On May 5, the Consumer Financial Protection Bureau (CFPB or Bureau) and the Federal Trade Commission (FTC) together filed an amicus brief in an appeal pending before the Court of Appeals for the Second Circuit, Sessa v. Trans Union, LLC, No. 22-87 (2d Cir. 2022). The agencies argue that the Fair Credit Reporting Act (FCRA) does not distinguish between “legal” and “factual” inaccuracies, and thus credit reporting agencies (CRAs) may be held liable for failing to maintain reasonable procedures to prevent even inaccuracies that turn on legal questions regarding the underlying debt or credit information. This amicus brief comes on the heels of a recent CFPB amicus brief filed in an Eleventh Circuit appeal in which the CFPB similarly argued that the FCRA does not exempt furnishers from investigating disputes based on legal, as opposed to factual, inaccuracies.

In Sessa, the plaintiff filed a putative class action against TransUnion in the Southern District of New York, alleging TransUnion violated the FCRA when it inaccurately reported a buy-out option at the end of her car lease as an outstanding $19,440 balloon payment on the lease. TransUnion argued that the alleged inaccuracy was legal, not factual, because the question of whether the payment was a balloon payment or buy-out option involved a legal dispute between the plaintiff and her lender. Ultimately, the District Court ruled in favor of TransUnion, finding that (1) “CRAs cannot be held liable when the accuracy at issue required a legal determination as to the validity of debt reported” and (2) that the plaintiff’s report was factually accurate because TransUnion reported the exact information it received from plaintiff’s lender.

On appeal, the CFPB and FTC filed an amicus brief, arguing that the District Court’s decision should be overturned for two reasons.

First, the agencies argue the lower court’s decision improperly takes the position that the FCRA is only concerned with “factual” instead of “legal” inaccuracies. The brief cites to decisions, such as Denan v. Trans Union LLC, 959 F.3d 290, 294 (7th Cir. 2020), which note the FCRA’s lack of clear language distinguishing factual and legal inaccuracies. Further, the agencies argue that many CRA disputes turn on “contractual interpretation” that can be “plausibly characterized” as legal questions.

Second, the agencies argue the District Court was incorrect in holding that a consumer report is factually accurate so long as a CRA correctly reports the information received from a furnisher. The agencies argue that the court’s decision improperly implies that information provided by a furnisher to a CRA can be considered intrinsically reasonable and accurate. Instead, the agencies argue that the FCRA’s reasonable procedures requirement obligates CRAs to compare information received from third parties to the CRA’s own records and to screen for discrepancies.

Like the CFPB’s recent amicus brief to the Eleventh Circuit, the Sessa brief urges the Second Circuit to adopt a decision contrary to the decisions of several federal courts that have distinguished between legal and factual inaccuracies in the context of the FCRA.[1] Both amicus briefs are examples of the efforts by these agencies to reshape the state of the law regulating the consumer reporting industry. The conclusions urged by the agencies, however, threaten to create substantial compliance challenges for furnishers and CRAs, and neither brief meaningfully explains how regulated companies can be expected to adjudicate legal disputes. The Sessa brief in particular handwaves away the District Court’s conclusion that CRAs are not in a position to assess legal issues, such as the validity of a debt, by stating that any concern regarding the “significant burden” this may impose on CRAs “could be taken into account in determining what procedures are ‘reasonable.'”

Nor do the briefs address how the rules they advocate might actually negatively impact consumers more broadly. The position of the agencies not only would affect original reporting, but also consumer disputes. By requiring CRAs to address legal issues, most CRAs would likely be forced to reach a legal conclusion favorable to the consumer even when a court or other adjudicatory body later decides that the law requires a different conclusion. While the agencies may view this as a beneficial outcome, this outcome would logically result in underreporting of valid debts, public records, or other information. That, in turn, increases uncertainty and risk for lenders, with the result being increased costs and an overall decrease in credit availability for consumers. These likely negative consequences to both the industry and consumers alike are ignored in the amicus briefs.

[1] E.g., Batterman v. BR Carroll Glenridge, LLC, 829 F. App’x 478, 481 (11th Cir. 2020) ([W]e conclude that [the plaintiff’s] complaint concerns a contractual dispute that requires resolution by a court of law, not a credit reporting agency. As such, the complaint does not allege a factual inaccuracy in the credit reports and does not contain allegations sufficient to raise a right to relief on [plaintiff’s] FCRA claims.); Brill v. TransUnion LLC, 838 F.3d 919, 921 (7th Cir. 2016) (granting defendant’s motion to dismiss the plaintiff’s FCRA claims because the defendant did not have a duty to verify the accuracy of the plaintiff’s signature on a car lease prior to reporting the details of the car lease on the plaintiff’s consumer report); DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008) ([t]his is not a factual inaccuracy that could have been uncovered by a reasonable reinvestigation, but rather a legal issue that a credit agency such as Trans Union is neither qualified nor obligated to resolve under the FCRA.).