Banking Law

When we first discussed a vendor's error that led to negative effects on borrowers' credit scores, which in turn led to a massive headache for Fifth Third Bank, we noted a consumer law expert's opinion that injured consumers would have little recourse, at least under federal law. One "consumer," who also happened to also be a real estate developer, decided that a state law claim of slander would work just fine, and sued the lender in state court for damages to his business.

Central Florida developer Mark Blythe has sued Fifth Third for slander in Orange County (Orlando) court, alleging that the mistake prevented him from closing loans for the acquisition of properties he intended to rehab, ruining his business. He is claiming more than $80,000 in damages.

The vendor erroneously failed to suppress data on paid-off mortgages, with the result that they were considered active--and delinquent--mortgages by the credit bureaus. That, in turn, lowered the consumers' credit scores, and, in some cases, prevented them from obtaining credit.

While initially Fifth Third said that it was taking the high road by notifying all affected consumers, since that time it apparently decided to "lawyer up."

Fifth Third found out about the data error in late November and said it was notifying those affected. But some people have only recently discovered the error - still on their credit records - when they applied for new or refinanced loans. The Courier first reported on the errors in December.

Fifth Third reiterated this week that it believes it has fixed the problem, although it declined to discuss what steps it has taken. And contrary to what it said in December, rather than notify everyone whose credit records were affected, many of whom might never know it happened at all once the error was corrected, Fifth Third decided the better way was to wait for people to contact the bank if they still had a problem, said spokeswoman Debra DeCourcy.

The problem's been corrected, so why notify people and just stir up a hornets nest? In addition, all the while you lay low and hold your breath, a statute of limitations period is slowly expiring. It's a decision that makes sense, legally. From a reputation standpoint, however, the decision is debatable. How much more angry will customers be when they discover the error themselves, or read about it in articles in the newspaper, and realize that the bank knew about it and never told them, than they would be if the bank notifies them, tells them that it thinks that it has done everything it can to correct the error, and gives them the telephone number of the person at the bank to contact if they experience any problems?

It's also a nice touch that the telephone number that the bank gave the newspaper is not a toll-free number. I assume that the bank decided that all affected consumers are within a local calling area of the 513 area code. Either that, or these folks are a penny wise and a pound foolish.

There's still no mention in the press of whether or not the bank has contractual recourse against the vendor for the damages it has suffered due to the error by the vendor, including indemnification for claims made by disgruntled customers. If not, I wonder if anyone involved in negotiating the agreement with the vendor is being asked, why not?