Yesterday, the U.S. Supreme Court agreed to decide a case that raises the issue of whether the United States government may be held liable as a data furnisher under the Fair Credit Reporting Act (FCRA) despite its invocation of the defense of sovereign immunity. The Supreme Court will hear Department of Agriculture Rural Development Rural Housing Service v. Reginald Kirtz as part of its October term of 2023.
The applicability of the FCRA’s data furnisher liability provisions (15 U.S.C. § 1681s-2(b), §1681n, §1681o) to consumer finance companies that report consumer trade lines to consumer reporting agencies is uncontroversial in most instances, although numerous exceptions and defenses apply to such claims. In short, after receiving a trade line dispute from a consumer reporting agency, a data furnisher (called a “person” in the FCRA’s text) is required to investigate that dispute, and to then modify, delete, or suppress the reporting of any information it determined to be inaccurate after the investigation is complete. In general, the most common FCRA litigation claims against data furnishers center upon the reasonableness and the thoroughness of the data furnisher’s investigation of a trade line’s accuracy upon receiving a dispute from a consumer reporting agency. Litigants often seek actual damages and attorneys’ fees for “negligent” noncompliance with the provisions of 15 U.S.C. § 1681s-2(b), and additional punitive damages for “willful” noncompliance of this statute.
As evidenced by the Supreme Court’s grant of certiorari in Kirtz, the application of the FCRA’s civil liability provisions to the United States government as a data furnisher is particularly controversial at this moment in time. The FCRA (§ 1681a(b)) defines a “person” as “any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.” And, in defining the duties of a data furnisher to investigate a consumer dispute, the FCRA (§ 1681s-2(b)(1)(A)) mandates that this “person” must conduct the investigation described above. The FCRA’s civil liability provisions (§ 1681n, § 1681o) also provide civil remedies against that same “person.” The plain text of the FCRA, therefore, arguably permits a civil claim against the government of the United States if it fails to investigate consumer trade line disputes in the manner required under the FCRA. The Third Circuit, in the decision appealed from in Kirtz, agreed with this logic.
Conversely, though, the United States and its agencies generally enjoy sovereign immunity from civil suits, although Congress is permitted to enact a law to waive that sovereign immunity where it deems such a waiver to be appropriate. The key to such a waiver of sovereign immunity is that the waiver must be “unequivocally expressed” in the text of a statute. In reviewing the FCRA’s language described above, the Third Circuit found that Congress did intend to waive sovereign immunity under the FCRA, and it reversed a lower court decision that had dismissed claims on the grounds of sovereign immunity. It noted, though, that this issue was one that had divided other courts nationwide — as the Fourth and Ninth circuits have deemed the opposite to be true in their respective decisions from 2018 and 2019, while the D.C. and Seventh circuits have issued decisions in 2021 and 2014, respectively, that sided with the Third Circuit’s reasoning.
In the end, it appears that the Supreme Court is now poised to resolve this significant circuit split as part of its next term. The Supreme Court’s upcoming decision is not an insignificant one either. In his dissent to the Supreme Court’s 2020 refusal to review the Fourth Circuit’s decision on this same issue, Justice Clarence Thomas noted that the United States government is actually one of the largest data furnishers of credit information in the country, especially given its responsibility for 90% of student loans nationwide.
It is also noteworthy that sovereign immunity is not the only area of controversy currently being litigated related to data furnisher lability under the FCRA. One such area — whether a consumer trade line dispute of a legal inaccuracy (as opposed to a factual inaccuracy) falls under § 1681s-2(b) — is currently being litigated nationwide. Other areas, including consumer Article III standing and the appropriate standard for “willful” conduct under the FCRA also remain hotly litigated. As a result, data furnishers in the consumer finance industry should continue to pay close attention to the continued evolution of their exposure and defenses to claims under the FCRA.