The U.S. Court of Appeals for the Second Circuit recently vacated a trial court’s summary judgment in favor of a credit reporting agency in a lawsuit alleging violations of the federal Fair Credit Reporting Act in connection with the reporting of a “balloon payment” that was not in fact required.
In so ruling, the Second Circuit held that the FCRA does not incorporate a threshold inquiry as to whether an alleged inaccuracy on a credit report is “legal” or “factual” in nature. The Court therefore determined that the trial court erred by ending its analysis after it found that the accuracy of the reported balloon payment amounted to a legal dispute that was not actionable under the FCRA.
A copy of the opinion in Sessa v. Trans Union, LLC is available at: Link to Opinion.
A consumer leased a vehicle, which was financed by a credit union. A credit reporting agency received certain information from the credit union about the lease and reported that information on the consumer’s credit report. In particular, the agency reported that the consumer owed a “balloon payment” at the end of the lease term — a payment that the terms of the lease did not, in fact, require.
The consumer sued the agency under section 1681e(b) of the FCRA, which requires credit reporting agencies (“CRAs”) to “follow reasonable procedures to assure maximum possible accuracy of the information” in a consumer’s credit report. 15 U.S.C. § 1681e(b).
The trial court granted the CRA summary judgment, reasoning that the consumer’s credit report could not be considered “inaccurate” under section 1681e(b) because the question of whether the consumer owed a balloon payment amounted to a legal, rather than a factual, dispute. The consumer timely appealed.
To prevail against a CRA in an action brought under section 1681e(b), the plaintiff must establish that the challenged report is inaccurate. See Shimon v. Equifax Info. Servs. LLC, 994 F.3d 88, 92 (2d Cir. 2021). Here, the Second Circuit observed that the trial court focused entirely on whether the information reported was inaccurate and never addressed the question of whether the agency followed reasonable procedures.
The Second Circuit also noted that, after the trial court issued its decision, the Second Circuit decided Mader v. Experian Information Solutions, Inc., 56 F.4th 264 (2d Cir. 2023). Mader held that the definition of “accuracy” under the FCRA “requires a focus on objectively and readily verifiable information.” Id. at 269. Thus, reported information is actionably “inaccurate” only if that information is objectively and readily verifiable by the CRA.
The trial court, without the benefit of Mader, held that the FCRA incorporates a threshold inquiry as to whether a claimed error is factual or legal in nature. The Second Circuit determined that this holding was erroneous, and instead held that the question of whether a debt is objectively and readily verifiable will sometimes, as it did in Mader, involve an inquiry into whether the debt is the subject of a legal dispute. However, the Second Circuit also made clear that other disputes that might arguably turn on a question of law could be cognizable under the FCRA.
In sum, the Second Circuit concluded that there is no bright-line rule providing that only purely factual or transcription errors are actionable under the FCRA. Rather, in determining whether a claimed inaccuracy is potentially actionable under section 1681e(b), a court must determine, among other factors, whether the information in dispute is “objectively and readily verifiable.” Id. at 269.
The Court also held that section 1681e(b) is violated only when a CRA has failed to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” 15 U.S.C. §1681e(b).
Accordingly, the Second Circuit vacated the trial court’s summary judgment and remanded for further proceedings consistent with its decision.