FCRA Claim for “Misleading” Double-Reporting of Debt by Original Creditor and Collection Agency Survives Motion to Dismiss

In Hansen v. Mountain America Federal Credit Union, the plaintiff became delinquent on a credit card account with her credit union. The credit union then assigned the debt to a third-party collection agency. Following the assignment, the collection agency opened its own tradeline for the debt, while the credit union also continued to report the debt. Although the credit union’s tradeline was updated to reflect that the account was “closed” and in collections, and the collection agency’s tradeline indicated that the credit union was the original creditor, both tradelines showed a balance, albeit for different amounts — $18,340 for the credit union and $20,875 for the collection agency.

The plaintiff submitted written disputes concerning the credit union’s tradeline to the three national consumer reporting agencies, claiming the reporting was inaccurate because the inclusion of both balances resulted in double reporting. After investigation, the credit union determined that its reporting was accurate and declined to make any changes.

The plaintiff filed suit in Utah District Court, alleging that the credit union negligently and willfully violated §1681s–2(b) of the Fair Credit Reporting Act (FCRA) by failing to remove the balance under its tradeline in response to her dispute.

The credit union moved to dismiss, arguing that its investigation was reasonable and its information was accurate because the tradeline showed the account as “closed” and that it had been assigned for collection.

The court denied the motion, explaining that an item on a credit report can be inaccurate not only by being patently incorrect, but also by being “misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” Here, the court found that there were aspects of the plaintiff’s credit report that could be misleading, specifically the fact that there were balances for both tradelines and for conflicting amounts.

Moreover, the court was unable to locate “authority that provides clear guidance about how a debt should be reported when it has been assigned.” Notably, although the credit union argued that the Fair Debt Collection Practices Act (FDCPA) allowed the collection agency to report the debt and that the reporting standards for credit unions are encoded in the Metro 2 guidelines published by the Consumer Data Industry Association, those materials were not provided to the court and therefore were not considered in its decision.

As such, the court found that the plaintiff had alleged an inaccuracy on her credit report, for which the credit union did not change its reporting, thus giving rise to a plausible claim for violation of §1681s–2(b) of the FCRA.

A copy of the order is available here.