In Denan v. Trans Union LLC, 2020 U.S. App. LEXIS 14930 (7th Cir. May 11, 2020), the Seventh Circuit joined the First, Ninth and Tenth Circuits in holding that the FCRA and its implementing regulations do not obligate a Consumer Reporting Agency (CRA), such as Trans Union, to determine the legality of a disputed debt when preparing a credit report.  While the FCRA’s implementing regulations define “accuracy” for furnishers as correctly reflecting liability for the account, “[n]either the FCRA nor its implementing regulations impose a comparable duty upon consumer reporting agencies, much less a duty to determine the legality of a disputed debt.”

In Denan, plaintiffs had obtained online payday loans from tribal lenders.  When plaintiffs defaulted, the lenders reported the debt to Trans Union.  Interestingly, plaintiffs then brought a putative class action against Trans Union – and not the lenders – claiming that it violated two provisions of the FCRA  (Sections 1681e(b) and 1681i(a)) by transmitting “inaccurate” legal – as opposed to factual – information on the loans.  Specifically, plaintiffs did not dispute that they took out the loans, nor did they contest the payment history reported by Trans Union on the loans.  Rather, they claimed that the information was inaccurate because the loans were usurious under state law and therefore void ab initio. 

Affirming the grant of judgment on the pleadings, the Seventh Circuit rejected plaintiffs’ argument that Trans Union was required to look beyond the data furnished by lenders to determine the legality of plaintiffs’ loans.  The Seventh Circuit found that CRAs and furnishers “serve discrete functions” in the credit market, and the FCRA imposes duties on them “in a manner consistent with their respective roles in the credit reporting market.”  The Seventh Circuit found that the “accuracy” required of each was different.  The “FCRA does not require unfailing accuracy” from CRAs, but rather requires them to follow “reasonable procedures to assure maximum possible accuracy.”  On the other hand, furnishers are tasked with accurately reporting liability.  As the Seventh Circuit found, “it makes sense that furnishers shoulder this burden: they assumed the risk and bear the loss of unpaid debt, so they are in a better position to determine the legal validity of a debt.”

Finally, the Seventh Circuit rejected the notion that CRAs are “tribunals” that must resolve legal issues associated with any reported debt.  Such legal issues are beyond the competencies of the CRAs, which “collect consumer information supplied by furnishers, compile it into consumer reports, and provide those reports to authorized users.”  As the court noted, the correct way to resolve the legal defenses that plaintiffs raise in this case was to sue the lenders.  For whatever reason, plaintiffs chose not to do so.  We can only speculate why, but as this case makes clear, the FCRA does not permit plaintiffs to transform a case challenging the legal validity of a debt into a FCRA violation against a CRA.