Settling an issue that has prompted a variety of approaches to claims under the federal Fair Credit Reporting Act (FCRA), the U.S. Court of Appeals for the Third Circuit ruled in Marissa Bibbs v. Trans Union LLC that courts must apply a “reasonable reader” rather than a “reasonable creditor” standard to determine whether entries in credit reports are inaccurate or misleading. Of equal if not more importance, the court clarified that application of the standard requires considering the report in its entirety, not just an entry or entries in isolation. The decision should serve to protect both “furnishers” of credit information and credit reporting agencies from claims of disgruntled borrowers and other debtors based on isolated statements in credit reports taken out of context.
Bibbs involved consolidated appeals filed by student loan borrowers whose loans were closed by their lenders and then transferred (presumably to the U.S. Department of Education) following repayment defaults. Their credit reports noted that the accounts were closed, the borrowers’ loan balances were -$0-, and the payment obligations had been transferred, but also contained a negative pay status notation of “˃Account 120 Days Past Due Date˂.” The borrowers sued Trans Union, the credit reporting agency that issued the reports, for failing to remove the negative notations from their credit reports, alleging that the pay status notations were inaccurate because while they no longer had obligations to their previous lenders, prospective creditors would incorrectly assume that the borrowers were currently late on their loans. Thus, the borrowers claimed, the credit reporting agency violated its obligation under the FCRA to “assure maximum possible accuracy” in their credit reports.
On appeal, the Third Circuit affirmed the district courts’ grant of judgment on the pleadings in favor of Trans Union, although it disagreed with their use of a “reasonable creditor” standard to assess whether the reports were inaccurate or misleading. Since the FCRA contemplates use of credit reports by a wide variety of persons beyond just creditors, such as prospective employers or landlords, the appeals court held that the appropriate standard to determine accuracy is to view the credit reports from the perspective of a “reasonable reader.” Significantly, the court also held that a credit report must be viewed in its entirety rather than by viewing an individual entry “myopically.” As the court stated: “A court applying the reasonable reader standard to determine the accuracy of an entry in a report must make such a determination by reading the entry not in isolation, but rather by reading the report in its entirety.” Viewing the credit reports in this manner, the court found that inclusion of the past due pay statuses was not inaccurate or misleading in light of “conspicuous” statements in the credit reports that the accounts had been closed and the borrowers had no further obligations to their previous creditors.
Although Bibbs involved FCRA claims solely against a credit reporting agency and not against the actual “furnishers” of the information, its clarification of the framework for assessing whether information is inaccurate or misleading will be equally helpful for businesses such as lenders, landlords and others that routinely provide information to credit reporting agencies. Importantly, Bibbs should help eliminate FCRA claims based on isolated statements or entries plucked from credit reports by requiring that they be analyzed in the context of the entire report.
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