Agreeing with similar rulings in the First, Ninth, and Tenth Circuits, the U.S. Court of Appeals for the Seventh Circuit recently held that the FCRA does not require consumer reporting agencies to determine the legal validity of disputed debts.
A copy of the opinion is available at: Link to Opinion
Two borrowers obtained loans from online payday lenders affiliated with Native American tribes. The loans charged interest in excess of 300% and the terms were subject to and governed by tribal law and not the law of the borrower's resident state.
After the borrowers stopped making the monthly payments, the lenders reported the delinquent amounts to a credit reporting agency. One of the borrowers contacted the credit reporting agency and disputed the accuracy of his credit reports because the loan was "illegally issued" such that "there was no legal obligation for [him] to repay." The credit reporting agency investigated the dispute and verified the accuracy of the information provided by the lender. The other borrower never contacted the credit reporting agency.
The borrowers brought a putative class action against the credit reporting agency, alleging it violated two FCRA provisions: 15 U.S.C. § 1681e(b) -- which requires consumer reporting agencies "to assure maximum possible accuracy of the information" contained in credit reports = and 15 U.S.C § 1681i(a) -- which requires consumer reporting agencies to reinvestigate disputed items.
The plaintiffs' claims under each provision presumed that the credit reporting agency transmitted "inaccurate" credit reports. The borrowers did not claim that the credit reports were factually inaccurate and they did not contest the debt amounts or payment history. Instead, the borrowers claimed the credit reports contained "legally inaccurate" information because the loans were void ab initio under New Jersey and Florida usury laws and therefore "legally invalid debts."
For their § 1681e(b) claim, the borrowers contended the credit reporting agency "knew or recklessly ignored" that loans made by lenders were unenforceable, because (1) credit reporting agency's lender screening procedures showed that the lenders lacked licenses to lend outside of Native American tribal reservations, (2) the same screening procedures showed that the lenders had histories of charging loan interest rates in excess of rates permitted in New Jersey and Florida, and (3) the credit reporting agency allegedly ignored government investigations and enforcement actions in several states — though none of them were in New Jersey or Florida — from which the borrowers alleged "[the credit reporting agency] easily could and should have discovered" that the lenders made illegal loans.
For their § 1681i(a) claim, the borrower who disputed the debt contended the credit reporting agency "failed to use reasonable reinvestigation practices for ascertaining the accuracy of information" contained in his credit report after he disputed the debt.
The credit reporting agency moved for judgment on the pleadings, arguing that §§ 1681e(b) and 1681i(a) impose a duty to transmit factually accurate credit information, not to adjudicate the validity of disputed debts.
The trial court granted the credit reporting agency's motion, concluding that "[u]ntil a formal adjudication invalidates the plaintiffs' loans … they cannot allege factual inaccuracies in their credit reports."
The borrowers appealed.
The Seventh Circuit first analyzed § 1681e(b), which requires that "[w]henever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates." 15 U.S.C. § 1681e(b). The statute requires a plaintiff to show that a consumer reporting agency prepared a report containing "inaccurate" information. See Walton v. BMO Harris Bank N.A., 761 F. App'x 589, 591 (7th Cir. 2019) (holding a consumer reporting agency "cannot be liable as a threshold matter [under § 1681e(b)] if it did not report inaccurate information").
The borrowers argued that § 1681e(b) requires consumer reporting agencies to verify the factual and legal accuracy of information contained in credit reports, requiring the consumer reporting agencies to look beyond the data furnished and determine the legality of borrower's loans.
The Seventh Circuit noted the FCRA does not require unfailing accuracy from consumer reporting agencies. Instead, it requires a consumer reporting agency to follow "reasonable procedures to assure maximum possible accuracy" when it prepares a credit report. 15 U.S.C. § 1681e(b); see also Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) ("A credit reporting agency is not liable under the FCRA if it followed 'reasonable procedures to assure maximum possible accuracy,' but nonetheless reported inaccurate information in the consumer's credit report.").
The Court noted that is a different "accuracy" measure than furnishers are required to adhere. "Accuracy," for furnishers means information that "correctly [r]eflects … liability for the account." 12 C.F.R. § 1022.41(a). Neither the FCRA nor its implementing regulations impose a comparable duty upon consumer reporting agencies, much less a duty to determine the legality of a disputed debt.
The Seventh Circuit held that what the borrowers called "legally inaccurate" and "legally incorrect" information amounted to non‐adjudicated legal defenses to their debts and only a court can fully and finally resolve the legal question of a loan's validity. See DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008) (holding the question of whether a consumer is entitled to stop making debt payments "can only be resolved by a court of law" and is "a legal issue that a credit agency such as Trans Union is neither qualified nor obligated to resolve under the FCRA").
The Seventh Circuit joined the First, Ninth, and Tenth Circuits in holding that a consumer's defense to a debt "is a question for a court to resolve in a suit against the [creditor,] not a job imposed upon consumer reporting agencies by the FCRA." Carvalho, 629 F.3d at 892 (quoting DeAndrade, 523 F.3d at 68); accord Wright v. Experian Info. Sols., Inc., 805 F.3d 1232, 1244 (10th Cir. 2015) (citing Carvalho, 629 F.3d at 892) ("The FCRA expects consumers to dispute the validity of a debt with the furnisher of the information or append a note to their credit report to show the claim is disputed.").
Therefore, because no formal adjudication discharged the borrowers' debts, the Court held that no reasonable procedures could have uncovered an inaccuracy in borrower's credit reports.
The Seventh Circuit concluded the borrowers' § 1681i claim ran into the same problems.
The court held that, when a consumer disputes the "accuracy of any item of information" contained in a credit report, § 1681i requires consumer reporting agencies to "conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate." 15 U.S.C. § 1681i(a)(1)(A). Like § 1681e(b), § 1681i requires the "accuracy" of information but does not differentiate between factual and legal accuracy. Yet "one of the most basic rules of statutory interpretation" is that "identical words used in different parts of the same act are intended to have the same meaning." Ortiz‐Santiago v. Barr, 924 F.3d 956, 962 (7th Cir. 2019) (quoting Sorenson v. Sec'y of Treasury, 475 U.S. 851, 860 (1986)).
Accordingly, as with borrower's § 1681e(b) claim, the Seventh Circuit interpreted inaccurate information under § 1681i to mean factually inaccurate information, as consumer reporting agencies are neither qualified nor obligated to resolve legal issues.
As a result, the trial court's entry of judgment on the pleadings was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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