Credit Reporting Disputes: 11th Cir Decision Brings Clarity and Uncertainty

In a recent decision, the 11th Circuit drew a line in the sand regarding consumer disputes on credit reporting and the standard for investigating legal disputes.  The line set down is whether the legal dispute is “objectively and readily verifiable.” This line might be wavy at times and blurred at others, but it is a line that may provide some clarity for furnishers.

The Legal Dispute at Issue

Holden v. Holiday Inn Club Vacations Inc., 22-11014, 22-11734 (11th Cir. Apr 24, 2024) involves two cases with similar facts. Each involves a consumer (“Consumers”) entering into a timeshare agreement with Holiday Inn Club Vacations Inc. (“Creditor”). Each agreement included a default provision that stated, in the event of default, “the parties hereto shall be relieved from all obligations hereunder.”

The Defaults, Disputes, and District Court Decisions

In both cases, the Consumers defaulted on their agreement, and the Creditor reported the debts to a Credit Reporting Agency (“CRA”). The Consumers disputed, arguing that the debts should not be credit reported because the agreement was canceled according to the default provision in the contract. After an investigation of the disputes, the Creditor disagreed that the debts were canceled and certified that the information in the credit reporting was accurate. The Consumers filed suits under the Fair Credit Reporting Act (“FCRA”), claiming that the Creditor supplied inaccurate information to the CRA and failed to conduct an appropriate investigation. The District Courts sided with the Creditors, dismissing the suits.

The Appeals

On appeal, the 11th Circuit focused on “whether the alleged inaccuracy was objectively and readily verifiable.” In affirming the lower courts’ decisions, they reasoned that there was no FCRA violation as the credit reporting was not verifiably inaccurate because the contractual issue (whether the contract was canceled after the default) was not a matter of settled law. This was evident by the fact that both sides presented compelling case law supporting their arguments.

The Consumer Financial Protection Bureau (“CFPB”) filed an amicus brief in this matter in support of the Consumers and argued that the District Court decisions should be reversed in part because creditors are “qualified and obligated to assess issues such as whether debts are actually due and/or are collectible.” The 11th Circuit did not disagree, because that is exactly what happened in this case: the Creditor received the dispute and verified the debt. The Consumers “just disagree with [the Creditor’s] assessment that the debt was due and collectible.”

In closing, the Court stated that they are not saying that only factual or transcription errors are FCRA violations but, rather, that legal errors must be “objectively and readily verifiable.” They used bankruptcy discharge as an example of when a legal error (continuing to report a debt discharged in bankruptcy) would rise to an actionable FCRA inaccuracy.

Read the full opinion here. 

insideARM Perspective

The 11th Circuit decision may seem like a big win for the ARM Industry and credit reporting but, this case also adds responsibility to furnishers. This decision should give furnishers (at least those operating in Florida, Georgia, and Alabama) confidence to stand behind their credit reporting decisions when they know the consumer’s dispute is frivolous or unfounded. However, furnishers will also need to be wary of credit reporting any debt where settled law is not in their favor. In light of this case, furnishers should put even more emphasis on working closely with their legal counsel and compliance to ensure a full understanding of what areas are considered settled law and what situations could put them in danger of FCRA violations.