In Towle v. TD Bank USA, N.A., No. 22-CV-0624 (PJS/TNL), 2022 U.S. Dist. LEXIS 146898, at *1-3 (D. Minn. Aug. 17, 2022), Judge Schiltz dismissed a credit reporting claim premised on the grounds that reporting charged off debt is inaccurate because, allegedly, it’s not owing anymore. Judge Schiltz found the allegation to be frivolous.
Towle filed his original complaint on March 9, 2022, alleging that TD Bank violated the FCRA by reporting “to at least one credit bureau” that Towle had an outstanding balance due on a “Nordstrom credit card,”1 even though TD Bank had previously charged off the account. ECF No. 1 ¶¶ 7-11. According to Towle’s original complaint, TD Bank’s reporting was inaccurate because “[a]s a result of the Account being charged off, Plaintiff did not have any owe any [sic] money to defendant.” Id. ¶ 9. Towle’s claim was frivolous. The fact that a creditor “charges off” an account does not mean that the debtor is no longer legally obligated to pay the amount “charged off”; it simply means that the creditor does not expect the debtor to fulfill that legal obligation. See Morris v. Experian Info. Sols., Inc., 478 F. Supp. 3d 765, 771 (D. Minn. 2020) (“A debt that is ‘charged off’ still exists, and nothing prevents the creditor from . . . taking steps to collect it.”); see also Belton v. GE Cap. Retail Bank (In re Belton), 961 F.3d 612, 614 (2d Cir. 2020) (noting that reporting a debt as “charged off” indicates that “the debt was severely delinquent but still outstanding”); Martin v. Equifax Info. Servs., LLC, No. 4:19-CV-3691, 2020 U.S. Dist. LEXIS 67649, 2020 WL 1904496, at *1 (S.D. Tex. Apr. 17, 2020) (noting that the plaintiff still owed a debt that was reported as charged off and closed); Foster v. Santander Consumer USA, Inc., No. 1:18-CV-4146-WMR-JFK, 2019 U.S. Dist. LEXIS 135547, 2019 WL 3490463, at *1, *10 (N.D. Ga. May 29, 2019) (defendant argued, and plaintiff conceded, that plaintiff still owed a debt that was reported as charged off and closed), report and recommendation adopted, No. 1:18-CV-4146-JPB, 2019 U.S. Dist. LEXIS 229650, 2019 WL 8277254 (N.D. Ga. Oct. 15, 2019). After TD Bank moved to dismiss the original complaint and pointed this out, Towle filed an amended complaint on May 31, 2022. ECF No. 13. Once again, Towle alleged that TD Bank violated the FCRA because it “continued to report to at least one credit bureau that the full balance of the Account was due and outstanding,” even though TD Bank had allegedly charged off the account. Id. ¶¶ 13-14. This time, though, Towle added the allegation that TD Bank “made an insurance claim for the Account” and “claimed a corresponding deduction on its tax return for the Account as a bad debt expense.” Id. ¶¶ 10-11. (It is not clear what basis Towle’s attorney had for making these allegations. See Fed. R. Civ. P. 11(b)(3).) According to Towle, “[i]n the world of accounting, it is impossible to maintain a receivable for an amount owed and simultaneously claim an expense for the same amount.” Id. ¶ 12. Towle’s new claim is hard to follow, but he seems to be arguing that if a creditor who is stuck with a bad debt either receives payment from an insurer or deducts the bad debt on its tax returns, the debtor is somehow absolved of his legal responsibility to pay the debt. That is obviously not true; the one has nothing to do with the other.