In Schiano v. HomEq Servicing Corp, the Third Circuit Court of Appeals held that simple allegations of a failure to “fully and properly investigate” a credit reporting dispute were mere conclusory statements that failed to state a claim for relief under the Iqbal pleading standard.
In 2004, an arbitration award of $35,000 was entered against Plaintiffs Ralph and Elanor Schiano after they fell behind on credit card payments. To pay this debt, the Schianos refinanced their home, took out a loan, and requested that the loan be paid to their creditor. The central dispute in this case arose when their creditor claimed that the loan was never used to pay off the award, resulting in derogatory credit reporting on the Schiano’s account.
The Schianos subsequently brought suit, and in an Amended Complaint they alleged that the accuracy of this reporting was not “fully and properly investigate[d]” despite being disputed both directly with the creditor and indirectly through consumer reporting agencies (“CRAs”). Pursuant to Section 1681i(a) of the Fair Credit Reporting Act (“FCRA”), consumers must submit their disputes to CRAs that they claim are including inaccurate information in a credit report. In turn, these CRAs must provide furnishers of credit information with notice of the dispute received from the consumer. When a furnisher receives notice of a credit dispute from a CRA, a furnisher has a duty to investigate and respond to the dispute. 15 U.S.C. 1681s-2(b).
The Third Circuit found that the Schiano’s claims brought against the creditor as a furnisher under Section 1681s-2(b) of the FCRA for a failure to “fully and properly investigate” their dispute were mere conclusory statements. Further, the Court found that they failed to sufficiently allege that other furnisher defendants had actually received notice of a dispute, a required element of a claim brought under Section 1681s-2(b). Thus, the Court of Appeals affirmed the dismissal of these claims by the District Court of New Jersey.
This case gives helpful guidance to litigators defending FCRA cases, at least within the Third Circuit. When analyzing similar FCRA claims, insufficient or conclusory allegations may provide grounds to move to dismiss a complaint and shut down meritless lawsuits in their infancy.