Wednesday, October 19, 2011

FYI: 7th Cir Holds FCRA Preempts All State-Law Claims Regarding Furnished Credit Information

The U.S. Court of Appeals for the Seventh Circuit recently held that
Section 1681t(b) of the federal Fair Credit Reporting Act preempts both
state statutes and state common law allegations regarding information
furnished to credit bureaus. A copy of the opinion is attached.

A borrower sued her servicer on the grounds that it provided inaccurate
information to credit reporting agencies, in alleged violation of FCRA and
state law. The servicer removed the suit to federal court, and then moved
for judgment in its favor, contending that the relevant section of FCRA
does not create a private right of action, and that the borrower's state
law claims were preempted by FCRA.

The federal district court dismissed the borrower's federal claim.
However, it dismissed the borrower's state law claims without prejudice,
holding that the state law claims were not preempted by FCRA. The
servicer appealed.

As you may recall, Section 1681s-2(c)(1) of FCRA provides that certain
portions of FCRA allowing awards of damages to private parties do not
apply to claims brought under Section 1681s-2(a). Further, Section
1681t(b) of FCRA provides that "[n]o requirement or prohibition may be
imposed under the laws of any State...with respect to any subject matter
regulated under...(F) Section 1681s-2."

The district court interpreted "laws" in 1681t(b) to refer only to state
statutes, and not to common law. Therefore, it reasoned that the
borrower's state common law claims were not preempted.

The Seventh Circuit disagreed. It began by noting that the Supreme Court
has held that references to "laws" apply to all sources of legal rules.
See Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938). The Seventh
Circuit also observed that there was no apparent reason why Congress might
choose to distinguish "between statutory and common law in such an obscure

The Seventh Circuit went on to examine the district court's reasoning. It
noted that the lower court "thought it necessary to read s. 1681t(b)(1)
narrowly in order to avoid inconsistency with 15 U.S.C. s. 1681h(e),"
which the district court read to allow "room for at least some state-law
suits alleging willfully or maliciously false credit reports." Therefore,
the district court reasoned that 1681t(b)(1) is incompatible with
1681h(e), unless the former is construed narrowly.

However, the Seventh Circuit did not read the two sections as
incompatible. In its view, "Section 1681h(e) preempts some state claims
that could arise out of reports to credit agencies; s. 1681t(b)(1)(F)
preempts more of these claims." Further, s. 1681h(e) was enacted prior to
s. 1681s-2. Therefore, the Court noted that "[r]eading the earlier defeat the latter-enacted system...would contradict
fundamental norms of statutory interpretation."

Accordingly, the Seventh Circuit reversed the judgment of the district
court, and remanded the case with instructions to enter judgment for the
servicer on both the federal and state claims.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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