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Tag: 1681i

Ownership of a debt outside CRA’s “reasonable inquiry”


Judge Manish S. Shah joined a growing chorus of recent courts finding that under the 7th Circuit’s Denan case (and others), the question of a loan’s validity is not something a Consumer Reporting Agency needs to investigate once a furnisher verifies in response to an ACDV.

It remains to be seen how far this reasoning will be stretched by CRAs. Some attorneys believe that in such a circumstance the plain language of 15 U.S.C. § 1681i(a) requires deletion because the CRA admittedly can’t verify whether the information is accurate or inaccurate. To put it another way, without a judicial determination settling the interpretation of the reported information, why should a CRA verify information?

To state a claim under these sections, a plaintiff must show that an agency included “inaccurate” information in a report. Denan, 959 F.3d at 293. The statute does not define inaccurate or draw a line between factual and legal inaccuracy. Id. But consumer reporting agencies are not courts, and the ability to resolve legal issues around disputed debts “exceeds the competencies of consumer reporting agencies.” Id. at 295. Only a court “can fully and finally resolve the legal question of a loan’s validity.” Id. Put differently, a plaintiff states an FCRA claim only if she plausibly alleges that a consumer report contained a factual inaccuracy, because consumer reporting agencies “are neither qualified nor obligated to resolve legal issues.” Id. at 296. A consumer’s defense to a debt is a question for courts, not consumer reporting agencies. Id.

The Denan Court did not consider whether a dispute over ownership of a debt was factual or legal. But several district courts applying Denan have concluded that investigating the ownership of a debt “is best left to the courts.” Hoyos v. Experian Info. Sols., Inc., 20-cv-408, 2020 WL 4748142, at *3 (N.D. Ill. Aug. 17, 2020); see also Soyinka v. Equifax Info. Servs., LLC, 20-cv-1773, 2020 WL 5530133, at *3 (N.D. Ill. Sept. 15, 2020); Juarez v. Experian Info. Sols., Inc., 19-cv-7705, 2020 WL 5201798, at *4-5 (N.D. Ill. Aug. 31, 2020); Molina v. Experian Info. Sols., Inc., 19-cv-7538, 2020 WL 4748149, at *3 (N.D. Ill. Aug. 17, 2020); Rodas v. Experian Info. Sols., Inc., 19-cv-7706, 2020 WL 4226669, at *2 (N.D. Ill. July 23, 2020)Chuluunbat v. Cavalry Portfolio Servs., LLC, 20-cv-164, 2020 WL 4208106, at *3 (N.D. Ill. July 22, 2010).[2]

Labeling an issue as one of fact, one of law, or a mix of the two is not always simple. See Pullman-Standard v. Swint, 456 U.S. 273, 288 (1982) (noting the “vexing nature of the distinction” between questions of fact and law). Sometimes the distinction turns on a determination that “as a matter of the sound administration of justice, one judicial actor is better positioned than another to decide the issue in question.” Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668, 1680 (2019) (quoting Markman v. Westview Instruments, Inc. 517 U.S. 370, 388 (1996)). And a question that has “both factual and legal elements” is typically a mixed question. Guerrero-Lasprilla v. Barr, 140 S. Ct. 1062, 1069 (2020).[3]

Here, Amorah insists that Midland did not own the debt. And because ownership is a question of fact, she says, her credit report contained a factual inaccuracy. But labeling debt ownership in the abstract as an issue of fact, a mixed question, or a question of law is beside the point. The operative inquiry under the FCRA is whether ownership of the debt was plausibly within the scope of a consumer reporting agency’s ability to check for accuracy, or whether it implicated a legal issue better left to the courts.

Determining if Midland owned the debt was beyond the scope of what a credit agency might reasonably be expected to investigate. That Midland withdrew its small-claims lawsuit doesn’t mean that Midland didn’t own the debt, and Amorah does not plead that a court adjudicated the matter. She argues that Midland offered insufficient evidence to show ownership. But a credit agency is not qualified to assess whether a furnisher provided sufficient evidence of ownership. Amorah’s arguments about Midland’s ownership belong in a lawsuit against Midland, not in an FCRA complaint against the defendants. The better-positioned actor, see Albrecht, 139 S. Ct. at 1680, to resolve the disputed ownership issue is a court, not a credit agency.

7th Cir.: CRAs need not resolve legal disputes under the FCRA

Link: Denan v. Trans Union LLC, No. 19-1519 (May 11, 2020). The N.D. Ill. decision is available via RECAP here.

The U.S. Court of Appeals for the Seventh Circuit has 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 [Fair Credit Reporting Act].” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 891–92 (9th Cir. 2010). This decision closely follows the reasoning laid out in the court’s non-precedential decision in Humphrey v. Trans Union, LLC, 759 F. App’x 484 (7th Cir. 2019).

In Denan, the Plaintiff took loans out from two tribal lending enterprises that charged over 300% interest. The loan agreements claimed that by virtue of sovereign immunity, they were governed by tribal law and not the law of the states—New Jersey and Florida in this case—which render any agreements with such high interest rates void ab initio.

Denan disputed the accuracy of his credit report with Trans Union because he believed the loan was invalid and there was no legal obligation for him to repay it. After receiving Denan’s correspondence, Trans Union investigated the matter and concluded its process by informing Denan that it verified that the information was accurate.

Denan sued Trans Union under two theories: § 1681e(b), for failing to maintain reasonable procedures to ensure maximum possible accuracy, and § 1681i which requires consumer reporting agencies like Trans Union to “conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate.”

The panel (Wood, Bauer, and Brennan) rejected both theories. As to the e(b) claim, the court honed in on the notion that CRAs are not in the position of courts to resolve “non-adjudicated” legal defenses to the debt:

“The collectability of plaintiffs’ loans here requires resolution of three legal issues: whether the choice‐of‐law provisions in plaintiffs’ loan agreements are enforceable; whether New Jersey and Florida lending laws render plaintiffs’ loans void; and whether tribal sovereign immunity shields Plain Green and Great Plains from the application of New Jersey and Florida laws. The power to resolve these legal issues exceeds the competencies of consumer reporting agencies.”

As to the i claim, the court distinguished Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994), where the CRA reported information from a court record that the clerk had entered erroneously:

Henson never addressed the issue before us: whether §§ 1681e(b) and 1681i compel consumer reporting agencies to adjudicate a consumer’s legal defenses to a debt . . . the inaccuracy challenged in Henson (whether a judgment was issued against the consumer) was straightforward, fact based, and could be resolved through a reasonable investigation. But plaintiffs here insist Trans Union should settle legal issues involving choice-of‐law clauses, state usury laws, and sovereign immunity doctrines—all issues only a court can resolve.”

The panel does recognize numerous times in its opinion that companies such as lenders that furnish information are tasked with accurately reporting liability. See 12 C.F.R. § 1022.41(a): “Accuracy” for furnishers means information that “correctly [r]eflects … liability for the account.”