Supreme Court: Government Agencies Can Be Liable Under FCRA for Credit Reporting Errors

Fox Rothschild LLP

Fox Rothschild LLP

The U.S. Supreme Court has ruled that federal government agencies can be held liable under the Fair Credit Reporting Act when they fail to investigate or correct inaccurate information furnished to credit reporting agencies.

The unanimous opinion was handed down amid an ongoing rulemaking process being undertaken by the Federal Credit Reporting Act’s lead enforcement agency, the Consumer Financial Protection Bureau. In essence, the Supreme Court determined that Congress waived the federal government’s sovereign immunity when it enacted the law.

While the long-term impact is unclear, federal agencies, as one of the nation’s largest lenders, should be prepared to investigate and correct inaccurate information in response to consumer disputes, while consumer reporting agencies may see an uptick in demands to update tradelines involving government lenders.

The Ruling

In Department of Agricultural Rural Development Rural Housing Service v. Kirtz, Mr. Kirtz alleged that the USDA incorrectly reported a loan as “past due” to the consumer reporting agency. This, Kirtz continued, damaged his credit score. Kirtz alerted the consumer reporting agency, which notified the USDA. The USDA failed to investigate or correct the information on Mr. Kirtz’s consumer report and Mr. Kirtz sued. The U.S. District Court for the Eastern District of Pennsylvania sided with the government that it was immune from liability. The Court of Appeals reversed and the Supreme Court granted certiorari.

The information on consumer reports can affect individuals’ ability to secure a credit card, purchase a home, gain employment or start a small business. Congress enacted FCRA to ensure accuracy and fairness in the furnishing, obtaining and reporting of consumer information. As originally enacted, FCRA imposed liability on two categories of actors:

  • Consumer reporting agencies, for inaccurate reporting and breaching confidentiality.
  • “Persons” who procure credit information, such as employers or lenders, for unauthorized or improper requests.

“Persons” is defined broadly, to include “any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.” 15 U.S.C. §1681a(b). Congress amended FCRA to hold liable “persons” that furnish information to consumer reporting agencies but fail to investigate and correct it upon receipt of a consumer dispute.

While the federal government is generally immune from suits seeking monetary damages, Congress can waive sovereign immunity when the language of the statue contains a “clear waiver” permitting suit. Congress can explicitly legislate that it is stripping the federal government’s immunity, however, as Justice Gorsuch, on behalf of the unanimous Supreme Court, noted that Congress need not use “magic words” so long as the waiver is “unmistakably clear.” The Supreme Court further reiterated that “when a statute creates a cause of action and explicitly authorizes suit against a government on that claim” a “clear waiver” is found.

The Supreme Court also noted that the federal government is “one of the Nation’s largest lenders” and that the CFPB reports that 34% of consumers surveyed were able to identify at least one error in their credit report. See 87 Fed. Reg. 64689-64690 (2022). See also The CFPB’s Continued Spotlight on Medical Debt Emphasizes the Importance of Proper Provider Billing. Such mistakes can lead to higher interest rates and/or the denial of certain lines of credit.

With this and sovereign immunity in the background, the Supreme Court sought to resolve a circuit split. The 3rd, 7th, and D.C. circuit courts of appeal have all found that Congress waived the government’s immunity, while the 9th and 4th circuits have rejected FCRA claims against federal agencies. Applying the statutory definition of “persons” to the liability provision of the Act, the Supreme Court found that FCRA effects a clear waiver of sovereign immunity. Simply put, Section 1681s–2 requires “person[s]” who furnish information to consumer reporting agencies to investigate consumer complaints and make any necessary corrections. In turn Sections 1681n and 1681o authorize suits for damages against “[a]ny person” who willfully or negligently fails to comply with FCRA’s directives. Finally, Section 1681a defines “person” to include “any … governmental agency.” Accordingly, the Supreme Court held there was clear waiver of the government’s sovereign immunity and affirmed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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