Third Circuit Adopts “Reasonable Reader” Standard for Evaluating Whether a Credit Report Is Inaccurate or Misleading

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. 

The complete decision can be found here.