The Loss of Credit Capacity

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• Loss of credit capacity is the diminishment in available credit and/or the rise in the rate for available credit. Simply put the result is a rise in the cost of credit. Plaintiffs typically argue that they have suffered actual damages in the form of denied credit, but may alternatively or additionally argue that they have received a higher interest rate on loans as a result of a credit reputation injury. The person whose credit capacity has been damaged is in fact deprived of the option to utilize consumer credit in the manner he or she did before the injury. Consumer credit capacity damages can take the form of higher monthly payments, lower available credit or higher required down payments.  It can also diminish the ability to borrow against real estate, produce a reduced-dollar credit card limit and/or higher debt processing costs. Sadly, consumers are often made aware of this injury at the point of purchase when credit is actually denied. Credit capacity damages are now potentially recoverable in multiple jurisdictions and awarded when the change in credit capacity is due to the unlawful acts of another. In Johnson v. Wells Fargo Home Mortgage, Inc., 558 F. Supp.2d 1114 (D. Nev. 2008) damages sustained by a borrower when his credit card limits were decreased were recoverable under the FCRA, even if that borrower used these credit cards for business purposes, when the card issuers used information in the borrower’s consumer credit report as a reason for decreasing his limits. FCRA §§616, 617, 15 U.S.C. §§1681n, 1681o. Also, for ECOA purposes, the term “adverse action” means a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested. Such term does not include a refusal to extend additional credit under an existing credit arrangement when the applicant is delinquent or otherwise in default, or when such additional credit would exceed a previously established credit limit. 15 U.S.C. §1691(d)(6). The factors to be considered within this category of damage include:

• Ratio of pre-injury debt to post-injury debt and

• Pre-injury cost of credit vs. post-injury cost of credit

Emotional Distress Compensation

A denial of credit is not mandatory in order to award emotional distress, humiliation, and Credit Damage | 17 loss of opportunity damages. Guimond, supra, 45 F.3d at 1333. See Stevenson, supra, 987 F.2d at 296 (“actual damages include humiliation or mental distress, even if the consumer has suffered no out-of-pocket losses”); Thompson, supra, 682 F.2d at 514 (5th Cir.1982) (approving the award of damages for mental distress and humiliation when there were no out-of-pocket expenses). At least one court has ruled that limiting damages under the ECOA to out-of-pocket losses would undermine Congress’ intent to eliminate discriminatory credit denials. Shuman, supra, 453 F. Supp. at 1154. Thus, under the FCRA, the term “actual damages” has been read to include damages for emotional distress and humiliation. Millstone v. O’Hanlon Reports, Inc., 528 F.2d 829, 834-35 (8th Cir.1976); Bryant v. TRW, Inc., 487 F. Supp. 1234, 1240 (E.D. Mich.1980). Likewise, courts have allowed recovery for emotional distress as part of the “actual damages” available under the Fair Housing Act, 42 U.S.C. §3601 et seq. United States v. Balistrieri, 981 F.2d 916, 931 (7th Cir.1992), cert. denied, 510 U.S. 812 (1993); Jeanty v. McKey & Poague, Inc., 496 F.2d 1119, 1121 (7th Cir.1974); Seaton v. Sky Realty Co., 491 F.2d 634, 636-37 (7th Cir.1974); Smith v. Sol D. Adler Realty Co., 436 F.2d 344, 351 (7th Cir.1970). Finally, “actual damages” under 42 U.S.C. §1983 has been interpreted consistently to include mental distress. Biggs v. Dupo, 892 F.2d 1298, 1304 (7th Cir.1990); Nekolny v. Painter, 653 F.2d 1164, 1172 (7th Cir.1981), cert. denied, 455 U.S. 1021 (1982); Busche v. Burkee, 649 F.2d 509, 518-19 (7th Cir. 1981). See Zala v. Trans Union, LLC, 2001 WL 210693 (N.D. Tex. Jan. 17, 2001) (actual damages include humiliation or mental distress, even if the consumer has suffered no out-of-pocket losses). Stevenson,supra, 987 F.2d at 296; Pinner v. Schmidt, 805 F.2d 1258, 1265 (5th Cir.1986); Thompson, supra, 682 F.2d at 513. Courts have allowed recoveries when the plaintiff has suffered mental anguish based on events outside the actual denial of credit. Stevenson, 987 F.2d at 296 (holding that consumer who was shocked at bad credit rating could recover for mental anguish); Thompson, 682 F.2d at 513-14 (holding that consumer who spent months trying to correct credit report and who succeeded only after bringing lawsuit could recover for mental anguish). In Apodaca v. Discover Financial Services 417 F. Supp.2d 1220 (D.N.M. 2006) a credit consumer brought an action against a credit reporting agency, alleging violations of the FCRA and state law, seeking compensatory damages for the injuries she sustained as a result of lost opportunities to engage in consumer credit transactions, damage to her credit rating, lost time, aggravation, inconvenience, embarrassment, and frustration resulting from Equifax’s conduct, and punitive damages. The District Court denied the agency’s motion for partial summary judgment and ruled that the consumer’s state law claim was not preempted by the FCRA. It found that issues of fact remained regarding whether the agency acted willfully or recklessly in failing to properly investigate and correct the credit report.

The Limitations of the Divorce Decree

Divorce your spouseSo you have hammered out who gets what now that the two of you are going to live apart, and you probably have had an attorney help you negotiate and draw up the legal documents. Finally the court issues its judicial ruling on the division of assets; who pays what, and to whom it is paid. It is then entered into the court and public record. Debts are also divided; one will pay the department store charges, the other will make the car payments, and so on.

All of this has force of law, the power of the court in all of its authority. What does that mean to your credit future? The creditors with whom you and your former spouse have signed contracts/agreements with are not affected by the court allocation and decree. The court ruling applies only to the two of you, both are still bound by the contract(s) you signed prior to the court ruling. The court is not directing your creditors to change the contracts that you both signed. Those contracts are not affected. The creditor is still holding both parties responsible for the payment owed on those accounts. It doesn’t matter to them who the court deemed responsible. As such, any payments due then and in the future are the responsiblity of any person on that contract. This is true for credit accounts (credit cards, store charge cards), any kind of loan or lease (cars, motorcycles, trucks, real estate – apartment, store front, warehouse, office space), any secured credit such as a mortgage (any loan secured by real estate), etc. Any joint bank or credit union accounts are not affected. Either of you has access to the accounts, until someone (you) notifies the financial institution of the change. It is not enough to tell the bank or credit union what the court ruled, because they know that the court decree is directed to you and your ex-spouse, not towards the financial institution. That is why the best way to prevent credit damage due to the actions of an ex-spouse – intentional or not – is for you to take control of the situation and issue the proper notification to protect yourself and your family.