Monday, December 24, 2012

FYI: 3rd Cir Upholds Dismissal of FCRA Allegations Against Asset Verification Company

The U.S. Court of Appeals for the Third Circuit recently rejected a borrower's allegations of violations of the federal Fair Credit Reporting Act ("FCRA") against an asset verification company, holding that a furnisher of information concerning a borrower's real property could reasonably interpret its activities as outside the scope of FCRA, due to the ambiguity of the statutory definitions of "consumer reporting agency" and "consumer report."
A copy of the opinion is available at
A financial services company ("Southwest") was hired by a consumer lender (the "lender") to provide information concerning a borrower (the "borrower") in connection with the borrower's application for credit insurance.  All of the information collected by Southwest was publicly available, and included, for example, the amounts of the borrower's outstanding mortgages and judgments against property owned by the borrower.  Southwest's report did not include the borrower's social security number, mortgage payment history, or outstanding account balances of credit card accounts. 
Southwest's report included two inaccuracies:  it reflected a judgment lien that was in fact a debt owed by the borrower's husband, and it indicated that the borrower's property taxes were delinquent, when in fact the borrower was paying the same in installments, per an agreement with the City.
The lender informed the borrower that it would not approve her application for credit without proof that she had paid her taxes.  However, the lender apparently changed its mind, and subsequently provided the borrower with the requested insurance. 
The borrower sued Southwest, alleged that it failed to comply with the federal Fair Credit Reporting Act ("FCRA") and claiming damages for both willful and negligent violations of that statute.  Southwest moved for summary judgment, arguing that its reports are not subject to the FCRA because they concern property, not consumers, and that in any event it was not liable because it did not willfully violate the FCRA. The lower court granted Southwest's motion, and the borrower appealed. 
As you may recall, the FCRA requires that consumer reporting agencies adopt reasonable procedures to ensure that information provided is kept confidential and is accurate, relevant and properly utilized.  15 U.S.C. Sec. 1681(b).  Those who willfully fail to comply with that requirement are liable for actual as well as punitive damages.  Id. at Sec. 1681n(a). 
The FCRA defines "consumer reporting agency" as "any person which...regularly the practice of assembling  or evaluating consumer credit information...for the purpose of furnishing consumer reports to third parties..."  Id. at Sec. 1681a(f).  A "consumer report" is defined as any information "bearing on a consumer's credit establishing the consumer's eligibility for [credit]." 
After examining the statutory language described above, the Third Circuit next considered the Supreme Court's "landmark decision" in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007) ("Safeco").  The Third Circuit stated that Safeco "established a safe harbor against liability for willfulness.  A company cannot be said to have willfully violated FCRA if the company acted on a reasonable interpretation of FCRA's Coverage."  Further, the Third Circuit noted that under Safeco, even where "a court disagrees with a party's reading of the FCRA, it may not impose liability for a reckless, and therefore willful, violation of [the FCRA] unless that party's reading is 'objectively unreasonable.'" 
With that standard in place, the Third Circuit considered the parties' arguments. 
First, the borrower contended that because Southwest did not read or interpret the FCRA prior to preparing its report, it was not entitled to Safeco's "reasonable interpretation" defense.  The Third Circuit disagreed, finding that although Safeco requires that the company's reading of the FCRA is objectively reasonable, it does not require that the defendant actually has "made such an interpretation at any point in time."  Accordingly, it held that "Southwest does not lose the potential protection of the 'reasonable interpretation' defense, even if it never actually interpreted FCRA prior to the commencement of this lawsuit." 
Next, the borrower argued that even if Southwest were entitled to Safeco's safe harbor, the lower court erred in finding that no reasonable jury could have found that Southwest acted recklessly and therefore willfully. 
The Third Circuit against disagreed, holding that the FCRA's "unbounded" definitions of "consumer reporting agency" and "consumer report" rendered these terms ambiguous.  The Third Circuit also held that Southwest's reading of the FCRA "has some foundation in the statutory text, and was therefore not ambiguously unreasonable."  Specifically, the Third Circuit noted that because the definition of a "credit reporting agency" involves the collection of "consumer credit information," Southwest could reasonably interpret its collection of information concerning real property as not falling within that definition, because such information concerns property rather than consumers. 
Accordingly, the Third Circuit held that the borrower "has not stated a claim for a willful violation of FCRA," and therefore affirmed the judgment of the lower court. 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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