On March 14, the U.S. Court of Appeals for the Fourth Circuit issued a ruling addressing the obligations of furnishers under the Fair Credit Reporting Act (FCRA) to conduct reasonable investigations of disputed information, whether the disputed information be legal or factual in nature. The issue of whether the distinction between “legal” and “factual” disputes is relevant under the FCRA has been hotly contested in recent years. The Fourth Circuit’s new decision follows in the footsteps of the Eleventh and Second Circuits by replacing a “legal vs. factual” test with a “readily and objectively verifiable” test.

In Roberts v. Carter-Young, Inc., the plaintiff rented an apartment in North Carolina and, after a dispute with her landlord, received an invoice for damages that the plaintiff believed were fabricated. When the plaintiff refused to pay, the landlord referred the debt to Carter-Young, Inc., a collection agency. The collection agency reported the debt to the major consumer reporting agencies (CRAs) and the debt subsequently appeared on the plaintiff’s credit report.

The plaintiff disputed the debt with the CRAs, which in turn, notified the collection agency of the dispute. In responding to the CRAs, the collection agency limited its investigation to confirming the debt with the landlord, but the plaintiff did not believe this to be sufficient. The plaintiff sued the collection agency, alleging that it had failed to conduct a reasonable investigation as required by the FCRA.

The district court dismissed the plaintiff’s claim on the basis that her dispute involved legal, not factual, matters. Specifically, the court held that the FCRA did not require the collection agency to investigate legal disputes, only factual inaccuracies. Therefore, the collection agency was not required to do any further investigation into the legal issue relating to whether the debt was fabricated or not to satisfy its investigatory obligations under the FCRA. The plaintiff appealed this decision to the Fourth Circuit.

Fourth Circuit’s Ruling

The Fourth Circuit vacated the district court’s dismissal and remanded the case for further proceedings. The appellate court clarified that both legal and factual disputes can form the basis of a claim under § 1681s-2(b) of the FCRA, provided the disputed information is “objectively and readily verifiable.” The court emphasized that the terms “accuracy” and “completeness” under the FCRA should be interpreted to include information that is objectively and readily verifiable.

The court adopted a standard that requires furnishers to investigate disputes involving information that can be objectively verified. In the court’s opinion, this includes straightforward factual disputes, such as whether a debt has been paid, but excludes complex legal questions or subjective determinations. The court reiterated that the reasonableness of a furnisher’s investigation is a key element of an FCRA claim. Furnishers are not expected to conduct investigations akin to full court proceedings but must make a reasonable effort to verify disputed information. In the court’s view, the underlying dispute about whether the debt was fabricated was something that was objectively and readily verifiable by the collection agency.

The court also rejected the notion that legal disputes are categorically outside the scope of the FCRA. Instead, it held that disputes involving legal questions can trigger a furnisher’s duty to investigate if the information is objectively and readily verifiable. “Today we hold that, to state a claim, a consumer must allege facts that, if true, indicate an inaccuracy or incompleteness in their credit report that is objectively and readily verifiable. In dismissing Roberts’ complaint, the district court applied a different standard to the meaning of accuracy and completeness. We thus vacate the district court’s dismissal of Roberts’ claims and remand for further proceedings consistent with this opinion.”

In reaching this holding, the Fourth Circuit cited and aligned itself with the Eleventh Circuit’s 2024 decision Holden v. Holiday Inn Club Vacations, Inc.(discussed here), and the Second Circuit’s 2023 decision in Sessa v. Trans Union, LLC, which each applied a similar “objectively verifiable” test instead of a “legal vs. factual” distinction. While each of these decisions represents a significant development in the law of which FCRA-governed entities should be aware, there is still a significant “gray area” left unresolved regarding what constitutes an “objectively and readily verifiable” dispute. That gray area is demonstrated aptly by the Roberts decision itself, where the Fourth Circuit did not resolve whether the plaintiff’s own dispute was or was not “objectively and readily verifiable,” but instead remanded to the district court to make that determination in the first instance. Undoubtedly, we can expect courts to continue to grapple with this crucial issue in the future.