Federal Law Bars State Credit-Reporting Claims Against Creditors.

A new trend among federal district courts could help shield banks and other creditors from state-law claims for defamation or negligence brought by consumers alleging incorrect credit information.

If this emerging school of thought ultimately prevails in the federal judiciary, the Fair Credit Reporting Act (FCRA) will effectively bar many claims that have been allowed to proceed in the past.

The issue is whether FCRA precludes most state-law claims for mistakes in the information that creditors provide to credit bureaus for consumer reports. FCRA does provide for federal claims by individual consumers. It also permits some state claims against the credit bureaus such as Equifax, TransUnion and Experian that compile and distribute the reports.

As to the businesses that supply credit information to the credit bureaus, though, FCRA is much more limited. The only FCRA claim available to a consumer against a creditor arises when a credit bureau has informed the creditor about disputed consumer information and the creditor fails to respond.

As a result, FCRA does not address the much more common allegations that a creditor shouldn't have supplied bad information in the first place. On the other hand, FCRA contains broad preemption language that generally forbids state laws relating to creditors' duties under the federal statute.

Preemption: Yes & No Federal circuit courts of appeal have not squarely addressed the interplay between FCRA's preemption provisions and its allowance of state claims alleging malice or willfulness. Congress has amended FCRA in other ways but has not seen fit to clarify how preemption is supposed to work. This congressional and appellate court silence has allowed the district courts to flail about with inconsistent logic and starkly different results. In fact, judges on the same district court have reached opposite conclusions.

Judges with a more expansive view of FCRA tend to stress the breadth of the preemption language (Jarrett v. Bank of Am.). Others have held that, even under a narrower reading, FCRA still bars any state claims that pertain to the furnishing of information to a credit bureau (Westbrooks v. Fifth Third Bank). Some courts also rely on another, catch-all FCRA section that preempts any state requirement that is inconsistent with FCRA's provisions (Lofton-Taylor v. Verizon Wireless).

But many district courts throughout the years have rejected the preemption logic and allowed state claims. According to  some of those courts, the general preemption language must yield to the more specific provision allowing tort claims based on malice or willful misconduct (Gorman v. Wolpoff & Abramson, LLP). In other cases, courts have resorted to rather flagrant rewriting of the statute by restricting preemption to state statutory provisions rather than common-law tort claims, although the statute on its face contains no such distinction (Wolfe v. MBNA Am. Bank; Johnson v. Citimortgage, Inc.).

New Preemption Approach Against this unsettled backdrop, several district courts have recently embraced a new view of FCRA that, in the final analysis, gives the statute a very broad preemptive scope. One such court is the United States District Court for the Middle District of Alabama. The court declared that FCRA preempted a borrower's defamation and negligence claims against a bank, regardless of any allegation of malice or willfulness (Knudson v. Wachovia Bank, N.A.).

To resolve the conflict between FCRA's preemption language and its allowance of malice/willfulness allegations, the court examined the statute's actual words and concluded that there was no conflict after all. As the statute is written, the court explained, the section that addresses claims of malice and willfulness does not apply to creditors in connection with their furnishing of information to credit bureaus. Instead, that section applies only to actions by credit bureaus and to conduct associated with others' use of credit reports.

The result in Knudson is not an anomaly. Several other district courts, including courts in Massachusetts and California, have announced the same conclusion to bar state claims against creditors (Johnson v. JP Morgan Chase Bank DBA Chase Manhattan; Leet v. Cellco Partnership).

Conclusion The FCRA preemption debate probably will not be finally settled without definitive rulings from federal courts of appeal or, perhaps, the Supreme Court. The new line of cases that includes Knudson nevertheless provides a straightforward analysis that is faithful to the statutory language. It could be persuasive to other courts that grapple with FCRA preemption. Creditors facing state-law claims that allege incorrect credit information should be aware of Knudson and the decisions of like-minded courts, and vigorously assert those precedents as the better-reasoned view.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Randall Quarles

Waller Lansden Dortch & Davis

Nashville City Center

511 Union Street

Nashville

TN 37219 1790

UNITED STATES 

E-mail: [e-mail]

URL: www.wallerlaw.com

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