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Sharp Distinction: Section 1681i Claim Dismissed Because There is a “Sharp Distinction” Between a Credit File and Credit Report

Plaintiffs’ Other FCRA Claims Survive By “Skin of their Teeth.”

In Clements v. Trans Union, LLC, 2018 U.S. Dist. LEXIS 160931 (Aug. 29, 2018)[1] (“Clements”), a purported class action pending in the United States District Court for the Southern District of Texas, the Plaintiffs sued Trans Union LLC (“Trans Union”) and Experian Information Solutions, Inc. (“Experian”) (collectively the “Credit Reporting Defendants” or “CRD”) alleging that the CRD violated the Fair Credit Reporting Act (“FCRA”) when they reported old and obsolete information on their credit reports about delinquent accounts the Plaintiffs had with TXU Energy Retain Company, LLC (“TXU”).

Plaintiffs specifically alleged claims against the CRD under FCRA (1) section 1681c(a)(4), for allegedly reporting old and obsolete information on the Plaintiffs’ credit reports for longer than the statutory seven-year period; (2) section 1681e, for alleged failure “to follow reasonable procedures to assure maxim possible accuracy” in their reporting of the TXU trade lines; and (3) section 1681i, for alleged failure to conduct a reasonable investigation in response to any Plaintiffs’ dispute of information appearing in Plaintiffs’ consumer credit file.

The CRD filed separate motions to dismiss based on lack of standing and failure to state a claim, and the Court addressed[2] both motions at the same time.  With the exception of the section 1681i claims, the case survived dismissal because the Court held that Plaintiffs alleged sufficient facts – just barely – to get past the pleading stage.

First, the Court recognized that although a violation of FCRA procedural requirements alone is insufficient to confer standing, Plaintiffs alleged more than just a procedural violation; they alleged that their credit scores were negatively impacted by the CRD’s conduct.  See Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).  While a reduced credit score without resulting damages is insufficient to constitute actual damages for purposes of the FCRA, the Court held that the injury-in-fact standard required to confer Article III standing was much different and Plaintiffs met that threshold inquiry.  Clements at *10-11.

Second, the Court considered the section 1681c(a)(4) allegations. Section 1681c(a)(4), precludes credit reporting agencies from reporting accounts which have been ‘placed for collection’ or ‘charged to profit and loss’ more than seven years prior to the report.  The CRD argued that Plaintiffs’ section 1681c(a)(4) claim should be dismissed because Plaintiffs did not specifically allege facts sufficient to determine whether their claims were exempted by section 1681c(b) – which expressly permits the reporting of certain high value transactions (found here) even beyond the seven and one-half year period.  The Court disagreed. It held that, “it defies logic that a plaintiff alleging a violation of FCRA has to allege the inapplicability of each and every exception to the statute.” Clements at *15.  And, “it is implicit in the Complaint’s allegations that the exceptions are inapplicable here.” Id. at *16.

Third, the Court found in favor of the Credit Reporting Defendants and dismissed Plaintiffs’ section 1681i(a)(1)(A) claim.  Here’s why:  Section 1681i(a)(1)(A), requires a credit reporting agency to conduct a reasonable investigation in response to any consumer dispute of information appearing on that consumer’s credit file.  The Court stated, “it is important to clarify that there is a sharp distinction between a credit file and a credit report.”  Id.

“To summarize in simple terms, the credit file is all the information about a consumer in the possession, custody, and control of a consumer reporting agency. A credit report, on the other hand, is only the specific credit information about an individual that is provided to a third-party.”

Id. at *17-18.  Plaintiffs alleged that the CRDs failed to conduct a proper investigation into their disputes because if a proper investigation had been performed, the CRD would have determined that the information provided to third parties on the credit reports violated the time limitation set forth in section 1681c.  The Court disagreed because Plaintiffs alleged that the CRD violated section 1681i, by failing to remove outdated information from the credit reports provided to third parties, but section 1681i applies only to credit files. “There is no requirement anywhere in FCRA that requires a consumer reporting agency to remove outdated information from a credit file” and as such, Plaintiffs cannot “pursue a section 1681i claim based on the alleged inclusion of outdated information in a credit file. Id. at *18 -19.

Fourth, the CRD argued that the Plaintiffs’ section 1681e claims should be dismissed because Plaintiffs failed to plead that the CRD published a credit report containing an inaccuracy to a third party.  The Court rejected the CRD’s argument.  It held that in the operative complaint, Plaintiffs specifically alleged that the reports at issue were reviewed by both existing and prospective “grantors and extenders of credit.” Id. at *20.   The Court also rejected the argument that Plaintiffs did not identify the inaccuracy the credit entries, only that the reporting did not cease early enough.   Citing Sepulvado v. CSC Credit Servs., Inc., 158 F.3d 890, 895 (5th Cir. 1998), the Court stated, “[a] credit entry is “inaccurate” within the meaning the FCRA if (1) “it is patently incorrect,” or (2) it “is misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.”  Clements at *21-22.  In light of the fact that the FCRA prohibits a consumer reporting agency from including information about an account that is more than seven-and-a-half years hold in a consumer report, the Court found that Plaintiffs asserted enough facts to survive the motion to dismiss. Id. at *22.

Fifth, the Court declined to dismiss Plaintiff’s claims for failure to allege injuries or damages.  Pursuant to section 1681o, a consumer reporting agency that negligently violates the provisions of the FCRA may be liable to the consumer for actual damages, costs, and attorney’s fees.  The Court “dug deep” and “very liberally” read the operative complaint. Id. at *25.  The Court concluded that Plaintiffs specifically alleged that their inaccurate credit reports were viewed by prospective and existing credit grantors and that the negative information in the reports continued to do damage, which meant that the information influenced the decision –making of those determining whether or not to extend Plaintiffs credit. Id. at *26. The Court found that Plaintiffs alleged sufficient facts – but just barely – to put the CRD on notice as to any actual damages at issue in the litigation.

Finally, the CRDs sought dismissal on the basis that Plaintiffs did not allege sufficient facts to show that the CRD’s conduct was negligent and/or willful.  The CRDs argued that Plaintiffs merely recited boilerplate statutory language, but the Court disagreed.  Plaintiffs alleged that their attorneys notified the credit reporting agencies of the outdated information on their credit reports and that the CRDs allegedly continued to report the information.  The Court held that the Plaintiffs “have, by the skin of [their] teeth, set forth sufficient factual allegations to withstand dismissal” of Plaintiffs’ claims alleging negligent and/or willful conduct. Id. at *27.

While the Court allowed this case to slip through the initial pleading stage, based on the Court’s consistent couching of its decision in terms of having to view the facts in the light most favorable to Plaintiffs, it sounds like the Court is skeptical and the Plaintiffs have a hard road ahead.

[1] The citations herein reference a Memorandum and Recommendation by United States Magistrate Judge Andrew M. Edison.  On September 20, 2018, United States District Judge George C. Hanks, Jr. approved an adopted the Memorandum and Recommendation in its entirety as the holding of the Court. See Clements v. Trans Union, LLC, No. 3:17-CV-00237, 2018 U.S. Dist. LEXIS 160483 (S.D. Tex. Sep. 20, 2018). No objections were filed to the Memorandum and Recommendation.

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