Seventh Circuit holds that reporting accurate loan information under FCRA does not include verifying loans’ legality.

The Seventh Circuit in Denan v. Trans Union LLC, No. 19-1519 (7th Cir. May 11, 2020) was asked to address what “accurate reporting” means under the Fair Credit Reporting Act (“FCRA”). It answered that a credit reporting agency (“CRA”) was obliged only to follow reasonable procedures to assure maximum possible accuracy of the information it reports. That does not include resolving the legal validity of the loan.

The class action consumers’ in Denan had loans they claim were void for violating state usury laws. Any debt they incurred under these loans, they said, was legally invalid. The defendant CRA reported the debt delinquent which the consumers disputed. After investigating the dispute, the CRA verified the accuracy of the information.

The consumers sued the CRA under FCRA claiming it did not “assure maximum possible accuracy of the information” in their credit reports in violation of § 1681e(b) and failed to investigate their disputes in violation of §1681i(a). The consumers did not seek to have the loans adjudicated as invalid, but asserted that if the CRA had followed reasonable procedures it would have shown the loans were void and uncollectable.

The CRA moved for judgment on the pleadings arguing that FCRA imposes a duty to transmit factually accurate credit information, not to adjudicate the validity of disputed debts. The consumers’ claims failed because the credit reports were not factually inaccurate. The district court granted the motion and the consumers appealed.

On appeal, the reviewing court noted that FCRA does not explain what it means to be “inaccurate,” nor does it draw a line between factual and legal “accuracy.” According to the consumers, there is no line. They argued that the operative provision of FCRA requires CRAs to verify the factual and legal accuracy of information contained in credit reports. “Assuring maximum possible accuracy, they insist, required [CRA] to look beyond the data furnished by [the furnishers of information] and determine the legality of plaintiffs’ loans.”

The appellate court found no support in the FCRA or its implementing regulations for this argument. FCRA, it said, imposes duties on CRAs and furnishers in a manner consistent with their respective roles in the credit reporting market. Furnishers—such as banks, credit lenders, and collection agencies—provide consumer data to CRAs. CRAs in turn must follow “reasonable procedures to assure maximum possible accuracy” when they prepare a credit report. Furnishers must provide accurate information and conduct an investigation of disputed information. But “accuracy” for furnishers means information that “correctly [r]eflects … liability for the account.” Neither FCRA nor its implementing regulations impose a comparable duty upon CRAs, much less a duty to determine the legality of a disputed debt.

The CRAs are not tribunals. They collect consumer information supplied by furnishers, compile it into consumer reports, and provide those reports to authorized users. The collectability of the loans requires resolution of legal issues which exceeds the competencies of CRAs. The consumers’ claims impute “knowledge” of information that only tribunals can verify. What they call “legally inaccurate” and “legally incorrect” information amounts to non-adjudicated legal defenses to their debts. Because no formal adjudication discharged the debts, no reasonable procedures could have uncovered an inaccuracy in the credit reports. For the same reason, the § 1681i claim also failed because when a consumer disputes the “accuracy of any item of information” in a credit report the CRA is obliged to report only factual inaccuracies. CRAs are neither qualified nor obligated to resolve legal issues.

In reaching this conclusion, 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.

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