In a consumer class action, the United States Court of Appeals for the Seventh Circuit was called on to decide whether “consumer reporting agencies to determine the legal validity of disputed debts.” Denan v. Trans Union LLC, No. 19-1519, 2020 U.S. App. LEXIS 14930, at *1-2 (7th Cir. May 11, 2020). Joining the First, Ninth, and Tenth Circuits, the Seventh Circuit found 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.”  Id. at *12 (internal quotations omitted).

In Denan, the plaintiffs obtained loans from tribal payday lenders. Those loans charged interest rates in excess of 300% and, according to the loan agreements, were governed by tribal law, not state law. The plaintiffs claimed that because the loans violated state usury laws, they were “legally invalid.”  Id. at *4. But instead of bringing suit against the tribal lenders, who may have been protected by sovereign immunity, the plaintiffs brought a putative class action against consumer reporting agency (or CRA) Trans Union, alleging it violated 15 U.S.C. § 1681e(b) for failing to assure the “maximum possible accuracy” of reported information.

The plaintiffs argued that the tribal lenders lacked licenses to lend outside of tribal reservations; the lenders had histories of charging interest rates in excess of those permitted by state law; and Trans Union ignored government investigations and enforcement actions in other states against the lenders. Trans Union moved for judgment on the pleadings, arguing that the Fair Credit Reporting Act (“FCRA”) imposes a duty to transmit factually accurate credit information, not to adjudicate the validity of disputed debts.

The Seventh Circuit agreed with Trans Union.  Id. at *12. The Court reasoned that while § 1681e(b) neither defines “inaccurate” nor delineates between factual and legal accuracy, it requires only “‘reasonable procedures to assure maximum possible accuracy’ when [a CRA] prepares a credit report.”  Id. at *7 (emphasis added) (citing 15 U.S.C. § 1681e(b)). It is not reasonable to expect a credit reporting agency to adjudicate the legal validity of a debt. Consumer reporting agencies are not tribunals. They merely collect information supplied by furnishers, compile it in reports, and supply those reports to authorized users.

The Court compared a consumer reporting agency’s duty to provide accurate information with that of a data furnisher, noting that furnishers have a duty to provide information that “‘correctly [r]eflects … liability for the account.’”  Id. at *9 (quoting 12 C.F.R. § 1022.41(a)). As the Court stated, “it makes sense that furnishers shoulder this burden: they assumed the risk and bear the loss of unpaid debt, so they are in a better position to determine the legal validity of a debt.”  Id.

Resolving the validity of the plaintiffs’ debts involved potentially complex issues including whether sovereign immunity shielded the lenders from state law, whether the choice-of-law provision in the loan agreement was enforceable, and whether the loans were in violation of state law. “The power to resolve these legal issues exceeds the competencies of consumer reporting agencies.”  Id. at *10. “Only a court can fully and finally resolve the legal question of a loan’s validity.”  Id. at *11. Thus, while one could speculate as to whether reported information is legally accurate, plaintiffs must allege “‘more than a sheer possibility’ that Trans Union acted unlawfully by reporting inaccurate information.”  Id.  “Because no formal adjudication discharged plaintiffs’ debts, no reasonable procedures could have uncovered an inaccuracy in plaintiffs’ credit reports.”  Id. at *12.

This case is a step in the direction of quieting FCRA claims against CRAs, at least in the Seventh Circuit (which covers cases filed in Illinois, Indiana and Wisconsin). No one knows whether the same reasoning may be expanded in the future to help creditors.  We will continue to keep you apprised of developments related to FCRA, its enforcement, and relevant case law.

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