2d Cir. Holds that “Inaccuracy” Inquiry Under FCRA Doesn’t Turn on Legal Disputes

In Mader v. Experian Info. Sols., Inc., Nos. 20-3073, 21-2171, 2023 U.S. App. LEXIS 79, at *11-17 (2d Cir. Jan. 4, 2023), the Court of Appeals found that pure legal disputes cannot form the basis for an “inaccuracy” under the FCRA.  The Court of Appeals summarized the issue as follows:

The district court assumed that the kind of inaccuracy alleged by Mader was cognizable under the FCRA and proceeded to engage with the question of whether the Excel Grad loan was non-dischargeable under section 523(a)(8)(A)(i) of the Bankruptcy Code. In that analytical mode, the district court reasoned that “as long as a private loan is made under a program funded in part by a nonprofit or governmental unit, it is non-dischargeable.” Mader, 2020 U.S. Dist. LEXIS 132073, 2020 WL 4273813, at *3 (citing O’Brien v. First Marblehead Educ. Res., Inc. (In re O’Brien), 419 F.3d 104, 105-06 (2d Cir. 2005)). Assessing the record, the district court concluded that Mader failed to rebut the declaration from a Navient employee stating that the Excel Grad loan was made under a “program” that also included Stafford loans guaranteed or funded by non-profits or the government. Id. The district court did not address or acknowledge the prospectus that Mader filed. We think this conclusion was in error. Competing evidence in the record does raise a genuine and material dispute as to whether Mader’s Excel Grad loan was made under a program that included governmental funding. While a Navient employee declared, using the same language as contained in the promissory note, that Mader’s loan was issued “under a program that was funded, in part, by non-profit organizations, including governmental units,” App’x 41, the prospectus that Mader submitted—which the district court did not address—cut the other way. That document indicated that Excel Grad loans were made under a separate program funded only with private funds. Furthermore, as we discuss below, determining whether Mader’s loan was discharged requires interpreting the section 523(a)(8)(A)(i) exception to bankruptcy discharge. While the district court did not explicitly interpret the clause “made under any program funded in whole or in part by” the government or a non-profit, 11 U.S.C. § 523(a)(8)(A)(i), it held that Experian did not need to specifically identify the qualifying program at all. Mader, 2020 U.S. Dist. LEXIS 132073, 2020 WL 4273813, at *3. The district court did not address, for example, whether Navient itself might be the relevant “program.” Any holding that Navient is such a program would be in significant tension with our recent decision in Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021). In Homaidan, we rejected an interpretation of section 523(a)(8)(A)(ii) that would have drawn “virtually all student loans within [its] scope” and “swallowed up” the other subsections of section 523(a)(8), “which delineate specific categories of nondischargeable educational debt.” Id. at 602. Were we to resolve this case on the ground relied upon by the district court, we would have to ensure that our interpretation of “program” is narrow enough to avoid transforming section 523(a)(8) into “a catch-all for educational loans.” Id. at 603.

The Court of Appeals analyzed the issue as follows:

Because the term “accuracy” is not defined in the FCRA, we look to its ordinary meaning found in “contemporary dictionary definitions” from 1970 when the FCRA was enacted. El Omari v. Int’l Crim. Police Org., 35 F.4th 83, 88 (2d Cir.), cert. denied, 143 S. Ct. 214, 214 L. Ed. 2d 84 (2022). The word “accuracy” is defined as “freedom from mistake or error” or “conformity to truth or to some standard or model.” Webster’s Third New International Dictionary 13-14 (1971). This definition requires a focus on objectively and readily verifiable information. This is consistent with our prior holding requiring that an inaccuracy be “patently incorrect or . . . misleading,” Shimon, 994 F.3d at 91 (citation omitted).  The “inaccuracy” Mader alleges does not meet this statutory test because it evades objective verification. There is no bankruptcy order explicitly discharging this debt. Navient continued to treat the debt as outstanding following Mader’s bankruptcy. And, for that matter, so did Mader. Instead, the accuracy of Experian’s reporting that the debt was still owed depends on whether it is “dischargeable,” which itself depends on whether section 523(a)(8)(A)(i) applies to Excel Grad loans. And that question, finally, turns on the unsettled meaning of the word “program” within section 523(a)(8)(A)(i) of the Bankruptcy Code. Courts have taken different approaches as to the appropriate level of specificity required when identifying a qualifying “program” and have reached different conclusions as to the applicability of the section 523(a)(8)(A)(i) exception to Navient’s private educational loans. For example, at least one bankruptcy court has found that an Excel loan was non-dischargeable by seemingly treating its for-profit loan originator, the Nellie Mae Corporation, as the relevant program. See Drumm v. New Eng. Loan Mktg. Ass’n (In re Drumm), 329 B.R. 23, 35 (Bankr. W.D. Pa. 2005). Meanwhile, other bankruptcy courts have required Navient to produce evidence of a specific qualifying program with a “concrete relationship” to a non-profit or governmental funder. Mazloom v. Navient Sols., LLC (In re Mazloom), No. 18-60206-06, 2022 Bankr. LEXIS 806, 2022 WL 950932, at *6-7 (Bankr. N.D.N.Y. Mar. 29, 2022) (declining to follow the district court’s summary judgment opinion in this case); Teran v. Navient Sols., LLC (In re Teran), 638 B.R. 620, 625-26 (Bankr. N.D. Cal. 2022) (same). But these bankruptcy courts also denied summary judgment to the debtors and proceeded to trial on the question of the applicability of section 523(a)(8)(A)(i) to the specific loans at issue. Here too, ascertaining whether Mader’s debt was discharged would require resolving the factual dispute over the funding and structure of the Grad Excel program. As we concluded above, the Navient declaration and the prospectus create a triable question of fact as to this dispute. The bespoke attention and legal reasoning required to determine the post-bankruptcy validity of Mader’s debt means that its status is not sufficiently objectively verifiable to render Mader’s credit report “inaccurate” under the FCRA. Every other circuit to have considered an analogous question has agreed: inaccuracies that turn on legal disputes are not cognizable under the FCRA. Some circuits have reached this conclusion by holding, as we do, that claims under the FCRA require factual inaccuracies to be actionable. For example, the First Circuit concluded that a debtor’s claim that his credit report contained an inaccurate report of a legally invalid mortgage “crossed the line between alleging a factual deficiency that [the credit reporting agency] was obliged to investigate pursuant to the FCRA and launching an impermissible collateral attack against a lender by bringing an FCRA claim against a consumer reporting agency.” DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008). Likewise, the Ninth Circuit held that “collateral attacks on the legal validity of . . . debts” cannot satisfy the “inaccuracy” element of an FCRA claim. Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 891-92 (9th Cir. 2010). The Tenth Circuit reached the same conclusion but based its reasoning on the “reasonable procedures” element, which, the circuit concluded, requires only that credit reporting agencies “look beyond information furnished to them when it is inconsistent with the [credit reporting agency’s] own records, contains a facial inaccuracy, or comes from an unreliable source.” Wright v. Experian Info. Sols., Inc., 805 F.3d 1232, 1239 (10th Cir. 2015). In that case, the Tenth Circuit held that, as a matter of law, reasonable procedures do “not require [credit reporting agencies] to resolve legal disputes about the validity of the underlying debts they report.” Id. at 1242. Finally, the Seventh Circuit reached a similar conclusion drawing on both a distinction between factual and legal inaccuracies and an analysis of what the “reasonable procedures” element requires. See Denan v. Trans Union LLC, 959 F.3d 290, 293-96 (7th Cir. 2020). Consistent with these decisions, we hold that Mader has failed to allege an inaccuracy within the plain meaning of section 1681e(b) of the FCRA. The unresolved legal question regarding the application of section 523(a)(8)(A)(i) to Mader’s educational loan renders his claim non-cognizable under the FCRA.

The Court of Appeals explained that its ruling was not carte blanche to avoid analysis of legal disputes.

To be clear, this holding does not mean that credit reporting agencies are never required by the FCRA to accurately report information derived from the readily verifiable and straightforward application of law to facts. For instance, other courts have held that misreporting the clear effect of a bankruptcy discharge order on certain types of debt is a cognizable inaccuracy under the FCRA. See, e.g., Losch v. Nationstar Mortg. LLC, 995 F.3d 937, 944-45 (11th Cir. 2021) (home mortgage); Morris v. Experian Info. Sols., Inc., 478 F. Supp. 3d 765, 769 (D. Minn. 2020) (consumer debt). And as a result of a settled class action lawsuit, Experian agreed to adopt new procedures for tracking and reporting the effects of chapter 7 bankruptcies on various types of consumer debts. See White v. Experian Info. Sols., Inc., No. 05-cv-1070, 2008 U.S. Dist. LEXIS 145130, 2008 WL 11518799, at *7-12 (C.D. Cal. Aug. 19, 2008) (order approving class action settlement). Of course, “[a] clear line has not been drawn between legal and factual inaccuracies in the FCRA context.” Chuluunbat v. Experian Info. Sols., Inc., 4 F.4th 562, 567-68 (7th Cir. 2021). As cases like Losch and Morris show, if a legal question is sufficiently settled so that the import on a particular debt is readily and objectively verifiable, the FCRA sometimes requires that the implications of that decision be reflected in credit reports. This no doubt “involves some knowledge of the legal impact of court decisions.” Id. at 568. What the FCRA does not require, however, is that credit reporting agencies resolve unsettled legal questions like the one at issue here. Finally, we note that Mader is not without options to resolve the dispute that forms the basis for the derogatory note on his credit report. Quite the contrary. Mader could dispute the debt directly with Navient, which knows the nature of the loan program better than anyone else and is itself under an FCRA obligation to report accurately to credit reporting agencies. See 15 U.S.C. § 1681s-2 (establishing that “furnishers of information to consumer reporting agencies” have a responsibility to “provide accurate information” and to “investigate . . . disputed information”); see also 12 C.F.R. § 1022.41(a) (defining “accuracy” for furnishers as, in part, “correctly . . . [r]eflect[ing] the terms of and liability for the account”). And if Navient stands by its conclusion that the debt was not discharged, Mader can move in the bankruptcy court for clarification of the discharge order. See 11 U.S.C. § 105; Fed. R. Bankr. P. 7001(6), (9); United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 268-69, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (2010) (“[T]he Bankruptcy Rules require a party seeking to determine the dischargeability of a student loan debt to commence an adversary proceeding by serving a summons and complaint on affected creditors.”). If, for example, the bankruptcy court specifically determined that Mader’s loan was discharged, or if it were settled as a matter of law that Navient’s Excel Grad loans like the one that Mader carries are dischargeable, and a credit reporting agency continued to report such a loan as due and owing, that would present a very different case in terms of cognizability under the FCRA.

Interestingly, although the decision refers to 9th Circuit law, the decision does not cite Gross v. CitiMortgage, Inc., 33 F.4th 1246, 1252 (9th Cir. 2022) (“Although we recognize the difference between bankruptcy provisions and the Arizona Anti-Deficiency Statute, practically speaking, the situation was no different than a discharge under bankruptcy law, which extinguishes “the personal liability of the debtor.” 11 U.S.C. § 524(a)(1). “[T]hat discharge means that the debt (even if unenforceable) will not remain on a credit report potentially affecting an individual’s ability to borrow money, buy a home, and perhaps secure employment.” Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1414, 197 L. Ed. 2d 790 (2017); see Losch v. Nationstar Mortg. LLC, 995 F.3d 937, 944-45 (11th Cir. 2021) (holding that, after the debt was discharged by bankruptcy, it was factually inaccurate to report a balance owed and that the borrower was past due on the debt). The question is not, as the district court put it, whether the junior mortgage was entirely “extinguished” by Arizona law, or whether the debt continued to exist. The point is that, vis-à-vis Gross, no outstanding balance existed, because the statute abolished his personal liability. CitiMortgage did not merely report that Gross’s debt existed; it reported late payments, accruing interest, and an outstanding balance. Those reports were inaccurate.”).

Nor does it cite the Coleman v. Experian Info. Sols., Inc., No. 1:21-cv-01095-CAP-CMS, 2022 U.S. Dist. LEXIS 232686, at *20-21 (N.D. Ga. Nov. 9, 2022) (“Experian chiefly relies on the Eleventh Circuit case In re Baitcher, 781 F.2d 1529 (11th Cir. 1986), for the proposition that because Plaintiff omitted from his bankruptcy schedules his First Franklin debt, and never sought to correct that omission, that his debt was excluded from his bankruptcy discharge as one that was neither listed nor scheduled in a timely fashion, under 11 U.S.C. § 523(a)(3). [Doc. 96 at 7]. According to Experian, the question of whether the debt was or was not discharged is a legal question that neither the courts nor the FCRA require Experian to determine.9 [Doc. 96, Experian Br., at 10, citing Hunt v. JPMorgan Chase Bank, N.A., 770 F. App’x 452, 458 (11th Cir. 2019) (stating that to prevail on a § 1681e(b) claim, a “plaintiff must show a factual inaccuracy rather than the existence of disputed legal questions”); Chuluunbat v. Experian Info. Sols., Inc., 4 F.4th 562, 568 (7th Cir. 2021) (holding that the “central question is whether the alleged inaccuracy turns on applying law to facts or simply examining the facts alone.”) (italics in original); Sessa v. Linear Motors, LLC, No. 19-cv-9914-KMK, 576 F. Supp. 3d 1, 2021 WL 6052134, at *7 (S.D.N.Y. Dec. 20, 2021) (“All circuit courts to have opined on whether accuracy in the FCRA context includes legal inaccuracies are unanimous: [t]he claimed inaccuracy must be factual, not legal.”)].”.

It will remain to be seen what the effect of this decision in Mader will have on the pending appeal in the 2nd Circuit in Sessa v. TransUnion (21-87).