Courts Repeatedly Dismiss Cases Where Plaintiffs Are Unable To Plausibly Allege Viable Claims Under The Fair Credit Reporting Act

The Fair Credit Reporting Act is a cornerstone of consumer protection legislation, designed to ensure the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. For furnishers of credit information—from national banks to fintech companies—the Act imposes specific obligations to report complete and accurate consumer information. However, the recent surge in Fair Credit Reporting Act lawsuits filed by consumers highlights the challenges furnishers face in navigating these legal waters.

Read the full article.

About the authors
Tomio Narita
Jeffrey Topor

Transcript

Welcome to Womble Perspectives, where we explore a wide range of topics, from the latest legal updates to industry trends to the business of law. Our team of lawyers, professionals and occasional outside guests will take you through the most pressing issues facing businesses today and provide practical and actionable advice to help you navigate the ever changing legal landscape. 

With a focus on innovation, collaboration and client service, we are committed to delivering exceptional value to our clients and to the communities we serve. And now our latest episode.

The Fair Credit Reporting Act is a cornerstone of consumer protection legislation, designed to ensure the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. For furnishers of credit information—from national banks to fintech companies—the Act imposes specific obligations to report complete and accurate consumer information. However, the recent surge in Fair Credit Reporting Act lawsuits filed by consumers highlights the challenges furnishers face in navigating these legal waters.

Understanding the intricacies of the Act, especially the key elements that constitute a viable claim, is crucial for furnishers looking to defend against these claims effectively. 

The Act mandates furnishers to report accurate and complete information about consumers. However, there's a critical distinction: one specific section of the Act requires furnishers to uphold this duty, but it does not grant consumers the right to sue furnishers for breaches of this duty. Even when consumers directly notify furnishers about disputed information, they cannot sue under this section if the furnisher fails to correct or delete the information.

Under the Fair Credit Reporting Act, furnishers have several key obligations. First, they must ensure that the information supplied to credit reporting agencies is accurate and complete. Additionally, a second section of the Act requires furnishers to investigate any disputed information reported by consumer reporting agencies and correct any inaccuracies. Given these obligations, it is crucial for furnishers to thoroughly examine any allegations made against them in Fair Credit Reporting Act lawsuits to determine if they meet the required factual and legal standards.

Courts have repeatedly dismissed claims where consumers fail to plausibly allege the basic facts necessary to support a viable claim. Understanding these common shortcomings can help furnishers anticipate potential pitfalls in litigation.

To pursue a claim under the second section of the Act mentioned above, a consumer must allege that the furnisher reported inaccurate information on their credit report. Additionally, the consumer must have notified a consumer reporting agency of the inaccuracy, and the agency must have notified the furnisher of the dispute. Finally, the consumer must allege that the furnisher failed to conduct a reasonable investigation and subsequently failed to update or correct the information.

Cases often falter at these requirements. For instance, courts have dismissed claims where consumers alleged inaccuracies without explaining why the information was patently incorrect or likely to adversely affect credit decisions. Additionally, claims fail when consumers do not allege that they notified a consumer reporting agency, or that the agency then informed the furnisher of the dispute.

Case examples illustrate how courts handle certain situations. In cases of inaccurate information, courts often dismiss claims where plaintiffs fail to explain how the reported information is incorrect. For instance, if a "past due amount" field is left blank and the consumer does not clarify why this would be wrong or harmful, the claim is likely to be dismissed, as seen in Novitzky v. TransUnion LLC. Additionally, claims are dismissed when consumers fail to demonstrate that they notified a Consumer Reporting Agency, which then informed the furnisher of the dispute. An example of this can be found in McGee v. Wells Fargo Bank N.A..

For furnishers defending against Fair Credit Reporting Act claims, several strategies can strengthen their defense and ensure compliance with federal regulations.

Best practices for responding to disputes include conducting thorough investigations upon receiving notice of a dispute from a Consumer Reporting Agency, ensuring to document all steps taken during the investigation process. Accuracy in reporting is also essential; regularly reviewing and updating reporting practices while implementing robust internal controls can help catch and correct errors promptly. Additionally, maintaining meticulous records of all communications and actions taken in response to disputes is crucial, as detailed documentation can be critical in demonstrating compliance during litigation.

To maintain proactive measures, it is essential to ensure that employees handling consumer information and disputes are well-trained in Fair Credit Reporting Act compliance requirements through regular training. Additionally, periodically auditing reporting and dispute resolution processes is crucial to identify and address potential weaknesses.

Congress intended for the Act to create a uniform regulatory framework for credit reporting obligations. Allowing state law claims would undermine this uniformity and pose additional challenges for furnishers attempting to comply with disparate state regulations.

Courts have dismissed state law claims against furnishers, emphasizing the need for a cohesive federal system. For example, in Khankin v. JLR San Jose, LLC, the court noted that allowing state tort claims would conflict with the federal regulatory scheme established by the Fair Credit Reporting Act.

Furnishers should be cautious when dealing with state law claims and understand the potential risks and complications that such claims may introduce.

Navigating Fair Credit Reporting Act lawsuits requires a deep understanding of the statute's requirements and a strategic approach to compliance and defense. Furnishers must ensure accurate and complete reporting of consumer information and respond diligently to disputes. Being aware of specific pleading requirements and common reasons courts dismiss Fair Credit Reporting Act claims can help avoid common pitfalls. To strengthen their defense, furnishers should implement best practices for responding to disputes and maintain detailed documentation. Recognizing the preemption of state law claims by federal regulations is crucial, as it highlights the importance of a uniform compliance strategy. By taking proactive measures and staying informed about compliance and litigation trends, furnishers can better navigate the complexities of lawsuits and minimize legal risks.

Thank you for listening to Womble Perspectives. If you want to learn more about the topics discussed in this episode, please visit the show notes where you can find links to related resources mentioned today. 

The show notes also have more information about our attorneys who provided today's insights, including ways to reach out to them. Don't forget to subscribe via your podcast player of choice so that you never miss an episode. Thank you again for listening.