CFPB, FTC weigh in on consumer reporting obligations under the FCRA
On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”
The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”
In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.
Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”
The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” Importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.