On May 11, the United States Court of Appeals for the Seventh Circuit issued its decision in Denan v. Trans Union LLC, affirming the district court’s finding that the Fair Credit Reporting Act does not require consumer reporting agencies to determine the legal validity of a disputed debt.

In Denan, two individuals sued Trans Union, LLC in connection with its reporting of loans they had obtained through lenders affiliated with Native American tribes. Both loans had interest rates in excess of 300% and contained language in the terms stating that the loans were subject to tribal law rather than the laws of the plaintiffs’ respective states. When the plaintiffs each stopped paying their loans, the lenders reported outstanding balance amounts to Trans Union, which then published them on plaintiffs’ credit reports.

Plaintiffs sued Trans Union alleging violations of sections 1681e(b) and 1681i of the FCRA. However, plaintiffs did not contest the factual accuracy of the debts reported by Trans Union. Instead, they argued that Trans Union reported debts that were “legally inaccurate”—meaning illegal under the laws of their respective states—which rendered the debts invalid. Importantly, plaintiffs had never challenged the validity of their loans in a court. Nonetheless, they argued that if Trans Union had reasonable procedures in place to ensure the maximum possible accuracy of the information, it would have determined that these debts were “void and uncollectible.” Trans Union moved for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c), and the district court found in Trans Union’s favor, stating that “[u]ntil a formal adjudication invalidates the plaintiffs’ loans . . . they cannot allege factual inaccuracies in their credit reports.”

The Seventh Circuit agreed. In its analysis of plaintiffs’ section 1681e(b) claim, the Court emphasized the distinctions between CRAs and furnishers of information under the FCRA. According to the Court, “the FCRA does not require unfailing accuracy from [CRAs] but rather “requires a [CRA] to follow ‘reasonable procedures to assure maximum possible accuracy’ when it prepares a credit report.” While furnishers must also report accurate information, the Court noted that “accuracy” for furnishers “means ‘correctly [r]eflects . . . liability for the account.’” Thus, the Court concluded that “[n]either the FCRA nor its implementing regulations impose a comparable duty upon [CRAs], much less a duty to determine the legality of disputed debts.”

The Court further distinguished CRAs from tribunals. The Court identified three separate legal issues bearing upon the collectability of plaintiffs’ loans. It concluded “[t]he power to resolve these legal issues exceeds the competencies of [CRAs].” In agreement with the district court, the Seventh Circuit determined “[o]nly a court can fully and finally resolve the legal question of a loans validity.”

The Court went on to find that plaintiffs’ section 1681i claim failed on the same basis, interpreting inaccurate information under that provision to also mean factually inaccurate information only.