing for your credit rating. Accordingly, when Saunders, who had forever sworn off doing any business with BB&T again, went to a credit union to get a new loan to pay off the car, the lender declined, since his credit score had plummeted as a result of BB&T’s report. Saunders protested the report, but BB&T didn’t change its report; the bank even refused to acknowledge Saunders’s previous protests. Eventually, the bank repossessed the car.

At the ensuing trial for Saunders’s FCRA claim, the bank acknowledged that it had not entered the second loan into its computer system until about three days before it sent the nastygram; it didn’t even assign a loan number until the date Saunders received that collection letter. Nevertheless, the bank stuck by its guns and insisted that Saunders had not made out a meritorious claim for a FCRA violation. The jury saw it slightly differently, and assessed statutory damages of $1,000 and punitive damages of $80,000.

On appeal, the Fourth Circuit affirms the judgment in Saunders’s favor, finding that BB&T furnished inaccurate information to the credit reporting company, that it did so willfully, and that the jury was justified in concluding that BB&T’s actions excused Saunders’s nonperformance of his obligations under the note. There is also a very interesting discussion of BB&T’s argument that the 80:1 ratio of punitives to statutory damages was unconstitutional under the Leatherman standard. The court agrees that the ratio is high, but notes that such a high ratio does pass constitutional scrutiny when, as here, the amount of the statutory or compensatory damages is minimal. (The jury awarded zero in compensatory damages, and the court cites that in support of the proposition that the jury didn’t decide the case on the basis of sympathy or bias.)

Today’s ruling will be useful to those who litigate FCRA cases, and for those looking for additional guidance on the proportionality of punitives. As for me, it makes me very grateful to reflect that I have never banked with BB&T, and given what I read today, I almost certainly never will. The bank may well lose much more than $81,000 as a result of the negative publicity this will doubtless generate; it is foreseeable to me that other prospective customers will find a reason to do their banking elsewhere when they read how BB&T mishandled this transaction.