July 11, 2023
The Third Circuit’s opinion in the case of Marissa Bibbs v. Trans Union LLC is a major victory for creditors and credit reporting agencies in the ongoing battle against claims of inaccurate or misleading credit reports asserted under the Fair Credit Reporting Act (FCRA). Bibbs originated from three separate district court cases brought by student loan borrowers who eventually stopped making payments on their loans. Their respective lenders closed their accounts and transferred their loans. The borrowers claimed that the subsequent credit reporting, comprised of a negative “Pay Status” notation of “Account 120 Days Past Due,” coupled with the reporting that the accounts had been closed, transferred, and had an account balance of zero, was misleading. Specifically, the borrowers complained that if an account has a zero balance, it is impossible to also report the pay status as late. The district courts dismissed all of the borrowers’ cases without discovery.
On appeal, the borrowers urged the Third Circuit to view the pay status entries “myopically,” arguing that even if the credit reports would not mislead a “reasonable creditor,” other viewers of the report could be misled. The credit reporting agency, on the other hand, argued that the trial courts had properly applied the “reasonable creditor” standard in concluding that reasonable creditors would think the pay status notations were only historical.
In affirming the trial courts’ dismissals, the Third Circuit disagreed with the district courts and the credit reporting agency and found that the “reasonable creditor” standard did not apply. Instead, the Third Circuit applied a “reasonable reader” standard, reasoning that the FCRA contemplates use of credit reports by sophisticated and unsophisticated individuals and furnishers alike. After establishing the correct standard, the Third Circuit concluded that the reporting at issue was neither inaccurate nor misleading primarily because of the “conspicuous” statements in the credit reports that the accounts had been closed and the borrowers had no further obligations to their previous creditors. The Third Circuit directed that a reasonable reader would read the credit reports in their entirety. While the credit reporting agency “could have made the reports even clearer,” the stated goal of the FCRA to achieve the “maximum possible” amount of accuracy “is an elusive one, reasoned the Third Circuit. “Just because a report could potentially be a bit clearer does not mean that it is not very clear at present.”
Over the past few years, a flurry of cases asserting FCRA violations have emerged, primarily premised on credit reporting being “misleading” instead of inaccurate. Some courts in other districts have also concluded that accurate historical data is not misleading when the entire credit report makes clear there is no ongoing obligation; however, the Bibbs opinion is the first of the federal appellate courts. Nevertheless, Bibbs is sure to be yet another powerful tool in defending FCRA claims.
Diane Bettino (BA ’86) is a Partner at Reed Smith in the firm’s Litigation department.