The legal effect and repercussions of entries made at the Credit Reference Agencies (“CRAs”) have received judicial scrutiny in two recently decided cases. Both claimants sought substantial damages allegedly because adverse entries at the CRAs had prevented them from obtaining finance.
The Court of Appeal in Smeaton v Equifax Plc  EWCA Civ 108 overturned (in forthright terms) the previous decision of the High Court which had allowed Mr Smeaton’s claim against Equifax Plc. Although the claim was against a CRA the decision will be welcomed by lenders.
Some of the information about Mr Smeaton registered at the CRA was incorrect because it wrongly stated he was an undischarged bankrupt. He argued that Equifax had therefore failed to comply with Principle 4 of the Data Protection Principles which states “personal data shall be accurate and, where necessary, kept up to date” and that he was entitled to compensation under Section 13 of the Data Protection Act 1998 (“DPA”).
CRAs over the years have relied on a variety of “sources” for the data they hold. Equifax’s inaccurate record for Mr Smeaton was caused by the system (which has subsequently been replaced) for publicising court orders concerning personal insolvency. The report in the London Gazette of a Bankruptcy Order made against Mr Smeaton on the 1st March 2001 had been manually uploaded onto Equifax. On the 22nd May 2002, he obtained an order which rescinded his bankruptcy. However, this information did not reach Equifax because, at that time, the relevant Insolvency Rules did not require publication in the London Gazette (or elsewhere) of an order which rescinded a bankruptcy.
Unaware that the Bankruptcy Order remained registered at Equifax, in 2006 Mr Smeaton requested banking facilities from National Westminster Bank to fund a business venture. It was the outdated Bankruptcy Order and not its subsequent rescission which was revealed when the Bank asked Equifax for Mr Smeaton’s credit history. He argued this was the main reason why the Bank refused to lend and this in turn caused him substantial financial losses.
The Court of Appeal ruled that “the principles of the DPA relevant to this case do not impose an absolute unqualified obligation on CRAs to ensure the entire accuracy of the data they maintain. Questions of reasonableness arise…..” So whilst CRAs need to take reasonable steps to ensure the accuracy of data they hold, this does not amount to an absolute and strict liability. The court was satisfied that Equifax had done its best and that reliance on information in the London Gazette in 2001/2002 was reasonable. It was the insolvency legislation which dictated what insolvency orders should be publicised and Equifax was not under a duty to lobby for a change to that legislation.
Once Mr Smeaton advised Equifax that his Bankruptcy Order had been rescinded the CRA immediately corrected the entry. He then made another approach to National Westminster Bank who again declined to lend because Equifax correctly recorded (as it had always done) that he had also defaulted on a number of credit agreements. Therefore the court ruled he had failed to prove the Bank refused him finance just because of the inaccurate entry regarding the bankruptcy order.
welcome confirmation by the Court of Appeal that the duty under the DPA to maintain accurate data is not an absolute one where it can be demonstrated there are reasonable systems and processes in place to keep that data accurate and up to date. The court clarified that duties in respect of maintenance of data were statutory, arising only under the DPA legislation and CRAs did not owe any potentially wide ranging and difficult to define common law duty of care. In addition the ruling that he had failed to demonstrate the inaccurate entry had caused him any loss, signals (hopefully) further disapproval of speculative claims.
Judicial reluctance to accept claims arising out of entries made at the CRAs was further demonstrated by the High Court decision earlier this year in Gatt v Barclays Bank. The Bank had provided Mr and Mrs Gatt with various lending facilities for their business. As that ran into difficulties the Bank reported to the CRAs that their current account was “delinquent” (but not in “default”) because the borrowing was approximately £260,000.00 as against an agreed credit limit of only £1,500.00. The Gatts' alleged the entry was incorrect because of assurances they had received from the branch manager. Mr Gatt had been made bankrupt so only Mrs Gatt could bring the claim. She sued the Bank alleging breach of contract (it was an implied term that any report made to the CRA would be accurate), defamation and breach of a duty of care.
In common with Mr Smeaton, she alleged they were subsequently denied substantial facilities from another lender as a result of the entry made by Barclays. In contrast to that case, the Bank argued the entry was correct.
The Court agreed with the Bank – the borrowing of £260,000.00 had not been formally authorised and an indication that it would be tolerated did not equate to the same thing. It was this “toleration” based on discussions which had taken place between branch manager and customer which avoided the “default” status being registered at the CRA. So the report made by Barclays to the CRA was accurate and hence there was no breach of contract.
In rejecting the defamation claim, the court emphasised the importance of information sharing within the credit industry – “the essential principle is that of reciprocity; each bank or other financial institution which wishes to subscribe for access to the pool of information available, has to itself agree to provide regular performance data of its customers into the pool maintained and administered by the CRAs”. This meant the bank could rely on the defence of common-law qualified privilege – put simply there needed to be a safe “ forum” for exchanging full financial information about account holders provided those entries were not made maliciously.
But a word of caution – the court accepted the Bank had a duty of care to a customer when registering entries at the CRA and that this was a similar duty an employer has to an employee when providing a reference to a potential new employer. The court went on to say it was possible this duty could also extend to a customer’s spouse in circumstances where he/she was clearly involved with the account in question. So Mrs Gatt might have had a claim in respect of an entry against her husband – had the entry been inaccurate – even though she was not mentioned by the CRA. This case acknowledges that creditors must take care when submitting entries to the CRA but indicates that speculative claims for damages will be robustly rejected.