What standard should courts use to determine whether information contained in a consumer’s credit report is inaccurate or misleading? According to the Third Circuit in a recent precedential decision, the standard should be that of the “reasonable reader,” not a “reasonable creditor,” i.e., not an individual or entity sophisticated in the art of reading credit reports. The Third Circuit further held that a reasonable reader reviews the report in totality: “A court applying the reasonable reader standard to determine the accuracy of an entry in a report must make such a determination by reading the entry not in isolation, but rather by reading the report in its entirety.”

In the three consolidated cases on appeal, the plaintiffs defaulted on their student loan payments and each lender closed their accounts and transferred their loans. Shortly after the transfers, the plaintiffs obtained a copy of their credit reports and found each contained a “pay status” notation stating, “Account 120 Past Due” and that the loans were closed, transferred, and had a balance of zero. The plaintiffs argued that the pay status notations were inaccurate because they did not owe any money to their previous lenders. The plaintiffs sued for damages under the Fair Credit Reporting Act, 15 U.S.C. §1681e(b), alleging the consumer reporting agency (CRA) failed to “follow reasonable procedures to assure maximum possible accuracy of the information.” The district court, applying a reasonable creditor standard, granted the CRA’s motions for judgment on the pleadings. The plaintiffs appealed.

Based on the reasonable reader standard, this appellate court found the credit reports at issue were not “inaccurate” or “misleading.” The Third Circuit held — as a matter of law — that the plaintiffs’ credit “reports contain multiple conspicuous statements reflecting that the accounts are closed and [the plaintiffs] have no financial obligations to their previous creditors. These statements are not in conflict with the Pay Status notations, because a reasonable interpretation of the reports in their entirety is that the Pay Status of a closed account is historical information.”

The Third Circuit also analyzed the reasonableness of a CRA’s reinvestigation of a consumer dispute under Section 1681i(a). The court held that before considering whether a CRA’s reinvestigation was reasonable, district courts within the Third Circuit must first determine that the disputed information was inaccurate. The Third Circuit joined “the weight of authority in other circuits” in holding that without a showing that a reported information was inaccurate, a claim brought under Section 1681i must fail.

The Third Circuit’s “reasonable reader” standard is new among the federal circuit courts of appeal, although the concept of reading a report as a whole is not. Whether other circuits adopt this standard remains to be seen. Troutman Pepper will continue to monitor the decision and provide insights on broader implications in the near future.

Photo of Cindy D. Hanson Cindy D. Hanson

Consumer finance clients trust Cindy’s experience and skill to resolve their most challenging cases. Focused on class action defense, Cindy has handled numerous FCRA cases and is the point of contact for consumer protection defense.

Photo of David M. Gettings David M. Gettings

Dave is a partner of the firm who focuses on defending clients in consumer class actions and complex commercial litigation nationwide, particularly cases involving a variety of federal and state laws and regulations, including the Fair Credit Reporting Act (FCRA), the Telephone Consumer

Dave is a partner of the firm who focuses on defending clients in consumer class actions and complex commercial litigation nationwide, particularly cases involving a variety of federal and state laws and regulations, including the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA) and associated FCC regulations, the Fair Debt Collection Practices Act, the Truth in Lending Act, the Electronic Fund Transfer Act, and many similar state consumer protection statutes.

Photo of David N. Anthony David N. Anthony

David Anthony handles litigation against consumer financial services businesses and other highly regulated companies across the United States. He is a strategic thinker who balances his extensive litigation experience with practical business advice to solve companies’ hardest problems.

Photo of John C. Lynch John C. Lynch

John is a first-chair litigator with a distinguished defense record in class action matters and other high-stakes litigation. He is sought after for his trial-to-verdict experience in state and federal courts throughout the U.S., effective strategies, and practical advice.

Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and state laws.

Photo of Ronald I. Raether, Jr. Ronald I. Raether, Jr.

Ron leads the firm’s Privacy + Cyber team. Drawing from nearly 30 years of experience, he provides comprehensive services to companies in all aspects of privacy, security, data use, and risk mitigation. Clients rely on his in-depth understanding of technology and its application

Ron leads the firm’s Privacy + Cyber team. Drawing from nearly 30 years of experience, he provides comprehensive services to companies in all aspects of privacy, security, data use, and risk mitigation. Clients rely on his in-depth understanding of technology and its application to their business to solve their most important challenges — from implementation and strategy to litigation and incident response. Ron and his team have redefined the boundaries of typical law firm privacy and cyber services in offering a 360 degree approach to tackling information governance issues. Their holistic services include drafting and implementing bespoke privacy programs, program implementation, licensing, financing and M&A transactions, incident response, privacy and cyber litigation, regulatory investigations, and enforcement experience.

Photo of Tim J. St. George Tim J. St. George

Tim defends institutions nationwide facing class actions and individual lawsuits. He has particular experience litigating consumer class actions, including industry-leading expertise in cases arising under the Fair Credit Reporting Act and its state law counterparts, as well as litigation arising from data breaches.