Last month, the United States Court of Appeals for the Third Circuit decided a set of consolidated appeals in Fair Credit Reporting Act (“FCRA”) actions brought by consumers against a credit reporting agency. The consumers all alleged that a notation in their credit reports was misleading and inaccurate under the FCRA, which requires credit reporting agencies to “assure maximum possible accuracy.” The appeals presented a common question: what standard should courts use to determine if information in a credit report is misleading? In adopting and applying a “reasonable reader” standard, the Third Circuit has provided FCRA defendants a holding that will be useful for early dismissal of consumer claims based on alleged misleading portions of credit reports.
In Bibbs, 43 F.4th 331, 2022 U.S. App. LEXIS 21819, 2022 WL 3149216 (3d Cir. Aug. 8, 2022), three consumers each failed to repay student loans from their respective lenders. Sometime after the consumers’ loan payments were over 120 days past due, the lenders transferred each loan to another entity and closed the consumer’s account. On each consumer’s credit report provided by the defendant credit reporting agency, the student loans were listed as closed with a $0 balance. However, each report also contained a “Pay Status” notation on the student loan account stating “Account 120 Days Past Due.”
The consumers (through the same lawyer) brought claims against the credit reporting agency for violations of the FCRA for failing to maintain information to the maximum possibly accuracy and for failing to modify inaccurate information after being informed by the consumers. In particular, the consumers argued that their credit reports were inaccurate because the pay status notation inaccurately reflected that the consumers still had payment obligations (and were delinquent) on the closed accounts. The district courts all granted the credit reporting agency’s motions for judgment on the pleadings and held that the pay status notations—which reflect historical pay status—were not inaccurate or misleading to a reasonable creditor. The consumers appealed.
The Third Circuit affirmed the judgments in favor of the credit reporting agency, but differed from the district court on the appropriate standard for determining whether a credit report is misleading. Turning to the text of the FCRA, the Court observed that the statute permits persons other than creditors to request credit reports, “including, but not limited to, potential and actual employers, investors, and insurers.” Reasoning that Congress could not have intended that only sophisticated creditors be able to understand credit reports, the Third Circuit rejected the “reasonable creditor” standard used by the district courts and advanced by the credit reporting agency. Instead, the Court adopted a “reasonable reader” standard to determine whether a credit report is inaccurate and noted that “the reasonable reader standard runs the gamut to include sophisticated entities like banks and less sophisticated individuals such as local landlords.”
The Court went on to apply the reasonable reader standard to the consumers’ credit reports and determined that the pay status notations were not misleading or inaccurate. Emphasizing that the information in a credit report cannot be viewed in isolation and must be read in conjunction with the entire report, the Court reasoned that the notations were not misleading because “multiple conspicuous statements reflect that the accounts are closed and [consumers] have no financial obligations to their previous creditors” and “a reasonable interpretation of the reports in their entirety is that the Pay Status of a closed account is historical information.”
While the Third Circuit’s adoption of a “reasonable reader” standard over a “reasonable creditor” standard may sound plaintiff-friendly, the Court’s application of the standard will likely prove useful for defendants in FCRA actions. With the clarification that purported misleading information in a credit report cannot be read in isolation, credit reporting agencies in future cases will likely be able to point to other accurate information in a credit report that disambiguates isolated statements that draw the attention of plaintiffs’ attorneys.