Denan v. Trans Union LLC

• Decision Date: 11 May 2020
• Docket Number: No. 19-1519,19-1519
• Parties: Joseph W. DENAN, et al., Plaintiffs-Appellants, v. TRANS UNION LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

959 F.3d 290

Joseph W. DENAN, et al., Plaintiffs-Appellants,

v.TRANS UNION LLC, Defendant-Appellee.

No. 19-1519

United States Court of Appeals, Seventh Circuit.

Argued November 4, 2019

Decided May 11, 2020

Rehearing and Rehearing En Banc^* Denied June 12, 2020

Michael A. Caddell, Attorney, Caddell & Chapman, Houston, TX, John G. Jacobs, Attorney, Jacobs Kolton, Chicago, IL, for Plaintiffs - Appellants Joseph W. Denan, Adrienne L. Padgett

Albert E. Hartmann, Michael C. O'Neil, Michael Patrick Yingling, Maxwell J. Eichenberger, Attorneys, Reed Smith LLP, Chicago, IL, for Defendant - Appellee

Lauren KW Brennan, John Soumilas, Attorneys, Francis Mailman Soumilas P.C., Philadelphia, PA, for Amici Curiae National Consumer Law Center, Incorporated, National Association of Consumer Advocates, Incorporated

Allen Denson, Attorney, Hudson Cook, LLP, Washington, DC, for Amicus Curiae Consumer Data Industry Association

Before Wood, Chief Judge, and Bauer and Brennan, Circuit Judges.

Brennan, Circuit Judge.

Plaintiffs Joseph Denan and Adrienne Padgett sued consumer reporting agency Trans Union LLC, alleging violations of the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681 et seq . We must decide whether §§ 1681e(b) and 1681i(a) of the FCRA compel consumer reporting agencies to determine the legal validity of disputed debts. The district court dismissed plaintiffs’ lawsuit, holding these provisions impose no such duty. Finding no error in the district court’s decision, we affirm.

I

Plaintiffs each obtained loans from online payday lenders affiliated with Native American tribes. Denan, a New Jersey resident, took out a loan of $1,600 from Plain Green, LCC (affiliated with the Chippewa Cree Tribe). The loan charged an interest rate in excess of 300% and, according to the loan agreement, its terms were "subject to and governed by tribal law[,] ... not the law of the borrower’s resident state." After Denan stopped making monthly payments, Plain Green reported to Trans Union that he owed $2,689. When Trans Union issued a credit report listing the Plain Green debt, Denan disputed the report’s accuracy, telling Trans Union that Plain Green "illegally issued" the loan so "there was no legal obligation for [him] to repay." Trans Union investigated Denan’s dispute and verified the accuracy of the information furnished by Plain Green. Trans Union’s investigation did not probe Denan’s legal defenses to the Plain Green debt.

Padgett, a Florida resident, borrowed $900 from Great Plains, LLC (affiliated with the Otoe-Missouria Tribe) and $1,600 from Plain Green.¹ Each loan demanded an interest rate in excess of 300% and was "subject to and governed by tribal law and not the law of [the] resident state." After Padgett stopped making monthly payments, the lenders reported to Trans Union delinquent amounts of $2,585 owed to Plain Green, and $1,042 owed to Great Plains. Unlike Denan, Padgett did not contact Trans Union to dispute her credit report.

Plaintiffs brought a putative class action against Trans Union, alleging it violated two FCRA provisions: 15 U.S.C. § 1681e(b), which requires consumer reporting agencies like Trans Union "to assure maximum possible accuracy of the information" contained in credit reports, and 15 U.S.C § 1681i(a), which requires consumer reporting agencies to reinvestigate disputed items. Plaintiffs’ claims under each provision presume that Trans Union transmitted "inaccurate" credit reports. Denan and Padgett did not claim Trans Union’s reports were factually inaccurate, as they took out the loans reported by Trans Union, and they did not contest the debt amounts or Trans Union’s account of their payment history. Instead, plaintiffs claimed Trans Union’s reports contained "legally inaccurate" information because they posted "legally invalid debts."

Plaintiffs believe loans issued by Plain Green and Great Plains are void ab initio under New Jersey and Florida usury laws, and therefore any debt incurred under those loans is "legally invalid." True or not, plaintiffs did not sue the lenders to void their debts, nor did they seek an adjudication to invalidate them. That is beside the point, per plaintiffs, because "reasonable procedures designed to ensure the maximum possible accuracy of the information would have shown that [Plain Green and Great Plains’] purported loans ... were void and uncollectible."

To plaintiffs, Trans Union "knew or recklessly ignored" that loans made by Plain Green and Great Plains were unenforceable, which spawned a § 1681e(b) violation. Their view rests on three allegations. First, plaintiffs contend that Trans Union’s lender screening procedures showed that Plain Green and Great Plains lacked licenses to lend outside of Native American tribal reservations. Second, the same screening procedures, they assert, showed that Plain Green and Great Plains had histories of charging loan interest rates in excess of rates permitted in New Jersey and Florida. Third, plaintiffs submit Trans Union ignored government investigations and enforcement actions in several states—though none of them New Jersey or Florida—from which "TransUnion easily could and should have discovered" that Plain Green and Great Plains made illegal loans. The § 1681i(a) claim is more straightforward. After Denan disputed his Plain Green debt, they contend Trans Union "failed to use reasonable reinvestigation practices for ascertaining the accuracy of information" contained in his credit report.

Trans Union moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that §§ 1681e(b) and 1681i(a) impose a duty to transmit factually accurate credit information, not to adjudicate the validity of disputed debts. Plaintiffs’ FCRA claims fall short, Trans Union argued, because plaintiffs failed to allege that their credit reports were factually inaccurate. The district court granted Trans Union’s motion, concluding that "[u]ntil a formal adjudication invalidates the plaintiffs’ loans ... they cannot allege factual inaccuracies in their credit reports."

II

We review de novo a district court’s grant of judgment under Rule 12(c). Orgone Capital III, LLC v. Daubenspeck , 912 F.3d 1039, 1043 (7th Cir. 2019). To survive a motion for judgment on the pleadings, "a complaint must state a claim to relief that is plausible on its face." Bishop v. Air Line Pilots Ass’n, Int’l , 900 F.3d 388, 397 (7th Cir. 2018) (citations omitted). When assessing the facial plausibility of a claim, "we view the facts in the complaint in the light most favorable to the nonmoving party and will grant the motion only if it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief." Buchanan-Moore v. Cty. of Milwaukee , 570 F.3d 824, 827 (7th Cir. 2009) (internal citation and quotation marks omitted).

We begin with § 1681e(b), which requires that "[w]henever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates." 15 U.S.C. § 1681e(b). The statute requires a plaintiff to show that a consumer reporting agency prepared a report containing "inaccurate" information. See Walton v. BMO Harris Bank N.A. , 761 F. App'x 589, 591 (7th Cir. 2019) (holding a consumer reporting agency "cannot be liable as a threshold matter [under § 1681e(b) ] if it did not report inaccurate information"); Sarver v. Experian Info. Sols. , 390 F.3d 969, 971 (7th Cir. 2004) ("[T]o state a claim under [ § 1681e(b) ], a consumer must sufficiently allege that a credit reporting agency prepared a report containing inaccurate information." (internal citations and quotation marks omitted)).

Section 1681e(b) does not explain what it means to be "inaccurate," nor does it draw a line between factual and legal "accuracy." Plaintiffs contend there is no line, arguing that § 1681e(b) requires consumer reporting agencies to verify the factual and legal accuracy of information contained in credit reports. Assuring maximum possible accuracy, they insist, required Trans Union to look beyond the data furnished by Plain Green and Great Plains and determine the legality of plaintiffs’ loans. But this argument does not find support in the FCRA or its implementing regulations.

The FCRA imposes duties on consumer reporting agencies and furnishers in a manner consistent with their respective roles in the credit reporting market. Furnishers—such as banks, credit lenders, and collection agencies—provide consumer data to consumer reporting agencies.² In turn, those agencies compile the furnished data into a comprehensible format, allowing others to evaluate the creditworthiness of a given consumer. Consumer reporting agencies and furnishers, though interrelated, serve discrete functions: furnishers report data to incentivize the repayment of debts, while consumer reporting agencies compile and report that data for a fee. What results is a credit reporting system, producing a vast flow and store of consumer information. For example, according to the Consumer Financial Protection Bureau, each of the nationwide consumer reporting agencies receive information from furnishers on over 1.3 billion consumer credit accounts or trade lines on a monthly basis.³

"[G]iven the complexity of the system and the volume of information involved," "[o]ne can easily see how, even with safeguards in place, mistakes can happen." Sarver , 390 F.3d at 972 (evaluating § 1681e(b) claim and magnitude of data processed by consumer reporting agency). Thus, the FCRA does not require unfailing accuracy from consumer reporting agencies. Instead, it requires a consumer reporting agency to follow "reasonable procedures to assure maximum possible accuracy" when it prepares a credit report. 15 U.S.C. § 1681e(b) ; see also Henson v. CSC Credit Servs. , 29 F.3d 280, 284 (7th Cir. 1994) ("A credit reporting agency is not liable under the FCRA if it...