Second Circuit rules legal inaccuracy could trigger FCRA liability

Fair Credit Reporting Act
Sessa v. TransUnion LLC
Date: July 17, 2023

Issue: Whether furnishers and Consumer Reporting Agencies (CRAs) must investigate legal disputes and defenses for claims under the Fair Credit Reporting Act (FCRA).

‌Case Summary: In a 3-0 decision, a Second Circuit panel ruled the FCRA does not incorporate a threshold inquiry on whether an alleged inaccuracy on a credit report is “legal” or “factual” in nature.

Gia Sessa sued TransUnion alleging the company violated the FCRA by failing to maintain reasonable procedures to ensure the accuracy of her credit report. Sessa leased a Subaru Forrester which was financed by Hudson Valley Federal Credit Union. At the end of the 36-month lease, Sessa had the option to buy the vehicle for its residual value, which was $19,444.07. Hudson Valley furnished data to TransUnion specifying she owed a “balloon payment” of $19,440. However, the dealership confirmed Sessa did not owe the balloon payment.

Sessa sued TransUnion under section 1681e(b) of the FCRA, which requires CRAs to “follow reasonable procedures to assure maximum possible accuracy of the information” in a consumer’s credit report.

TransUnion argued it did not need to resolve a legal challenge because it relied on Hudson Valley to accurately report the information. The district court granted summary judgment for TransUnion, reasoning Sessa’s credit report was not “inaccurate” under section 1681e(b) because whether she owed a balloon payment is a legal, rather than a factual, dispute. Sessa appealed the district court’s decision.

On appeal, the Consumer Financial Protection Bureau (CFPB) filed an amicus brief in both cases on behalf of plaintiffs. CFPB argued furnishers and CRAs must investigate legal disputes and defenses to a debt the consumer raises under the FCRA. CFPB further contended it would be difficult for courts to decide FCRA cases to determine whether a plaintiff has asserted a factual inaccuracy or a legal dispute. In response, ABA and a group of trades (Amici) filed an amicus brief urging the Second Circuit to affirm the dismissal of FCRA claims. First, Amici argued the FCRA’s text focuses on factual accuracy rather than legal disputes. Second, Amici argued the FCRA’s structure, purpose and history confirm the textual focus on factual accuracy. Finally, Amici argued courts around the country have correctly interpreted that the FCRA focuses on factual inaccuracies rather than legal disputes.

The Second Circuit vacated the trial court’s summary judgment. The panel disagreed with the district court’s decision. The Second Circuit emphasized the district court focused entirely on whether the information reported was inaccurate, but never addressed the question of whether TransUnion followed reasonable procedures. The panel explained the district court announced a bright-line rule which emphasized CRA’s cannot be held liable for inaccurate credit reports when the inaccuracy requires a legal determination. Conversely, CRA’s are held liable when the information reported does not match the information furnished. The panel ruled there is no bright-line rule providing, as the district court concluded, only purely factual or transcription errors are actionable under the FCRA. In determining whether a claimed inaccuracy could be actionable under section 1681e(b), the panel concluded a court must determine whether the information in dispute is objectively and readily verifiable.

In reaching its decision, the panel relied on Mader v. Experian Information Solutions, in which the Second Circuit recently defined accuracy under the FCRA. In Mader the court held the definition of “accuracy” under the FCRA “requires a focus on objectively and readily verifiable information”. The panel concluded the district court erred in ruling the FCRA incorporates a “threshold inquiry” as to whether an alleged error is factual or legal in nature. According to the panel, the question of whether a debt is objectively and readily verifiable will sometimes involve an inquiry into whether the debt is the subject of a legal dispute as it did in Mader. However, the court emphasized this “does not mean that any dispute that might arguably turn on a question of law is non-cognizable under the FCRA”.

Bottom Line: As of Aug. 1, 2023, Sessa has not indicated whether she will file an en banc (full panel) petition for a rehearing.

Documents: Opinion