In Shaw v. Experian Information Systems, 2018 DJDAR 4948, 2018 WL 2424105 (9th Cir. May 29, 2018), the Court of Appeals for the Ninth Circuit held that Experian’s reporting of Plaintiffs’ short sales during the real estate market crash between 2008 to 2012 to subscribers of credit information did not violate 15 U.S.C.§ 1681e or § 1681i of the FCRA because it was neither “patently inaccurate” or “misleading”. Experian reported short sales to subscribers, such as Fannie Mae, using a proprietary code combination of 9-68. Fannie Mae ultimately read Experian’s data as a “foreclosure” and its automated underwriting software denied Plaintiffs’ mortgage applications as a result. The Court of Appeals held that:
[t]he closer question, and the one on which Appellants rest much of their case, is whether Experian’s reporting of Appellants’ short sales using code combination 9-68 was misleading. We conclude that it was not. Under this test, imprecision alone does not render a CRA’s conduct actionable. Rather, the CRA’s reporting must be “misleading in such a way and to such an extent that it [could] be expected to adversely affect credit decisions.” Gorman, 584 F.3d at 1163 (quoting Sepulvado, 158 F.3d at 895); see also Saunders v. Branch Banking & Tr. Co., 526 F.3d 142, 148 (4th Cir. 2008) (“[A] consumer report that contains technically accurate information may be deemed ‘inaccurate’ if the statement is presented in such a way that it creates a misleading impression.”). That standard was not met here. Appellants argue that Experian’s reporting of Appellants’ short sales was misleading because Experian’s use of “catchall code 9” in the lead payment history spot caused Fannie Mae to treat the short sales as potential foreclosures. However, this argument fails to consider that Experian reported Appellants’ short sales with code combination 9-68. Account status code 68 automatically inserts 9 into the lead payment history spot, signifying that the account is “SETTLED” and “legally paid in full for less than the full balance.” This is the very definition of a short sale. Moreover, Appellants point to no authority suggesting that the inclusion of language describing what happens in a short sale, as opposed to the exact term “short sale,” is so misleading as to constitute a FCRA violation. Appellants are correct that the statute refers to “maximum possible accuracy,” not merely technical accuracy.4 See 15 U.S.C. § 1681e(b). But this does not relieve Appellants of the burden to prove that the inaccuracy is “misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” Carvalho, 629 F.3d at 890 (quoting Gorman, 584 F.3d at 1163). (Id., at 14-15.) (Emphasis added.)
The Court of Appeals further explained that the end-users misinterpretation of Experian’s reporting did not render Experian’s reporting inaccurate:
Certainly, Fannie Mae’s treatment of code 9 on Appellants’ accounts as a possible foreclosure could have adversely affected credit decisions when Appellants sought new mortgages. But this does not render Experian’s reporting misleading. Fannie Mae conceded that it knew that, by treating accounts with code 9 as a foreclosure, it was “necessarily capturing accounts that [were] not actually foreclosures.” Thus, the record before us indicates that the inaccurate reporting of Appellants’ short sales was due to Fannie Mae’s mistreatment of Experian’s coding, not Experian’s own inaccuracies. Appellants introduce evidence that there was “confusion and complaints about code 9,” but can point to no other subscribers or underwriting software that could not identify a short sale from code combination 9-68. Appellants also contend that Experian’s reporting was misleading because Experian knew that Fannie Mae was misreading its technical manuals and did not act on this knowledge. But Appellants cite no case law suggesting that Experian must amend its reporting system when a subscriber disregards its technical manuals in order to avoid liability, and we are aware of none. Nor would such a rule better achieve the purposes of the FCRA. Experian provides credit reports to approximately 15,000 users. The FCRA does not suggest that Experian should be liable for the misconduct of one of those 15,000 subscribers, even if that subscriber is as well known as Fannie Mae. Nor should Experian necessarily be required to amend its coding to curb a single subscriber’s misconduct when all 14,999 other subscribers are apparently accurately reading its manuals. (Id., at 17-18.)
Finally, with respect to the question of whether Experian willfully violated the statute under 15 U.S.C. § 1681n, the Court of Appeals held that:
As we conclude that Experian did not violate the FCRA, Appellants’ 15 U.S.C. § 1681n claim must fail. Yet even assuming that Experian violated the FCRA, Appellants fail to show that any violation by Experian was willful. . . .As to Appellants’ first two claims, there was no statute, CFPB guidance, or case law that “might have warned [Experian] away from the view it took” or informed Experian that its approach to reporting short sales was objectively unreasonable. See id. at 70. To the contrary, the CFPB informed Experian that it had investigated the short sale-foreclosure problem and discovered that the underlying problem was not due to inaccurate reporting by furnishers or CRAs. This agency guidance suggests Experian’s conduct, even if it were a violation of the FCRA, was not objectively unreasonable and therefore not reckless. See id. at 70 & n.20. While the CFPB “essentially rescinded” this memorandum, it did not inform Experian of this change in its position. Therefore, Experian’s only guidance was the prior CFPB memo. (Id., at 21-23.)