Third Circuit Exposes Furnishers to Significant FCRA Liability

In a published opinion on February 21, 2014, a unanimous panel of the Third Circuit in Seamans v. Temple University held that, even if information provided by a furnisher in response to a consumer’s dispute received from a consumer reporting agency (CRA) is technically correct, it may nonetheless be inaccurate in violation of the Fair Credit Reporting Act (FCRA). The Court also held a furnisher can be held liable under the FCRA for its failure to report to the CRAs that the claim is disputed, and punitive damages can be imposed where a company’s policies do not comply with a furnisher’s obligations under the law.

Most reports concerning this case focus on the Court’s decision that the Higher Education Act of 1965 does not relieve higher education institutions of their obligations under the FCRA to furnish accurate and complete information regarding student loan indebtedness to CRAs. While important, this case has much broader implication for all furnishers on three important issues.

First, the Third Circuit joined the Fourth, Sixth and Ninth Circuits in holding that the reasonableness of a post-dispute investigation is not solely determined by the accuracy of the information reported. See Saunders v. Branch Banking & Trust Co., 526 F.3d 142, 148 (4th Cir. 2008); Boggio v. USAA Fed. Sav. Bank, 696 F.3d 611, 617 (6th Cir. 2012); Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009). Even if the information provided in response to a dispute is technically correct, the Third Circuit ruled it may nonetheless be inaccurate if, through omission, it “create[s] a materially misleading impression,” which in this case involved not disclosing the account’s date of first delinquency or the account’s collection history. The Seamans Court therefore interpreted a furnisher’s obligations under the FCRA to mean that an investigation can be unreasonable, even if it results in technically accurate information being provided to the CRAs, where the information is “misleading in such a way and to such an extent that [it] can be expected to have an adverse effect,” on a consumer. This opinion also reiterates that whether an investigation is reasonable is almost always a fact question to be submitted to the jury, rather than decided on summary judgment.

Second, the Third Circuit joined the Fourth and Ninth Circuits in holding a furnisher violates the FCRA when, having received notice of a consumer’s “potentially meritorious dispute,” it fails to report the claim is disputed as part of its post-investigation response to the CRAs. See Saunders, 526 F.3d at 148–50; Gorman, 584 F.3d at 1163. The Court explained that a furnisher’s continuing failure to flag an account as disputed constitutes a violation of 15 U.S.C. § 1681s-2(b), and this obligation serves two purposes: (1) the furnisher, not the CRA, is in the best position to determine whether the dispute is bona fide, and thus the furnisher’s validation of the dispute signifies that the dispute is genuine; and (2) the furnisher must provide notice of the dispute to all CRAs to whom it originally submitted the information—not just to the CRA which initially notified the furnisher of the dispute.

Finally, the Court held that a furnisher’s objectively unreasonable actions with respect to implementing and training representatives on appropriate policies and procedures can support an award of punitive damages. The Third Circuit noted that “blanket policies” limiting a furnisher’s employees to performing a cursory confirmation of the consumer’s status before reporting back to a CRA, never resulting in marking an account as disputed, and only allotting analysts “5 to 10 minutes” to complete investigations, can result in a willful violation of the FCRA. In what should be treated as a stern warning to furnishers, the panel then stated that punitive damages can be imposed where a furnisher spends an average of “only” 15 minutes investigating each dispute and maintains a policy never to flag accounts as disputed because “these policies would appear to be in outright conflict with a furnisher’s duties under FCRA.”