Joseph Denan v. TransUnion LLC

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 19‐1519

JOSEPH W. DENAN, et al.,

Plaintiffs‐Appellants,

v.

TRANS UNION LLC,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:18‐cv‐05027 — Virginia M. Kendall, Judge.

____________________

ARGUED NOVEMBER 4, 2019 — DECIDED MAY 11, 2020

____________________

Before WOOD, Chief Judge, and BAUER and BRENNAN, Cir‐

cuit Judges.

BRENNAN, Circuit Judge. Plaintiffs Joseph Denan and

Adrienne Padgett sued consumer reporting agency Trans Un‐

ion LLC, alleging violations of the Fair Credit Reporting Act

(“FCRA”), 15 U.S.C. § 1681 et seq. We must decide whether

§§ 1681e(b) and 1681i(a) of the FCRA compel consumer re‐

porting agencies to determine the legal validity of disputed

2 No. 19‐1519

debts. The district court dismissed plaintiffs’ lawsuit, holding

these provisions impose no such duty. Finding no error in the

district court’s decision, we affirm.

I

Plaintiffs each obtained loans from online payday lenders

affiliated with Native American tribes. Denan, a New Jersey

resident, took out a loan of $1,600 from Plain Green, LCC (af‐

filiated with the Chippewa Cree Tribe). The loan charged an

interest rate in excess of 300% and, according to the loan

agreement, its terms were “subject to and governed by tribal

law[,] … not the law of the borrower’s resident state.” After

Denan stopped making monthly payments, Plain Green re‐

ported to Trans Union that he owed $2,689. When Trans Un‐

ion issued a credit report listing the Plain Green debt, Denan

disputed the report’s accuracy, telling Trans Union that Plain

Green “illegally issued” the loan so “there was no legal obli‐

gation for [him] to repay.” Trans Union investigated Denan’s

dispute and verified the accuracy of the information fur‐

nished by Plain Green. Trans Union’s investigation did not

probe Denan’s legal defenses to the Plain Green debt.

Padgett, a Florida resident, borrowed $900 from Great

Plains, LLC (affiliated with the Otoe‐Missouria Tribe) and

$1,600 from Plain Green.1 Each loan demanded an interest

rate in excess of 300% and was “subject to and governed by

tribal law and not the law of [the] resident state.” After

1 Plaintiffs’ amended complaint states that Plain Green loaned Padgett

$1,600. The district court’s dismissal order reflects the same amount. On

appeal plaintiffs’ brief states Padgett “took out a $1,000 loan from Plain

Green,” which we presume is a typographical error.

Nos. 19‐1519 3

Padgett stopped making monthly payments, the lenders re‐

ported to Trans Union delinquent amounts of $2,585 owed to

Plain Green, and $1,042 owed to Great Plains. Unlike Denan,

Padgett did not contact Trans Union to dispute her credit re‐

port.

Plaintiffs brought a putative class action against Trans Un‐

ion, alleging it violated two FCRA provisions: 15 U.S.C.

§ 1681e(b), which requires consumer reporting agencies like

Trans Union “to assure maximum possible accuracy of the in‐

formation” contained in credit reports, and 15 U.S.C

§ 1681i(a), which requires consumer reporting agencies to re‐

investigate disputed items. Plaintiffs’ claims under each pro‐

vision presume that Trans Union transmitted “inaccurate”

credit reports. Denan and Padgett did not claim Trans Un‐

ion’s reports were factually inaccurate, as they took out the

loans reported by Trans Union, and they did not contest the

debt amounts or Trans Union’s account of their payment his‐

tory. Instead, plaintiffs claimed Trans Union’s reports con‐

tained “legally inaccurate” information because they posted

“legally invalid debts.”

Plaintiffs believe loans issued by Plain Green and Great

Plains are void ab initio under New Jersey and Florida usury

laws, and therefore any debt incurred under those loans is “le‐

gally invalid.” True or not, plaintiffs did not sue the lenders

to void their debts, nor did they seek an adjudication to inval‐

idate them. That is beside the point, per plaintiffs, because

“reasonable procedures designed to ensure the maximum

possible accuracy of the information would have shown that

[Plain Green and Great Plains’] purported loans … were void

and uncollectible.”

4 No. 19‐1519

To plaintiffs, Trans Union “knew or recklessly ignored”

that loans made by Plain Green and Great Plains were unen‐

forceable, which spawned a § 1681e(b) violation. Their view

rests on three allegations. First, plaintiffs contend that Trans

Union’s lender screening procedures showed that Plain

Green and Great Plains lacked licenses to lend outside of Na‐

tive American tribal reservations. Second, the same screening

procedures, they assert, showed that Plain Green and Great

Plains had histories of charging loan interest rates in excess of

rates permitted in New Jersey and Florida. Third, plaintiffs

submit Trans Union ignored government investigations and

enforcement actions in several states—though none of them

New Jersey or Florida—from which “TransUnion easily could

and should have discovered” that Plain Green and Great

Plains made illegal loans. The § 1681i(a) claim is more

straightforward. After Denan disputed his Plain Green debt,

they contend Trans Union “failed to use reasonable reinvesti‐

gation practices for ascertaining the accuracy of information”

contained in his credit report.

Trans Union moved for judgment on the pleadings under

Federal Rule of Civil Procedure 12(c), arguing that §§ 1681e(b)

and 1681i(a) impose a duty to transmit factually accurate

credit information, not to adjudicate the validity of disputed

debts. Plaintiffs’ FCRA claims fall short, Trans Union argued,

because plaintiffs failed to allege that their credit reports were

factually inaccurate. The district court granted Trans Union’s

motion, concluding that “[u]ntil a formal adjudication invali‐

dates the plaintiffs’ loans … they cannot allege factual inaccu‐

racies in their credit reports.”

Nos. 19‐1519 5

II

We review de novo a district court’s grant of judgment un‐

der Rule 12(c). Orgone Capital III, LLC v. Daubenspeck, 912 F.3d

1039, 1043 (7th Cir. 2019). To survive a motion for judgment

on the pleadings, “a complaint must state a claim to relief that

is plausible on its face.” Bishop v. Air Line Pilots Ass’n, Int’l, 900

F.3d 388, 397 (7th Cir. 2018) (citations omitted). When as‐

sessing the facial plausibility of a claim, “we view the facts in

the complaint in the light most favorable to the nonmoving

party and will grant the motion only if it appears beyond

doubt that the plaintiff cannot prove any facts that would sup‐

port his claim for relief.” Buchanan‐Moore v. Cty. of Milwaukee,

570 F.3d 824, 827 (7th Cir. 2009) (internal citation and quota‐

tion marks omitted).

We begin with § 1681e(b), which requires that “[w]hen‐

ever a consumer reporting agency prepares a consumer re‐

port it shall follow reasonable procedures to assure maximum

possible accuracy of the information concerning the individ‐

ual about whom the report relates.” 15 U.S.C. § 1681e(b). The

statute requires a plaintiff to show that a consumer reporting

agency prepared a report containing “inaccurate” infor‐

mation. See Walton v. BMO Harris Bank N.A., 761 F. App’x 589,

591 (7th Cir. 2019) (holding a consumer reporting agency

“cannot be liable as a threshold matter [under § 1681e(b)] if it

did not report inaccurate information”); Sarver v. Experian

Info. Sols., 390 F.3d 969, 971 (7th Cir. 2004) (“[T]o state a claim

under [§ 1681e(b)], a consumer must sufficiently allege that a

credit reporting agency prepared a report containing inaccu‐

rate information.” (internal citations and quotation marks

omitted)).

6 No. 19‐1519

Section 1681e(b) does not explain what it means to be “in‐

accurate,” nor does it draw a line between factual and legal

“accuracy.” Plaintiffs contend there is no line, arguing that

§ 1681e(b) requires consumer reporting agencies to verify the

factual and legal accuracy of information contained in credit

reports. Assuring maximum possible accuracy, they insist, re‐

quired Trans Union to look beyond the data furnished by

Plain Green and Great Plains and determine the legality of

plaintiffs’ loans. But this argument does not find support in

the FCRA or its implementing regulations.

The FCRA imposes duties on consumer reporting agencies

and furnishers in a manner consistent with their respective

roles in the credit reporting market. Furnishers—such as

banks, credit lenders, and collection agencies—provide con‐

sumer data to consumer reporting agencies.2 In turn, those

agencies compile the furnished data into a comprehensible

format, allowing others to evaluate the creditworthiness of a

given consumer. Consumer reporting agencies and furnish‐

ers, though interrelated, serve discrete functions: furnishers

report data to incentivize the repayment of debts, while con‐

sumer reporting agencies compile and report that data for a

fee. What results is a credit reporting system, producing a vast

flow and store of consumer information. For example, accord‐

ing to the Consumer Financial Protection Bureau, each of the

nationwide consumer reporting agencies receive information

2 Though the FCRA does not define the term “furnisher,” FCRA reg‐

ulations define a furnisher as “an entity that furnishes information relat‐

ing to consumers to one or more consumer reporting agencies for

inclusion in a consumer report.” 12 C.F.R. § 1022.41(c).

Nos. 19‐1519 7

from furnishers on over 1.3 billion consumer credit accounts

or trade lines on a monthly basis.3

“[G]iven the complexity of the system and the volume of

information involved,” “[o]ne can easily see how, even with

safeguards in place, mistakes can happen.” Sarver, 390 F.3d at

972 (evaluating § 1681e(b) claim and magnitude of data pro‐

cessed by consumer reporting agency). Thus, the FCRA does

not require unfailing accuracy from consumer reporting

agencies. Instead, it requires a consumer reporting agency to

follow “reasonable procedures to assure maximum possible

accuracy” when it prepares a credit report. 15 U.S.C.

§ 1681e(b); see also Henson v. CSC Credit Servs., 29 F.3d 280, 284

(7th Cir. 1994) (“A credit reporting agency is not liable under

the FCRA if it followed ‘reasonable procedures to assure max‐

imum possible accuracy,’ but nonetheless reported inaccurate

information in the consumer’s credit report.”). Furnishers,

too, must ensure accurate consumer‐credit reporting. See 15

U.S.C. § 1681s–2 (setting out the duties of “furnishers of infor‐

mation to consumer reporting agencies” “to provide accurate

information” and to conduct an investigation of disputed in‐

formation). “Accuracy” for furnishers, however, means infor‐

mation that “correctly [r]eflects … liability for the account.”

12 C.F.R. § 1022.41(a). Neither the FCRA nor its implementing

regulations impose a comparable duty upon consumer re‐

porting agencies, much less a duty to determine the legality

of a disputed debt.

3 Consumer Fin. Prot. Bureau, Key Dimensions and Processes in the U.S.

Credit Reporting System: A Review of How the Nation’s Largest Credit Bureaus

Manage Consumer Data, 3, 14, 21 (2012), available at https://files.consum‐

erfinance.gov/f/201212_cfpb_credit‐reporting‐white‐paper.pdf. (last vis‐

ited May 11, 2020).

8 No. 19‐1519

Here, plaintiffs contend not only that Trans Union had a

duty to verify plaintiffs’ debt liability, but that Trans Union

“knew or recklessly ignored” that their loans “are void and

uncollectible as a matter of clearly established law.” Their

claims, though, attempt to graft responsibilities of data fur‐

nishers and tribunals onto a consumer reporting agency. Only

furnishers are tasked with accurately reporting liability. See

12 C.F.R. § 1022.41(a). And it makes sense that furnishers

shoulder this burden: they assumed the risk and bear the loss

of unpaid debt, so they are in a better position to determine

the legal validity of a debt. See Brill v. TransUnion LLC, 838

F.3d 919, 921 (7th Cir. 2016) (affirming dismissal of suit chal‐

lenging the accuracy of credit report because the creditor car

lessor, not a consumer reporting agency, “was in a better po‐

sition to determine the validity of its own lease”); see also

Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1156 (9th

Cir. 2009) (explaining “the furnisher of credit information

stands in a far better position to make a thorough investiga‐

tion of a disputed debt than the [consumer reporting

agency]”).

Nor are consumer reporting agencies tribunals; they col‐

lect consumer information supplied by furnishers, compile it

into consumer reports, and provide those reports to author‐

ized users. See Carvalho v. Equifax Info. Servs., LLC, 629 F.3d

876, 891–92 (9th Cir. 2010) (explaining same and that a con‐

sumer reporting agency is merely “a third party, lacking any

direct relationship with the consumer”). The collectability of

plaintiffs’ loans here requires resolution of three legal issues:

whether the choice‐of‐law provisions in plaintiffs’ loan agree‐

ments are enforceable; whether New Jersey and Florida lend‐

ing laws render plaintiffs’ loans void; and whether tribal

sovereign immunity shields Plain Green and Great Plains

Nos. 19‐1519 9

from the application of New Jersey and Florida laws. The

power to resolve these legal issues exceeds the competencies

of consumer reporting agencies.

Section 1681e(b) requires “reasonable procedures” to en‐

sure accuracy. Plaintiffs’ claims impose procedures tribunals,

not consumer reporting agencies, can perform. They also im‐

pute “knowledge” of information that only tribunals can ver‐

ify. What plaintiffs call “legally inaccurate” and “legally

incorrect” information amounts to non‐adjudicated legal de‐

fenses to their debts. One might speculate that a loan is illegal,

as plaintiffs do, but it would be just speculation. Only a court

can fully and finally resolve the legal question of a loan’s va‐

lidity. See DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st

Cir. 2008) (holding the question of whether a consumer is en‐

titled to stop making debt payments “can only be resolved by

a court of law” and is “a legal issue that a credit agency such

as Trans Union is neither qualified nor obligated to resolve

under the FCRA”). “When a complaint’s facts ‘do not permit

the court to infer more than the mere possibility of miscon‐

duct, the complaint has alleged—but it has not shown—that

the pleader is entitled to relief.’” Taha v. Int’l Bhd. of Teamsters,

Local 781, 947 F.3d 464, 469 (7th Cir. 2020) (quoting Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omit‐

ted)). In other words, plaintiffs “must allege ‘more than a

sheer possibility’” that Trans Union acted unlawfully by re‐

porting inaccurate information. Id. at 472 (quoting Iqbal, 556

U.S. at 678). Absent an adjudication invalidating plaintiffs’

debts, plaintiffs’ § 1681e(b) inaccuracy claim does not move

from speculative to plausible. So “plaintiff[s] cannot prove

10 No. 19‐1519

any facts that would support [their] claim for relief.”

Buchanan‐Moore, 570 F.3d at 827.4

In this conclusion we join the First, Ninth, and Tenth Cir‐

cuits in holding that a consumer’s defense to a debt “is a ques‐

tion for a court to resolve in a suit against the [creditor,] not a

job imposed upon consumer reporting agencies by the

FCRA.” Carvalho, 629 F.3d at 892 (quoting DeAndrade, 523 F.3d

at 68); accord Wright v. Experian Info. Sols., Inc., 805 F.3d 1232,

1244 (10th Cir. 2015) (citing Carvalho, 629 F.3d at 892) (“The

FCRA expects consumers to dispute the validity of a debt

with the furnisher of the information or append a note to their

credit report to show the claim is disputed.”). The correct way

to resolve legal defenses to Plain Green and Great Plains’

loans was in a lawsuit against those lenders. “If a court had

ruled the [loans] invalid and Trans Union had continued to

report it as a valid debt, then [plaintiffs] would have grounds

4 We have seen the FCRA used to attack the validity of a debt before.

In Humphrey v. Trans Union LLC, 759 F. App’x 484 (7th Cir. 2019), the plain‐

tiff sued several consumer reporting agencies under §§ 1681e(b) and 1681i,

claiming they inaccurately reported his student loan debt as past due after

he disputed his repayment obligations. Id. at 487. The plaintiff alleged only

that his credit reports were legally inaccurate. Id. at 487–88. “Because

Humphrey’s complaint did not allege a factual inaccuracy on his credit

report,” we ruled, “the district court correctly granted the [consumer re‐

porting agencies’] joint motion for judgment on the pleadings.” Id. at 488.

This ruling rested on three conclusions. First, whether the plaintiff must

make loan payments “required a legal determination” that his loan ser‐

vicer “was in a better position than the [consumer reporting agencies] to

make.” Id. Second, “[consumer reporting agencies] are not a tribunal to

resolve legal disputes.” Id. Third, “a consumer may not use the Fair Credit

Reporting Act to collaterally attack the validity of a debt by challenging a

[consumer reporting agency]’s reinvestigation procedure.” Id.

Nos. 19‐1519 11

for a potential FCRA claim.” DeAndrade, 523 F.3d at 68. Be‐

cause no formal adjudication discharged plaintiffs’ debts, no

reasonable procedures could have uncovered an inaccuracy

in plaintiffs’ credit reports.

The § 1681i claim runs into the same problems. When a

consumer disputes the “accuracy of any item of information”

contained in a credit report, § 1681i requires consumer report‐

ing agencies to “conduct a reasonable reinvestigation to de‐

termine whether the disputed information is inaccurate.” 15

U.S.C. § 1681i(a)(1)(A). Like § 1681e(b), § 1681i requires the

“accuracy” of information but does not differentiate between

factual and legal accuracy. Yet “one of the most basic rules of

statutory interpretation” is that “identical words used in dif‐

ferent parts of the same act are intended to have the same

meaning.” Ortiz‐Santiago v. Barr, 924 F.3d 956, 962 (7th Cir.

2019) (quoting Sorenson v. Sec’y of Treasury, 475 U.S. 851, 860

(1986)); see also ANTONIN SCALIA & BRYAN A. GARNER,

READING LAW 170–73 (2012) (explaining presumption of con‐

sistent usage canon). So we likewise interpret inaccurate in‐

formation under § 1681i to mean factually inaccurate

information, as consumer reporting agencies are neither qual‐

ified nor obligated to resolve legal issues.

The § 1681i claim is predicated on Trans Union’s “failure

to reasonably reinvestigate” Denan’s disputed debt. But

again, plaintiffs’ complaint pleaded only speculative legal in‐

accuracies, so no reinvestigation by Trans Union could have

uncovered an inaccuracy in Denan’s credit report. As with a

§ 1681e(b) claim, “a consumer disputing the legal validity of

a debt that appears on her credit report should first attempt

to resolve the matter directly with the creditor or furnisher,

12 No. 19‐1519

which stands in a far better position to make a thorough in‐

vestigation of a disputed debt than the [consumer reporting

agency] does on reinvestigation.” Carvalho, 629 F.3d at 892 (ci‐

tation and internal quotation marks omitted); DeAndrade, 523

F.3d at 68 (holding same).

Plaintiffs labor under the impression that our decision in

Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994) compels

a contrary outcome. In particular, plaintiffs read Henson as re‐

quiring consumer reporting agencies to consider both legal

and factual accuracy of the data contained in their credit re‐

ports. Henson imposes no such requirement. In that case, con‐

sumer reporting agencies reported that the plaintiff owed a

money judgment. Though the agencies obtained this infor‐

mation from a court record, it turned out that a court clerk

erroneously entered the judgment. Id. at 282–83. The plaintiff

sued the agencies alleging violations of §§ 1681e(b) and 1681i

for reporting the incorrect information. Id. at 283–86. We held

that “a credit reporting agency is not liable under the FCRA

for reporting inaccurate information obtained from a court’s

Judgment Docket, absent prior notice from the consumer that

the information may be inaccurate.” Id. at 285. The dismissal

of the plaintiff’s § 1681e(b) claim was affirmed, but we re‐

manded the § 1681i reinvestigation claim to determine

whether plaintiff sufficiently alerted the consumer reporting

agency of a need to reinvestigate.

Henson never addressed the issue before us: whether

§§ 1681e(b) and 1681i compel consumer reporting agencies to

adjudicate a consumer’s legal defenses to a debt. Instead,

Henson considered two threshold elements to challenge the

reasonableness of a consumer reporting agency’s investiga‐

Nos. 19‐1519 13

tion procedures: (1) “noti[ce] of potentially inaccurate infor‐

mation”; and (2) “resources … [to] conduct a more thorough

investigation.” Id. at 286–87. Plaintiffs cannot overcome this

second requirement for reasons already explained. No

amount of resources could empower Trans Union to assume

the role of a tribunal. And relatedly, because plaintiffs lack a

formal adjudication voiding their debts, “a more thorough in‐

vestigation” would not uncover an inaccuracy in their credit

reports. It also bears mention that the inaccuracy challenged

in Henson (whether a judgment was issued against the con‐

sumer) was straightforward, fact‐based, and could be re‐

solved through a reasonable investigation. But plaintiffs here

insist Trans Union should settle legal issues involving choice‐

of‐law clauses, state usury laws, and sovereign immunity

doctrines—all issues only a court can resolve.

Last, plaintiffs argue that Trans Union failed to follow

“reasonable procedures” in credentialing Plain Green and

Great Plains as furnishers. As to that, we need not choose a

side. Even if true, that quarrel concerns whether Trans Union

should have allowed Plain Green and Great Plains to be fur‐

nishers; it is not an allegation that Trans Union prepared in‐

accurate credit reports. Plaintiffs only brought claims under

§§ 1681e(b) and 1681i(a), and as a threshold matter Trans Un‐

ion cannot be liable under either provision if it did not report

inaccurate information. See Walton, 761 F. App’x at 591; Sarver,

390 F.3d at 971; Henson, 29 F.3d at 284.

III

A plaintiff advancing §§ 1681e(b) and 1681i(a) claims must

allege a credit report contained inaccurate information. Plain‐

tiffs have not done so. Therefore, the district court’s entry of

judgment on the pleadings is AFFIRMED.