The U.S. Court of Appeals for the Second Circuit has ruled that because “there is no bright-line rule that only purely factual or transcription errors are actionable under the [Fair Credit Reporting Act (FCRA)],” the FCRA does not contemplate a threshold inquiry by the court as to whether an alleged inaccuracy is “legal” for purposes of determining whether the plaintiff has stated a cognizable claim under the FCRA.  Rather, as the Second Circuit also ruled, a claimed inaccuracy is potentially actionable under the FCRA so long as the challenged information is objectively and readily verifiable.

In Sessa v. Trans Union, LLC, the assignee of the plaintiff’s vehicle lease furnished information to TransUnion that she owed a “balloon payment” at the end of the lease in the amount of the vehicle’s residual value, which was an optional amount to purchase the vehicle at the end of the lease.  TransUnion reported the balloon payment as a debt on the plaintiff’s credit report. TransUnion also reported a larger amount as the “high balance” of the plaintiff’s debt, which amount treated the vehicle’s residual value as a debt. 

The plaintiff filed a class action complaint in which she alleged that by including the balloon payment as a debt on her credit report and inaccurately reporting the lease information, TransUnion violated the FCRA requirement for a consumer reporting agency (CRA) to follow reasonable procedures to assure the maximum possible accuracy of the information contained in a consumer report.  TransUnion moved for summary judgment, arguing that it had reported the information accurately because it reported precisely the information it received from the assignee of the lease and that any purported inaccuracy was the result of legal interpretation rendering it non-cognizable under the FCRA.

The district court granted summary judgment to TransUnion holding that the plaintiff failed to make the “threshold showing” of inaccuracy on the credit report.  First, the court drew a distinction between factual and legal inaccuracies and held that a CRA cannot be held liable when the issue requires a legal determination as to the validity of the reported debt.  Second, the court concluded that CRAs can only be liable for FCRA claims when the information in a credit report does not match the information the CRA received from the furnisher.

In vacating the district court’s judgment and remanding the case for further proceedings, the Second Circuit noted that after the district court issued its decision, the Second Circuit ruled in Mader v. Experian Information Solutions that the definition of accuracy under the FCRA requires a “a focus on objectively and readily verifiable information.”  In Mader, the plaintiff claimed that his credit report was inaccurate because it listed his outstanding student loan debt following his Chapter 7 bankruptcy.  He alleged that the loan was discharged because, as a private loan, it was not exempted from discharge under Section 523(a)(8) of the Bankruptcy Code.  The final decree of discharge issued by the bankruptcy court stated that the plaintiff was released from all “dischargeable debts,” but had an attachment that stated “debts for most student loans are not discharged.”  Explaining its earlier ruling in Mader, the Second Circuit stated that the debt at issue in Mader was not “objectively and readily verifiable” because it “presented an ‘unresolved legal question’ under bankruptcy law.”

The Second Circuit ruled that it was error for the district court to hold that the FCRA incorporates a threshold inquiry as to whether an alleged error is factual or legal in nature.  Instead, according to the Second Circuit, “[t]he question of whether a debt is objectively and readily verifiable will sometimes, as it did in Mader, involve an inquiry into whether the debt is the subject of a legal dispute….But that does not mean that any dispute that might arguably turn on a question of law is non-cognizable under the FCRA.” (emphasis included).  Quoting Mader, the Second Circuit stated “CRAs may be ‘required by the FCRA to accurately report information derived from the readily verifiable and straightforward application of law to facts.’”

The CFPB and the FTC filed an amicus brief in Sessa in support of the plaintiff.