The U.S. Court of Appeals for the Seventh Circuit recently affirmed judgments entered in separate cases consolidated on appeal in favor of several credit reporting agencies rejecting consumers’ claims of violations of the federal Fair Credit Reporting Act (FCRA).

In so ruling, the Seventh Circuit held that the consumers’ allegations concerning the identity of the owners of their debts were not factual inaccuracies that the CRAs were statutorily required to guard against and reinvestigate under sections § 1681e(b) and § 1681i of the FCRA, 15 U.S.C. § 1681, et seq., but primarily legal issues outside their competency.

A copy of the opinion in Chuluunbat v. Experian Information Solutions is available at:  Link to Opinion.

Seven unrelated consumers incurred credit card debts that were allegedly sold and assigned to other creditor debt collectors.  The change in ownership was reported to the three prominent credit reporting agencies. 

One of the debt collectors filed suit against three of the consumers to collect payment, but voluntarily withdrew the suits after the consumers claimed that the debt collector did not own their debts, demanded proof of ownership, and requested arbitration.  The other four consumers were not sued but sent letters to their respective debt collectors similarly challenging their purported ownership of the debts.

The consumers then contacted the CRAs requesting an investigation into the accuracy of their reports to determine if the purported debt collectors, in fact, owned the debts.  The debt collectors responded to the CRAs’ inquiries by confirming ownership, but did not produce the original sale or assignment agreement in any case.  Relying upon these representations, the CRAs informed the consumers that the ownership was confirmed and their investigation was complete.

Each consumer separately filed suits against the CRAs claiming that their inclusion of allegedly false debt ownership information on their credit reports and failure to fully investigate their claims violated sections § 1681e(b) and § 1681i of the FCRA. 

In each case, the trial court entered judgment on the pleadings or dismissed each suit in the CRAs’ favor for various reasons, but all concluding that the consumers did not plead the type of inaccuracies in their credit reports that the CRAs had a duty to correct under the FCRA.  The instant consolidated appeal followed.

As you may recall, the FCRA primarily tasks furnishers (creditors, debt collectors, and the like) with providing accurate information to the CRAs, but also requires that CRAs “follow reasonable procedures to assure maximum possible accuracy of” information in credit reports (15 U.S.C. § 1681e(b)) and “conduct a reasonable reinvestigation” to determine whether information disputed by a consumer is inaccurate (15 U.S.C. § 1681i(a)(1)(A)).  A threshold requirement for claims under both sections is that there must be an inaccuracy in the consumer’s credit report.

The Seventh Circuit initially noted that it recently held in Denan v. Trans Union LLC, 959 F.3d 290 (7th Cir. 2020), that “inaccurate information under 1681i… mean[s] factually inaccurate information,” rather than “legal inaccuracies” which are outside the competency of the CRAs, and that a consumer’s defense to a debt is a legal question to resolve in an action against the creditor, not a duty imposed on the consumer reporting agencies by the FCRA.  Denan, 959 F.3d at 296.

Here, the consumers argued that whether the creditors were assigned and now owned their respective debts was a factual question, thus triggering the CRAs’ obligations under sections 1681e(b) and 1681i(a)(1)(A), relying upon the Court’s holding in Chemetall GMBH v. ZR Energy, Inc., 320 F.3d 714, 720–21 (7th Cir. 2003), that a party’s intention to assign something is a question of fact for a jury.  The consumers reasoned that upon receipt of a dispute, a straight-forward factual inquiry by the CRAs to request the relevant purchase and sale agreement would determine whether the creditor or debt collector owned the debt.

The Seventh Circuit noted that, although no clear line has been drawn between legal and factual inaccuracies in the FCRA context, review of its own decisions and that of its sister circuit courts showed that the central question is whether the alleged inaccuracy turns on applying law to facts or simply examining the facts alone.  Consumer reporting agencies are competent to make factual determinations, but they are not charged with reaching legal conclusions or resolving alleged inaccuracies under the FCRA.  Denan, 959 F. 3d at 295.

Unlike a challenge to the existence or amount of the debt, the Seventh Circuit concluded that the question of whether the disputed debts were assigned was a question that required a legal determination.

In each case here, the CRA reached out to the debt collectors and asked them to confirm ownership of the debts, which they did.  Any further investigation into whether the debts were actually assigned to the debt collectors involved more than just determining if an assignment agreement exists, but also interpreting the legal validity of any assignment —- a legal judgment outside the scope of a CRA’s competency.  See Brill v. TransUnion LLC, 838 F.3d 919, 921 (7th Cir. 2016), (holding that consumer reporting agency was not required to hire handwriting expert to determine whether plaintiff’s signature was forged on loan agreement as plaintiff claimed). 

The Seventh Circuit further noted that the consumers did have alternate recourse in that they could confront the creditors who are in the best position to respond to assertions that they do not own the plaintiffs’ debts (Brill, 838 F.3d at 921), or make notations of their disputes on their credit reports pursuant to 15 U.S.C. § 1681i(c), to notify future employers or creditors that they dispute the ownership of these debts.

Because the alleged inaccuracies here involved interpreting legal rights to a debt and making legal judgments, the Seventh Circuit agreed with the trial court’s holding that the CRAs bore no burden under the FCRA to determine whether the consumer’s debts were validly assigned to the debt collectors, and affirmed each judgment entered in the debt collectors’ favor.

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