Third Circuit Adopts “Reasonable Reader” Standard for Credit Report Accuracy

The Fair Credit Reporting Act (FCRA) requires information providers to report information accurately. Recently, several payment scoring and account status cases have been filed and litigated in which the Plaintiff Bar claims that the industry’s reporting of account information is misleading and violates the FCRA. However, on August 8, the United States Court of Appeals for the Third Circuit explained how circuit district courts must analyze credit reports to determine whether an individual business line is inaccurate or misleading under the FCRA. . This analysis could turn out to be the first nail in the coffin of the so-called “payment pricing” cases that began in 2015.

In Bibbs v. Trans Union LLCthe Court of Appeals joined three cases and affirmed the district court’s orders adjudicating the findings in favor of Trans Union. Each applicant defaulted on student loans by failing to make monthly payments. Each student loan servicer transferred borrower accounts and, after the accounts were transferred, reported the accounts to credit reporting agencies with a zero balance, noting that payment obligations had been transferred. They also indicated that the “Payroll Status” field showed “120 days overdue”, but also noted a balance of $0. It was undisputed that each borrower failed to make timely payments and accounts were correctly flagged as overdue until they were closed and transferred. It was also undisputed that none of the borrowers owed any balance to the transferring creditor after the transfer, and at the time the transfers took place each account was in default. Each borrower argued that reporting a “payment status” of “120 days overdue” and a balance owing of $0 was inaccurate and could mislead potential creditors into incorrectly assuming that each borrower had currently more than 120 days behind on loans that have been closed.

Each borrower sent a dispute letter to TransUnion, arguing that it is impossible to be late on an account with a $0 balance, and requested that their respective trade lines be corrected or removed. TransUnion timely investigated the accounts and sent each borrower a letter stating that each credit report was accurate.

Borrowers argued that the court should adopt a standard requiring district courts to read “Payment Status” fields independently of the rest of the credit report when assessing the accuracy of the field. The borrowers argued that the standard applied by the district court (the “reasonable creditor” standard) was not appropriate because unsuspecting employers, landlords, insurers and other non-creditors may be misled by reports . The Court of Appeal agreed that the “reasonable creditor” standard was inappropriate, but declined to adopt a standard that would view credit reporting fields myopically. Instead, in determining whether the trade lines were inaccurate or misleading under the FCRA, the court adopted a “reasonable reader” standard. District courts are therefore instructed to view a credit report from the perspective of a typical and reasonable reader viewing the business line in its entirety, not by reading a portion of the credit report in isolation.

Applying this reasonable reader standard, the Court analyzed whether the “Payment Status” field indicating “120 days overdue” was inaccurate or misleading given the “maximum practicable accuracy” standard that the FCRA applies to payment agencies. credit assessment. The Court ruled that a reasonable reader viewing each borrower’s credit report would see the multiple prominent statements that the accounts were closed and would conclude that no amount was owed to the creditors who transferred the accounts. The Court affirmed the judgment on the pleadings and found that the credit reports were accurate under the FCRA.

The Court also resolved the two remaining issues in favor of TransUnion. In assessing the reasonableness of TransUnion’s reexamination of the credit report, the Court noted that a finding of inaccuracy was a prerequisite to recovering a claim based on unreasonable reexamination under the FCRA. Because the court found the trade line to be accurate, it again upheld the district court’s judgment. As to the borrowers’ final assertion that discovery was necessary to determine whether creditors would be misled or make adverse credit decisions based on the reports, the Court held that because the reasonable reader standard is objective , discovery would not be necessary.

This participation should provide guidance to credit information providers on how to accurately report closed or transferred accounts, as well as provide a strong defense to claims based on idiosyncratic interpretations of credit reports.

– – By Joseph Apatov, Aaron Kouhoupt, and Gregg Stevens and Greg DeVries (McGlinchey)

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