A three-judge panel from the U.S. Court of Appeals for the Third Circuit recently held that a claim that a credit report is inaccurate or misleading in violation of the Fair Credit Reporting Act (FCRA) must be evaluated under a “reasonable reader” standard, rather than the frequently applied “reasonable creditor” standard.
The underlying case, which originated as three separate district court cases that were consolidated on appeal, involved three student loan borrowers who failed to maintain timely payments on their loans, resulting in their accounts being closed and transferred to other companies. Upon transfer, the borrowers no longer owed a balance to their original creditors, but each borrower’s credit report still contained a negative pay status notation for their transferred account indicating the account was 120 days overdue. The borrowers dispute the accuracy of this notation, claiming it violates FCRA’s requirement that credit reporting agencies (CRAs) “follow reasonable procedures to assure maximum possible accuracy” of credit reports.
The district courts granted the CRA’s motion for judgment on the pleadings after evaluating the borrowers’ claims under a “reasonable creditor” standard. In affirming the district courts’ holdings but rejecting the “reasonable creditor” standard they employed, the Third Circuit reasoned that because FCRA authorizes the use of credit reports by not only sophisticated creditors, but also less sophisticated users such as landlords and employers, a “reasonable creditor” standard does not accurately reflect the intent of FCRA. Instead, the Third Circuit adopted a “reasonable reader” standard which determines how a reasonable reader, who could be any user authorized under FCRA, would have comprehended a credit report. The Third Circuit further explained that a court applying the “reasonable reader” standard should do so by reading a disputed credit report entry not in isolation, but in its entirety.
In applying the “reasonable reader” standard and evaluating each borrower’s credit report in its entirety, the Third Circuit considered that although the negative pay status notation did not indicate whether the disputed student loan account was currently overdue, separate notations indicating the account was transferred and listing the date the account was closed resolve any likelihood of misleading a reasonable reader.