On December 8, the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) (collectively, the agencies) filed an amici curiae brief urging the U.S. Court of Appeals for the Fourth Circuit to reverse a district court’s decision finding that furnishers need not investigate indirect disputes involving purely legal questions under the Fair Credit Reporting Act (FCRA).

In Roberts v. Carter-Young, Inc., a North Carolina federal district court adopted the magistrate judge’s opinion and recommendation granting the defendant collection agency’s motion to dismiss holding that the defendant was under no obligation to investigate the plaintiff’s dispute because it deemed the dispute legal in nature rather than factual. The dispute arose when the plaintiff vacated her apartment and the complex both retained her $500 security deposit and charged her almost $800 for alleged damages to the stove in the rental unit. The plaintiff disputed the damages alleging that replacing the stove was instead ordinary maintenance per the lease and North Carolina law. When her account was referred to the defendant, the plaintiff filed a formal dispute with three national consumer reporting agencies (CRAs). As part of its investigation into and response to this credit dispute, the defendant asked the apartment complex to recertify the validity of its claim, which it did, and the defendant continued to funish the disputed account information to the CRAs. The plaintiff then filed suit alleging the defendant violated the FCRA by failing to conduct a reasonable investigation of her indirect dispute. In granting the defendant’s motion to dismiss, the district court found that investigating and determining the validity of the plaintiff’s debt would have required the defendant to interpret her lease and North Carolina landlord-tenant law.

But the agencies argue in their brief that the text of §1681s-2(b) of the FCRA requires entitles that furnish information to CRAs to reasonably investigate consumers’ disputes without any differentiation between legal and factual ones. In the agencies’ view, “[t]he district court’s ruling excepting ‘legal’ disputes risks exposing consumers to more inaccurate credit reporting, conflicts with other circuit decisions, and undercuts the remedial purpose of the FCRA.” Notably, the Ninth and Seventh Circuits have indicated that furnishers do have an obligation to investigage legal disputes as well as factual ones. The agencies further dismissed the argument that furnishers should not have to investigate legal disputes because there may be colorable issues on both sides and pointed out that such can be true of purely factual disputes as well: “Moreover, any burden imposed on furnishers is mitigated by the fact that the investigation — including into a legal dispute — need only be reasonable, a standard that considers the context of the dispute (such as its novelty).”

This is not the first amicus brief filed by the agencies on this legal vs. factual issue. As we blogged about here, the agencies filed two briefs in the Second Circuit arguing the FCRA does not distinguish between “legal” and “factual” inaccuracies, and thus CRAs may be held liable for failing to maintain reasonable procedures to prevent even inaccuracies that turn on legal questions regarding the underlying debt or credit information. Similarly, the CFPB filed an amicus brief in the Eleventh Circuit also arguing the FCRA does not exempt furnishers from investigating disputes based on legal, as opposed to factual, inaccuracies. Beyond filing briefs, the CFPB has proposed in its FCRA rulemaking, discussed here, that CRAs and furnishers should be required to interpret legal issues that may impact the accuracy of information provided.

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 Stefanie Jackman Stefanie Jackman

Stefanie takes a holistic approach to working with clients both through compliance counseling and assessment relating to consumer products and services, as well as serving as a zealous advocate in government inquiries, investigations, and consumer litigation.

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 Kim Phan Kim Phan

Kim is a partner in the firm’s Privacy + Cyber Practice Group, where she is a privacy and data security attorney, who also assists companies with data breach prevention and response, including establishing effective security programs prior to a data breach and the

Kim is a partner in the firm’s Privacy + Cyber Practice Group, where she is a privacy and data security attorney, who also assists companies with data breach prevention and response, including establishing effective security programs prior to a data breach and the assessment of breach response obligations following a breach.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield helps consumer-facing clients navigate compliance, litigation and regulatory risks posed by the complex web of state and federal consumer protection laws. He is a trusted advisor and tireless advocate, helping clients develop practical compliance and dispute-resolution strategies.