Introduction

What can a consumer do if she discovers that she cannot qualify for a car loan or a home mortgage because one of her creditors has reported that she is delinquent on a loan, even though she is not?  One might think that the best course of action would be to contact the creditor to fix the problem, but under the Fair Credit Reporting Act (FCRA),¹ a consumer cannot immediately force a creditor to provide correct information.  Instead, the consumer must ask a consumer reporting agency (CRA)² to intervene.  But what if the creditor, after receiving notice of a dispute from a CRA, still does not correct the error?  At this stage, a consumer would have a legal right to sue under the FCRA, but a further hurdle emerges: Some federal courts simply toss out such lawsuits on the pleadings because consumers often do not have enough information prior to discovery in order to plead sufficient facts to survive a motion to dismiss.

The result is that for some consumers, there is no effective way to force a creditor to fix errors on a credit report.  The problem is particularly timely now, as consumers continue to struggle in the aftermath of the Great Recession.³  Meanwhile, errors appear on credit reports at an alarming rate.  By one estimate, mistakes appear on the credit reports for as many as forty million Americans.⁴  A Federal Trade Commission (FTC) study found that 5 percent of consumers have an error on their credit report that could cause them to pay more for products such as loans or insurance.⁵

This Essay proposes that Congress change the law and grant consumers a statutory private right of action to sue creditors directly—without first notifying a CRA—when those creditors refuse to provide accurate credit information.  Part I describes the scope of the problem, including the importance of credit reports in the American consumer economy and the degree to which they contain inaccuracies.  Part II details the provisions of the FCRA and discusses the legislative history and the hurdles that the law presents for consumers.  Part III examines the pleading requirements for a cause of action arising under the FCRA.  Part IV discusses the findings that federal judges have reached in particular cases, and discusses how those findings support the proposition that Congress ought to change the law.  Part V proposes that Congress enact a straightforward fix by providing consumers with the private right of action that they now lack.

I. The Scope of the Problem

The effort to track the credit histories of 200 million American consumers is a multibillion-dollar industry dominated by three companies: Experian, TransUnion, and Equifax.⁶  These companies make their money by assembling data from about 30,000 sources, including but not limited to creditors and collection agencies, and then selling that information to customers such as banks and finance companies.⁷  These credit reports define the consumer’s credit profile to the potential creditor and are summarized in a FICO score.⁸  FICO scores generally range from 300 to 850, with a higher score indicating better creditworthiness and a greater likelihood of qualifying for consumer loans.⁹  The FICO score is based on information in the credit reports, and the reports are used for qualifying for educational loans, mortgages, car loans, and other consumer loans.¹⁰  Employers also sometimes consult them as part of the hiring process.¹¹  A bad credit report can have a devastating effect, making it difficult for a consumer to engage in basic transactions.¹²

Despite the importance of credit reports, they are replete with errors.  Congress has acknowledged this and has required the FTC to study credit report accuracy.¹³  The FTC’s findings are “eye-opening numbers for American consumers” and “make it clear that consumers should check their credit reports regularly.  If they don’t, they are potentially putting their pocketbooks at risk.”¹⁴

The study found:

• One in four consumers identified errors on their credit reports that might affect their credit scores;
• One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports;
• Four out of five consumers who filed disputes experienced some modification to their credit report;
• Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report; and
• Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.¹⁵

Many of these disputes result in federal litigation when consumers are unable to persuade creditors or CRAs to correct errors to their satisfaction.  While it is difficult to quantify exactly how many such lawsuits have been filed, there is anecdotal evidence of a significant number of cases being filed against debt collectors in recent years.¹⁶

II. The FCRA and the Private Right of Action

Congress created the Fair Credit Reporting Act (FCRA) in 1970 “to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.”¹⁷  The FCRA imposes duties on “furnishers” of credit information, such as credit card issuers, stores, lenders, and insurance companies, among others.¹⁸  These duties are spelled out in 15 U.S.C. § 1681s-2, and they fall into two categories: Subsection (a) describes the duty to provide accurate information, and subsection (b) describes duties that are triggered when a furnisher receives notice from a CRA that a creditor has disputed some information.

The FCRA includes a private right of action for willful or negligent noncompliance.¹⁹  Under subsections (c) and (d) of § 1681s-2, however, the private right of action does not apply to the duty to provide accurate information discussed in § 1681s-2(a).  Rather, a consumer has a private right of action only under § 1681s-2(b), when duties are triggered by notice to a furnisher from a CRA.  Essentially, the consumer must bring his or her dispute to one of the CRAs—such as Experian, TransUnion, or Equifax—and rely on the agency to notify the creditor of the dispute.

Why did Congress structure the law this way, creating an intermediary when there is a dispute?  To shield creditors from lawsuits.  As the Ninth Circuit recently discussed, “Congress did not want furnishers of credit information exposed to suit by any and every consumer dissatisfied with the credit information furnished.”²⁰  Therefore, Congress designated the CRAs as the intermediaries to communicate disputes to creditors, providing a “filtering mechanism” that shields creditors from consumer lawsuits.²¹  This Essay argues that the filtering mechanism is poor public policy.²²  From the consumer’s perspective, it is likely that the duty of accuracy described in subsection (a) of § 1681s-2 is more crucial and fundamental than many of the duties described in subsection (b).  A closer look at the differences between the two subjections helps illustrate why this is so.

A.  No Private Right of Action to Enforce the Duty to Provide Accurate Information

Subsection (a) of § 1681s-2 describes the “[d]uty of furnishers of information to provide accurate information.”²³  Among the duties listed is this one:

Thus, if a consumer disputes the accuracy of information provided by a creditor, then the creditor is supposed to tell the CRAs that the information is disputed.

Perhaps more importantly, the subsection requires: “A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.”²⁵  In addition, it requires: “A person shall not furnish information relating to a consumer to any consumer reporting agency if—(i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii) the information is, in fact, inaccurate.”²⁶

A consumer has no power to force a creditor to do these things, however.  Subsection (d) limits enforcement authority to federal and state agencies.²⁷

B. A Private Right of Action After Notice Is Given Through an Intermediary

Subsection (b) describes “[d]uties of furnishers of information upon notice of dispute.”²⁸  After receiving notice of a dispute, the creditor is required to do the following:

(A) conduct an investigation with respect to the disputed information;

(B) review all relevant information provided by the consumer reporting agency . . . ;

(C) report the results of the investigation to the consumer reporting agency;

(D) if the investigation finds that the information is incomplete or inaccurate, report those results to all other consumer reporting agencies to which the person furnished the information and that compile and maintain files on consumers on a nationwide basis; and

(E) if an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified . . . (i) modify that item of information; (ii) delete that item of information; or (iii) permanently block the reporting of that item of information.²⁹

Under the FCRA as it presently exists, none of these duties arises if a consumer brings a dispute directly to a creditor.  Instead, these duties are triggered only when a CRA brings them to the attention of a creditor.  This becomes the basis for what a consumer needs to plead when bringing a federal lawsuit against a creditor: The consumer must describe the interaction between the creditor and the CRA.

III. Challenges in Pleading a Cause of Action Under 15 U.S.C. § 1681s-2(b)

A consumer who has complained about a dispute to one of the CRAs, and who believes that the agency has notified the creditor of the dispute, has the authority to sue the creditor, but it is not an easy task.  Many such lawsuits come to an end after the defendant successfully argues for dismissal under Federal Rule of Civil Procedure 12(b)(6).  Two general problems are immediately evident for plaintiffs who face a 12(b)(6) motion: (A) meeting the plausibility standard for pleadings under Federal Rule of Civil Procedure 8; and (B) meeting the high hurdle for what would constitute an unreasonable investigation under the FCRA.

A. The Plausibility Problem

Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss a complaint for “failure to state a claim upon which relief can be granted.”  To survive a motion to dismiss, a complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”³⁰

When one examines the elements of an FCRA claim brought under 15 U.S.C. § 1681s-2(b), however, one can see how challenging it might be for a plaintiff who must plead facts that almost always will be difficult to ascertain before discovery.  First, the plaintiff must allege that the defendant creditor was notified of the dispute.  Then, the plaintiff must allege that the creditor investigated the dispute.  How can the plaintiff consumer, before discovery has occurred, obtain sufficient factual matter of what the defendant creditor did or failed to do?

If the consumer were given a private right of action under 15 U.S.C. § 1681s-2(a), basic pleading would be less of a hurdle, because the plaintiff consumer would not be in the position of having to plead sufficient facts regarding communications between the CRA and the creditor, or regarding the internal machinations of the defendant creditor.  Instead, the plaintiff consumer could plead that the disputed information is inaccurate, and that the defendant creditor had reason to believe it was inaccurate (because, for example, the consumer had notified the defendant creditor of the inaccuracy).  It is difficult to imagine that Congress intended for consumers to be hamstrung by pleading requirements in bringing an action under the FCRA.

B. Even an Ineffective Investigation May Be Reasonable

While the FCRA only requires that a creditor conduct an investigation after a CRA notifies it of a consumer dispute, courts generally have held that the investigation must meet a standard of reasonableness.³¹  Creditors have argued that any investigation, even one of poor quality, should suffice under the FCRA.³²  One might assume that it is a victory for consumers that courts have imposed a higher degree of accountability on creditors than what the FCRA might seem to indicate on its face, but this is not necessarily so, because the reasonableness requirement by itself still does not entitle consumers to an accurate resolution of any dispute.  The creditor is liable “not for an investigation that produces incorrect results, but for an unreasonable investigation.”³³  The investigation will be based on the information that the creditor receives from the CRA.  To the extent that the CRA has provided limited information, the defendant creditor might not have much to investigate.

In Gorman v. Wolpoff & Abramson, LLP, for example, the defendant creditor MBNA had received four notices of dispute from a CRA regarding the plaintiff consumer’s credit history.³⁴  The district court had granted MBNA summary judgment on some of the claims, and the Ninth Circuit reviewed whether summary judgment was appropriate with regard to the reasonableness of MBNA’s investigation after MBNA received the notices of dispute.  In some of the notices of dispute, MBNA had little to work with.  One of the notices of dispute read: “Claims company will change.  Verify all account information.”³⁵  “In response to [that] notice, MBNA ‘review[ed] the account notes to determine whether MBNA had agreed to delete any charges or to modify the account information in any way.’  It concluded that ‘[n]o such commitment had been made.’”³⁶  The Ninth Circuit panel found that “MBNA could not have reasonably been expected to undertake a more thorough investigation . . . based on the scant information contained in this notice.”³⁷

The Ninth Circuit examined each notice and response and concluded that the district court acted appropriately in granting summary judgment on the facts.³⁸  The court noted: “We emphasize that the requirement that furnishers investigate consumer disputes is procedural.  An investigation is not necessarily unreasonable because it results in a substantive conclusion unfavorable to the consumer, even if that conclusion turns out to be inaccurate.”³⁹

Since the whole point of a lawsuit filed by a consumer under the FCRA presumably would be to correct inaccurate information, the consumer would be in a stronger position if the consumer could sue based on whether the information is in fact inaccurate and on whether the creditor had reason to know the information was inaccurate.  Forcing consumers to sue based on whether a creditor conducted a procedurally reasonable investigation, without regard to whether the investigation detects inaccuracies, does a disservice to the consumer.  Essentially, a creditor is not required to investigate a dispute thoroughly with an eye toward correcting inaccuracies.  Instead, a creditor must merely demonstrate that it went through the motions of a minimally reasonable investigation.  No consumer would be happy with that type of halfhearted response to a legitimate dispute.  Setting such a low bar for creditors, and forcing consumers to meet such a high bar for showing a violation of the FCRA, hinders a court’s ability to require creditors to provide accurate information.  It seems unlikely that Congress intended to create a law that makes it so difficult for consumers to correct inaccuracies on their credit reports.⁴⁰  After all, the “primary purpose for the FCRA . . . [is] to protect consumers against inaccurate and incomplete credit reporting.”⁴¹

IV. Mixed Results in District Court

A few recent cases in the U.S. District Court for the Eastern and Central Districts of California help to illustrate the obstacles and uncertainties that consumers face in trying to bring a claim under the FCRA.  These cases are intended merely as a convenient sampling to illustrate how courts in any district might approach the issue.  Indeed, courts have “have taken a variety of approaches to the degree of precision with which a plaintiff must plead that . . . notification actually took place in order to state a claim under § 1681s–2(b).”⁴²  The sufficiency of pleadings is a recurring theme in these cases, and the outcomes of motions to dismiss appear to depend in large measure on the leniency that a particular judge might choose to afford to a plaintiff.⁴³ The most important issue for the consumer plaintiffs—namely, whether the information is accurate—is not the decisive issue in these cases.  To the extent that consumers seek redress in court to enforce a creditor’s duty of accuracy, these cases make clear that the courts do not consider the duty of accuracy at all.

A. Ali v. Capital One

The facts of this case are typical.  The plaintiff alleged that a creditor had incorrectly identified her as being delinquent and owing more than $11,000.⁴⁴  She alleged that contrary to the information on her credit history, she “had closed the account and was never late with her payments.”⁴⁵  She brought a claim under the FCRA alleging, among other things, that the creditor had failed to conduct a reasonable investigation.  The court ultimately dismissed the claim with leave to amend, in part because the plaintiff did not allege sufficient facts regarding the alleged lack of investigation by the creditor.  The court noted: “plaintiff has failed to allege . . . what procedures defendant failed to follow.”⁴⁶

The court found that in the absence of such factual allegations, the plaintiff had failed to state a claim under the FCRA for this cause of action.  The court did not discuss how the plaintiff might be able to obtain such facts, prior to discovery, in order to be able to plead facts sufficient to survive a motion to dismiss.

B. Duenas v. Nordstrom FSB

The plaintiff consumer in this case had found an account on his credit history that “he did not recognize or remember opening.”⁴⁷  The plaintiff alleged, among other things, that the defendant creditor had failed to conduct an investigation.  The defendant creditor argued in response that the plaintiff “does not allege . . . what Defendant did to investigate the dispute” or “why this was unreasonable.”⁴⁸  The court agreed, and it cited Ali v. Capital One as authority for the proposition that the plaintiff must provide factual allegations.  The court dismissed the complaint with leave to amend.  Ultimately, however, the plaintiff did not amend the complaint, and the case was dismissed with prejudice.⁴⁹

C. Manukyan v. CACH, LLC

The consumer in this case had filed a complaint against ten creditor defendants.⁵⁰  The plaintiff consumer alleged that her credit report listed accounts that did not belong to her, and she alleged that she “believes that the Credit Agencies then contacted Defendants about Plaintiff’s disputes.”⁵¹  The court dismissed the complaint with prejudice for several reasons, including failure to provide specific facts concerning each defendant, and failure to give defendants sufficient notice of what information was disputed.  The case ended without an examination of whether the information on her credit report was, in fact, inaccurate.

D. Petrosyan v. CACH, LLC

In this case, the court gave the plaintiff consumer more of an opportunity to proceed with litigation in the absence of specific factual allegations about the defendant creditor’s investigation.  The court recognized that it would be difficult for a consumer to provide facts to which the consumer has no access, noting:⁵²

In these circumstances, alleging that the defendants did nothing more than verify account accuracy was enough to state a claim for unreasonable investigation under FCRA.⁵⁴

E. Pleading Sufficient Facts

These four cases are not intended to represent the full range of outcomes in district court, but are intended rather to illustrate the difficulty that plaintiff consumers can face in pleading sufficient facts to state a claim under the FCRA, particularly when those facts might not be available to the plaintiffs.  The point is not that the judges in these cases should have reached a different conclusion; rather, the point is that forcing consumers to state a claim under § 1681s-2(b) creates a situation in which it is difficult for consumers to take action against creditors when they believe information on their credit histories is inaccurate.  If these same consumers had been able to bring causes of action under § 1681s-2(a) instead, invoking the creditor’s duty to provide accurate information, one can imagine that the outcome of motions on the pleadings would not be the same.⁵⁵

It does not appear to help plaintiffs much that the information they need might be uniquely within the opposing party’s knowledge.  In the context of fraud allegations, the specificity requirement of Federal Rule of Civil Procedure 9(b)⁵⁶ may be relaxed when the opposing party uniquely possesses the required knowledge, and in those circumstances, pleadings may be made on “information and belief.”⁵⁷  Even then, however, the plaintiff still must plead the grounds for its beliefs.⁵⁸  In FCRA lawsuits, however, the cause of action does not sound in fraud.  The requirement under Rule 9(b) for stating with particularity the circumstances constituting fraud or mistake does not come into play in pleading facts for a cause of action under the FCRA, and it is not clear how much opportunity a plaintiff has to plead facts upon information and belief.⁵⁹

V. A Straightforward Solution: Empower Consumers

As the Ninth Circuit has discussed, the “primary purpose for the FCRA” is “to protect consumers against inaccurate and incomplete credit reporting.”⁶⁰  While it is true that the FCRA “has been drawn with extreme care, reflecting the tug of the competing interests of consumers, CRAs, furnishers of credit information, and users of credit information,”⁶¹ the lack of a private right of action for consumers to force creditors to meet the duty of accuracy appears to fly in the face of the primary purpose of the FCRA.

The private right of action as it pertains to furnishers of credit information dates back to amendments made to the FCRA in 1996.  “Before those amendments, the FCRA imposed no specific duties on furnishers of information . . . .”⁶²  There is little in the legislative history to explain exactly why Congress apparently decided not to provide consumers with a private right of action against furnishers of information.⁶³  For example, the FTC, in trying to divine Congress’s intent, has been forced to look to the structure of the FCRA and draw an inference.⁶⁴

It is clear, however, that the underlying purpose of the FCRA has been to protect consumers and ensure that credit reports are accurate.⁶⁵  Therefore, in keeping with this purpose, and in light of the difficulties consumers have faced in pleading a basic cause of action in federal court to try to correct inaccurate information on credit reports, Congress should change the FCRA to create a private right of action for § 1681s-2(a).  There is nothing to prevent Congress from doing this.  “Congress routinely creates new rights of action by amending existing statutes . . . .”⁶⁶

If Congress is indeed concerned that this new private right of action would expose creditors “to suit by any and every consumer dissatisfied with the credit information furnished,”⁶⁷ then Congress could require consumers to exhaust administrative remedies first.  Under this proposed change, consumers would still be required to lodge a complaint with the Consumer Financial Protection Bureau, which has the authority to investigate credit accuracy complaints.⁶⁸  This would provide an alternative filtering mechanism to weed out unmeritorious claims, while still preserving a consumer’s ability to pursue a claim in court without facing the pleading hurdles that now exist.  Congress could create the exhaustion requirement by statute.⁶⁹

Giving consumers the right to sue creditors directly to enforce the duty of accuracy would further the public policy of protecting consumers’ rights.  It also would help to address the rampant inaccuracies that plague millions of consumer credit reports.

Conclusion

The FCRA imposes duties on furnishers of credit information that include a duty to provide accurate information about consumers, as well as a duty to investigate on notice of a dispute from a CRA.  Under the law as it currently is written, however, consumers have no private right of action against creditors who violate the duty of accuracy.  Instead, consumers must rely on state and federal agencies to enforce that duty.  While consumers do have a private right of action to enforce the creditor’s duty to conduct an investigation on notice of a dispute, it is difficult for consumers to plead that cause of action in federal court, because the facts necessary to allege a plausible claim often are in the possession of the defendant creditor.  Therefore, to provide consumers with better tools to make sure their credit reports are accurate, Congress should create a private right of action so that consumers can sue creditors who breach the duty of accuracy imposed by the FCRA.