Bibbs v. Trans Union LLC (3rd Cir.)

The following is a case update written by Reno Fernandez, a bankruptcy appellate specialist with California Appellate Law Group, LLP, analyzing a recent decision of interest:

SUMMARY

On August 8, 2022, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of three actions brought under the Fair Credit Reporting Act (15 U.S.C. §§ 1681 through 1681x) (“FCRA”), adopting a “reasonable reader” standard and holding that delinquent “Pay Status” notations referring to closed accounts are historical information, not reflecting current delinquencies, which are accurate in light of other clarifying language in the credit reports. Bibbs v. Trans Union LLC, 43 F.4th 331 (3d Cir. 2022).

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FACTS

This opinion arises from three consolidated appeals from three district court cases alleging violations of the FCRA, the facts of which are nearly identical. Each of the three Appellants borrowed student loans from a handful of lenders and made payments on the loans until they became unable to continue paying. Thereafter, the lenders closed the accounts and assigned the loans to third parties. It was undisputed that the Appellants no longer had any obligation to the original lenders following the assignment.

When the Appellants viewed their credit reports from Trans Union LLC, each report showed negative “Pay Status” notations indicating “Account 120 Days Past Due” but also stating that the accounts were closed and had zero balances. Counsel for the Appellants sent a letter to Trans Union disputing the accuracy of the reports and requesting correction. In response, Trans Union conducted an investigation and reported the results to the Appellants.

The resulting updated credit reports each included (a) a notation that for accounts “that have been closed and paid, Pay Status represents the last known status of the account[,]” (b) definitions and an explanatory key, (c) an indication that the accounts had zero balances, (d) dates of delinquency and account closing, and (e) a statement that the accounts were closed because they were transferred. However, the reports continued to show a “Pay Status” of 120 days past due.

In 2020, the Appellants filed complaints alleging that Trans Union violated the FCRA by issuing credit reports containing inaccurate and misleading information and by refusing to revise the information. Trans Union answered and filed a motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure.

Applying a “reasonable creditor” test, and finding it satisfied by the language of each report as a whole, the district courts granted the motions and dismissed the actions. The actions were dismissed prior to any discovery. The Appellants timely appealed, raising three issues: (1) whether the district court erred in applying a “reasonable creditor” standard; (2) whether the reports were accurate or misleading; and (3) whether it was error to dismiss the actions without discovery.

REASONING

The Appellants’ chief argument was that a reasonable person could read the credit reports as indicating current delinquency “without reference to other information in the credit reports….” Trans Union’s chief counterargument was that the language of each report, as a whole, clearly indicate that the information is only historical. The Third Circuit ultimately affirmed the dismissals, but it did so under a broader “reasonable reader” standard.

The Third Circuit analyzed the purposes of the FCRA, among which are the protection of consumers from transmission of inaccurate information and to establish credit reporting practices utilizing accurate and current information. The FCRA imposes certain burdens upon those who furnish information to credit reporting agencies as well as the agencies themselves. Among other things, consumer agencies must assure the “maximum possible accuracy” of credit reports. 15 U.S.C. § 1681e(b). The statute’s concern for accuracy arises from the harmful impact of inaccurate information on a consumer’s later attempts to deal with lenders, potential employers, landlords, service providers, and others who might legitimately rely on a credit report.

Upon receipt of notice of a dispute, an agency must conduct a “reasonable reinvestigation” to determine whether the disputed information is inaccurate. A reasonable reinvestigation is “one that a reasonably prudent person would undertake under the circumstances,” which is evaluated by balancing the potential harm from inaccuracies against the burden of safeguarding against them.

In applying this framework, the district court considered whether a “reasonable creditor” would understand the information in a credit report. The Appellants argued that this standard failed to take into account the relatively lower sophistication of others who rely on credit reports, such as potential employers, landlords, insurers, and service providers. These examples are expressly enumerated in the FCRA. 15 U.S.C. § 1681b(a)(3).

The Third Circuit agreed that the “reasonable creditor” test was wrong, but the Court ultimately affirmed the dismissals under a “reasonable reader” standard. Under this newly-adopted standard, a determination of accuracy must be made by reading the report in its entirety and considering how a reasonable reader would comprehend the information. An entry that is incorrect in isolation is not inaccurate if the truth can be comprehended in the context of the entire report.

The Court applied the “reasonable reader” standard in the context of alleged negligent noncompliance with the FCRA, which requires: (1) inaccurate information in the report; (2) that the inaccuracy was due to failure to follow reasonable procedures to ensure maximum possible accuracy; (3) injury to the consumer; and (4) causation. The Court avoided analyzing all but the first element, holding that inaccuracy is a threshold requirement.

In determining accuracy under the “reasonable reader” standard, the Third Circuit commented that the difference between “accuracy” and the statutory language of “maximum possible accuracy” is dramatic. As a consequence, a report that is “technically correct” may be inaccurate if an omission creates a “materially misleading impression.” However, perfection is not required. For example, the Court cited a Fourth Circuit opinion holding that an inaccuracy must be “patently incorrect” or “misleading in such a way…that it can be expected to have an adverse effect.” Dalton v. Capital Assoc. Indus. Inc., 257 F.3d 409, 415 (4th Cir. 2001).

Initially, the Court observed that there are no helpful verbs in the reports, such as “is” or “was,” that would make it patently clear whether the delinquencies were supposed to be current or historical. However, the Court reviewed the remainder of the reports, which include language—sometimes in all capital letters—stating that the accounts were closed and transferred, showing the closing date, and indicating balances of zero. The Court found that the reports, as a whole, accurately indicate that the delinquency notes were historical. “Perhaps Trans Union could have made the reports even clearer,” the Court observed, but “just because a report could potentially be a bit clearer does not mean that it is not very clear at present.” Accordingly, the Court determined that the “reasonable reader” test was satisfied.

The Third Circuit disposed of the remaining two issues relatively quickly. First, the Court avoided the need to determine whether Trans Union’s investigation was reasonable because the threshold requirement of inaccuracy was not met. In other words, a report must be shown to be inaccurate before a court can consider whether the investigation was reasonable.

Second, the Court determined that discovery was not necessary. The Court acknowledged that the reasonableness of an investigation is normally a question for trial, unless reasonableness is “beyond question,” but the Court determined that the “reasonable reader” standard is an objective test. Accordingly, the Court found that the reports were accurate as a matter of law under the FCRA, and therefore discovery was not necessary.

AUTHOR’S COMMENTS

The central holding of this opinion is the Third Circuit’s adoption of the “reasonable reader” test and its determination that the credit report must be read as a whole. The “reasonable reader” test makes intuitive sense, but it appears to be relatively novel. In fact, the Third Circuit cites only to a dissenting opinion and to an unpublished opinion for support. But there is additional support: the Ninth Circuit has resolved questions of accuracy under the FCRA by analyzing the perspective of a reasonable reader, although without formally labeling this as a “reasonable reader” test, in two published opinions. Walker v. Fred Meyer, Inc., 953 F.3d 1082 (9th Cir. 2020); Gilberg v. California Check Cashing Stores, LLC, 913 F.3d 1169, 1177 (9th Cir. 2019). Beyond these, neither the “reasonable reader” nor the “reasonable creditor” test is widespread, with the latter appearing (at least by name) in no published opinion of any circuit or the U.S. Supreme Court. In other words, this is truly a developing area of jurisprudence under the FCRA.

One final point of interest is that courts are not unified in their approach to the question of whether discovery is necessary under the circumstances. In a footnote, the Court identifies an unpublished district-court opinion coincidentally rejecting the underlying district court’s opinion in this case, namely Bibbs v. Trans Union LLC, 521 F.Supp.3d 569 (E.D. Pa. 2021). Barrow v. Trans Union, LLC, 2021 WL 1424681 (E.D. Pa. 2021). In Barrow, under “strikingly similar” facts, the court denied Trans Union’s motion for judgment on the pleadings and ordered discovery on the issue of how Pay Status notations in a credit report might actually be interpreted. The Third Circuit comments that the majority view is that discovery is not necessary, but it does not expressly disapprove of the approach in Barrow. 

This review was written by Reno Fernandez, a bankruptcy appellate specialist with California Appellate Law Group, LLP, a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.