Seventh Circuit Joins Other Circuits to Find FCRA NOT Requiring Rating Agencies to Resolve Legal Debt Defenses – TCPAWorld
In Denan v. Trans Union LLC, 2020 US App. LEXIS 14930 (7th Cir. 11 May 2020), the seventh circuit joined the first, ninth and tenth circuits by arguing that the FCRA and its implementing regulations do not oblige a consumer information agency (CRA), such as Trans Union, in determining the legality of a disputed debt when preparing a credit report. While FCRA implementing regulations define “accuracy” for vendors as properly reflecting account responsibility, “[n]neither the FCRA nor its implementing regulations impose a comparable obligation on consumer news agencies, let alone an obligation to determine the legality of a disputed debt. “
In Denan, the plaintiffs had obtained payday loans online from tribal lenders. When the plaintiffs defaulted, the lenders reported the debt to Trans Union. Interestingly, the plaintiffs then filed a class action lawsuit against Trans Union – not the lenders – claiming that it violated two provisions of the FCRA (Sections 1681e (b) and 1681i (a)) by passing on legal information ” inaccurate – as opposed to factual. – information on loans. Specifically, the applicants did not dispute that they had taken out the loans, nor did they dispute the payment history reported by Trans Union on the loans. On the contrary, they claimed that the information was inaccurate because the loans were usurious under state law and, therefore, null ab initio.
Affirming the grant of the pleadings judgment, the Seventh Circuit rejected the plaintiffs ‘argument that Trans Union was required to look beyond the data provided by the lenders to determine the legality of the plaintiffs’ loans. The Seventh Circuit found that rating agencies and providers “perform distinct functions” in the credit market, and the FCRA imposes obligations on them “in a manner consistent with their respective roles in the credit rating market. credit ”. The seventh circuit found that the “precision” required of each was different. The “FCRA does not demand flawless precision” from rating agencies, but rather asks them to follow “reasonable procedures to ensure maximum precision”. On the other hand, suppliers are responsible for accurately declaring liability. As the Seventh Circuit found, “it makes sense for suppliers to shoulder this burden: they assume the risk and bear the loss of an unpaid debt, so they are in a better position to determine the legal validity of a debt.”
Finally, the Seventh Circuit rejected the idea that rating agencies are “courts” that must resolve legal issues associated with any reported debt. Such legal matters are beyond the remit of rating agencies, which “collect consumer information provided by suppliers, compile it into consumer reports and provide those reports to authorized users”. As the court noted, the correct way to resolve the legal defenses raised by the plaintiffs in this case was to sue the lenders. For some reason, the complainants chose not to do so. We can only speculate why, but as this case makes clear, the FCRA does not allow plaintiffs to turn a case challenging the legal validity of a debt into an FCRA violation against an ARC.