Addressing two issues of first impression in the U.S. Court of Appeals, Ninth Circuit, a panel ruled that a consumer suffers a concrete, Article III injury-in-fact when a third party obtains her credit report for a purpose not authorized by the Fair Credit Reporting Act (FCRA).

The court also held that plaintiffs are not required to plead the defendant’s actual unauthorized purpose in obtaining the report in order to survive a motion to dismiss; they need allege only facts giving rise to a reasonable inference that the defendant obtained the credit report in violation of the FCRA.

What happened

Freshta Nayab sued a national bank, alleging that it obtained her credit report for a purpose not authorized by the FCRA, in violation of 15 U.S.C. § 1681b(f).

The bank moved to dismiss the suit, arguing that Nayab lacked standing because she merely alleged a statutory violation and not an actual injury. The district court granted the motion and Nayab appealed.

Reversing, the federal appellate panel determined first that Nayab had standing because she had alleged a concrete injury that satisfied the requirements set forth in the Supreme Court’s decision in Spokeo v. Robins by alleging that the third party had obtained her credit report for a purpose not authorized by the FCRA.

The bank was correct that a bare procedural violation may not establish a concrete harm sufficient for Article III standing, the panel said, but Nayab’s claim based on Section 1681b(f) alleged the violation of a substantive right.

“When a third party obtains the consumer’s credit report in violation of § 1681b(f)—that is, for a purpose not authorized by the statute—the consumer is harmed because he or she is deprived of the right to keep private the sensitive information about his or her person,” the panel wrote. “This harm is highly offensive and is not trivial because a credit report can contain highly personal information.”

For additional support, the panel cited prior case law finding the right to privacy in one’s consumer credit report conferred standing, historical practice (in the parallel harm of intrusion upon seclusion) and the intent of Congress.

Turning to the second issue, the court ruled that the actual purpose behind the defendant’s procurement of the credit report is an affirmative defense to be pleaded by the defendant.

“A plaintiff need allege only facts giving rise to a reasonable inference that the defendant obtained his or her credit report in violation of § 1681b(f)(1) to meet their burden of pleading,” the Ninth Circuit said. “Requiring otherwise would create an often insurmountable legal barrier to the protection of the interests the FCRA sought to protect.”

Placing the burden on the plaintiff would be “unfair,” the panel wrote, as it would require her “to plead a negative fact that would generally be peculiarly within the knowledge of the defendant.” Shifted to defendants is the burden to plead authorized purposes as affirmative defenses.

Applying this standard, the court found that Nayab’s complaint stated a plausible claim for relief. She pleaded that she did not have a credit relationship with the bank of the kind specified in the FCRA, and then put forward factual assertions to negate each permissible purpose for which the bank could have obtained her credit report and for which she had personal knowledge.

One member of the panel concurred that the plaintiff had standing to pursue her FCRA claim but “decidedly” disagreed that she stated a plausible claim.

To read the Ninth Circuit opinion, click here.

Why it matters

The Ninth Circuit decision could make it substantially easier for FCRA plaintiffs to survive a motion to dismiss, permitting them to conclusorily allege the bare minimum—simply that a third party obtained their credit report for a purpose not authorized by the statute. Although summary judgment would still be available, the loosened standard increases the potential for a rise in FCRA cases in California and other Ninth Circuit states.