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2nd Cir. Confirms No Private Right of Action for FCRA ‘Direct Dispute’

The U.S. Court of Appeals for the Second Circuit recently held that two plaintiff consumers failed to state a claim under the Fair Credit Reporting Act (FCRA) because the plaintiffs did not allege that they reported the alleged errors to a consumer credit reporting agency or that any such agency notified them of the alleged errors; and there is no private right of action arising from a direct dispute of credit reporting with only the furnisher.

A copy of the opinion in Sprague v. Salisbury Bank & Tr. Co. is available at:  Link to Opinion.

The plaintiffs took out a mortgage loan and later refinanced the mortgage, then defaulted. The bank sued and obtained a foreclosure judgment under Connecticut law in 2014. In 2016, one of the plaintiffs obtained his credit report, which showed that the foreclosed mortgage was still in default. He notified the bank, which “acknowledged that the loan had been erroneously reported as ‘open’” but that would be corrected and the loan reported as closed.

The plaintiffs later learned that the bank never corrected the error, and they sued. The amended complaint alleged that the bank “violated the FCRA by ‘negligently and willfully fail[ing] to perform a reasonable investigation and correction of inaccurate information,’ and … ‘by failing to correct errors in the information that it provided to credit reporting agencies’” after being notified of error.

The bank moved to dismiss the amended complaint, arguing that the duty to investigate “is only triggered after a furnisher of information receives notice of a dispute from a consumer reporting agency” and plaintiffs failed to allege that they received a notice of dispute from any consumer reporting agency.

Before the trial court ruled on the pending motion to dismiss, the plaintiffs moved to file a second amended complaint, which was allowed, and which the trial court eventually dismissed because it “failed to allege a statutory basis for [the] FCRA claim.”

The trial court concluded that “[t]o the extent [the plaintiffs] sought relief for a violation of 15 U.S.C. § 1681s-2(a), … they failed to state a claim because there is no private right of action under that subsection of the FCRA.” The trial court further concluded that to the extent the plaintiffs’ claim was “premised on violation of Section 1681s-2(b), … they again failed to state a claim because they (1) did not plead that they notified a CRA of the disputed accuracy of [the borrower’s] reports, and (2) did not allege that a CRA notified [the borrower] of the dispute.”

Concluding that any additional amendment would be futile, the trial court entered judgment for the bank and the plaintiffs appealed.

On appeal, the Court first affirmed the trial court’s conclusion that “the FCRA does not provide a private cause of action for violations of Section 1681s-2(a)[,]” which only “federal and state authorities” have standing to enforce, and which “details a furnisher’s responsibility to provide accurate information, including a duty to refrain from knowingly reporting inaccurate information, … and to correct information discovered to be inaccurate….”

Turning to subsection 1681s-2(b), the Court explained that it “outlines a furnisher’s duties following a dispute regarding the completeness or accuracy of a consumer’s credit report.”

Once a furnisher receives a notice of dispute, it must conduct an investigation, review information provided by the consumer reporting agency, report the results to the consumer reporting agency, report any incomplete inaccurate information to other consumer reporting agencies to which the information was furnished, and, if the disputed information is “inaccurate or incomplete or cannot be verified after any reinvestigation[,]” the item or information must be modified, deleted or blocked from being reported further.

The Court reasoned that “[t]he statute is clear that the notice triggering these duties must come from a CRA, not the consumer” because subsection 1681i(a)(2) provides “that once a ‘consumer reporting agency receives notice of a dispute from any consumer … the agency shall provide notification of the dispute to any who provided any item of information in dispute[.]’”

In other words, the statute’s obligations are triggered only when the consumer disputes the information to a consumer reporting agency, which then gives notice to the “furnisher” that the consumer disputes the information.

Thus, the Court concluded, “Section 1681s-2(b) is not implicated simply because a consumer contacts a furnisher such as [the bank] regarding inaccuracies in her credit report.”

Because the plaintiffs did not allege that a consumer reporting agency notified them of their dispute or that they notified a consumer reporting agency of their dispute, the Court affirmed the trial court’s holding that they failed to state a claim under subsection 1681s-2(b).  

Finally, the Court held that the trial court did not err when it denied the plaintiffs’ leave to amend their complaint a third time because they “presented no basis for the court to ‘believe [they] could allege facts that could withstand a 12(b)(6) motion.’”

The trial court’s judgment was affirmed.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida. For more information, see https://mauricewutscher.com/attorneys/hector-e-lora/

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