Earlier this month, in Davis v. Carrington Mortgage Services, LLC, et al., the United States District Court for the District of Nevada held that consumer reporting agencies are not obligated to determine the legal status of debts. The Court also reinforced the plausible pleading standard for Fair Credit Reporting Act cases, while providing an overview of CRAs’ obligations under the act.
Plaintiff Cheryl Davis alleged that a national CRA violated sections 1681e and 1681i of the FCRA by reporting inaccurate credit information and failing to follow reasonable procedures to verify the accuracy of the information that it reported. Specifically, Davis claimed that following her discharge from Chapter 13 bankruptcy, the CRA inaccurately reported her mortgage account with a $0 balance and a notation that the account was discharged in bankruptcy. Davis claimed that this reporting was inaccurate, as the account was excepted from her discharge and she had continued to make timely payments. Davis claimed to have disputed the reporting by letter to the CRA, but alleged that the inaccurate reporting continued. Davis alleged that the “suppression of her positive payment history” caused her credit injuries, emotional harm, and actual damages.
The CRA moved to dismiss the complaint, arguing that Davis lacked standing and had failed to state a claim under the FCRA. The Court quickly rejected the CRA’s argument that Davis’s “broad generalizations” regarding the impact of lower FICO scores on lending decisions did not support a concrete and particularized injury. Instead, the Court found that Davis plausibly alleged that the reporting could have resulted in less favorable refinance terms. Accordingly, the Court held that Davis had Article III standing.
Next, the Court summarized what a plaintiff must plausibly allege to support a claim under sections 1681e and 1681i of the FCRA, including the threshold requirement under both sections – that a consumer first make a prima facie showing of inaccurate reporting. The Court explained that “[r]eporting can be inaccurate if it is patently incorrect or ‘misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.’” Furthermore, to state a claim under Section 1681e(b), a plaintiff also is required to plausibly allege that the CRA failed to follow reasonable procedures in obtaining a plaintiff’s credit information. To state a claim under Section 1681i(a), a plaintiff must plausibly show: (1) plaintiff “notified the CRA of the inaccuracy;” (2) “the dispute was not frivolous or irrelevant;” (3) “the CRA failed to respond to the dispute;” and (4) the “failure caused plaintiff to suffer actual damages.”
The Court found that Davis’s claims failed, as she did not plausibly allege that the CRA’s procedures were unreasonable. In the dispute letter before the Court, Davis asked only that the CRA include her positive payment information on her credit report. In response, the CRA obtained verification from Davis’s mortgage company verifying that the account was included in her bankruptcy. Subsequently, the CRA continued to report the purportedly inaccurate information – that Davis’s mortgage account was included in her Chapter 13 discharge.
Accordingly, the Court held that the CRA was not obligated to reinvestigate the accuracy of whether Davis’s mortgage account was discharged in bankruptcy, as “CRAs are neither qualified nor obligated to determine the legal status of a plaintiff’s debt.” Further, the Court held that it was reasonable for the CRA to report the mortgage as included in bankruptcy when “there is a bankruptcy on record and no contrary information to indicate that her account was excepted from discharge.”
While decided based on Davis’s failure to plausibly state a claim, this decision demonstrates a continuing trend of courts shielding CRAs from liability under the FCRA when faced with determining the legal status of a consumer’s debt obligation.