The United States Court of Appeals for the Second Circuit recently determined that the Fair Credit Reporting Act (FCRA) does not include a preliminary assessment regarding whether a credit report inaccuracy is “legal” or “factual.” The context of this decision stems from a consumer’s lawsuit against a consumer reporting agency (CRA).
The consumer alleged that the agency failed to uphold adequate procedures for ensuring the accuracy of their credit report. According to the case, they financed their leased car through a credit union. At the end of the 36-month lease, the consumer could purchase the vehicle for its residual value.
The credit union provided this data to the CRA, indicating that the consumer owed a balloon payment. However, the dealership verified that the consumer did not owe it. The CRA argued that it did not have to resolve a legal issue. The agency also added that it depended on the credit union to furnish accurate information.
The district court granted the CRA summary judgment. They could not determine the credit report as “inaccurate” because balloon payments qualified as legal disputes, not factual. However, the consumer appealed this decision. This appeal led to the Second Circuit Court vacating the decision to grant the CRA summary judgment.
The Second Circuit Court noted that the trial court focused too heavily on whether the furnished information proved inaccurate. The Second Circuit claimed the court did not properly consider whether the CRA followed reasonable procedures. In addition, the Second Circuit mentioned its decision in the Mader v. Experian Information Solutions, Inc., 56 F.4th 264 (2d Cir. 2023) case after the trial court granted summary judgment.
The trial court also announced a bright-line rule. This rule stressed the inability to hold CRA liable for inaccurate credit reports if the inaccuracy involves a legal determination. However, CRAs maintained responsibility for factual inaccuracies in credit reports.
The Second Circuit disagreed with this decision. It found no bright-line rule provided that an error must be a factual or transcription error to be actionable under the FCRA. Instead, courts must determine whether the information in a dispute is objectively and readily verifiable. They must do this when deciding whether a claimed inaccuracy is potentially actionable under section 1681e(b).
The Second Circuit referred to the Mader v. Experian Information Solutions decision for this appeal case. It defines “accuracy” as a focus on objectivity and readily available information under the FCRA. In addition, CRAs can violate Section 1681e(b) by failing to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”
This decision shows how important it is to comply with the FCRA and ensure that the information provided in consumer reports is accurate. This fact is true whether for credit reports or background checks. The best way to ensure correct and compliant background checks is to partner with an experienced screening company.
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