3rd Circuit Adopts ‘Reasonable Reader’ Standard for Credit Reporting Accuracy | PC Weiner Brodsky Kider


A three-judge panel of the United States Court of Appeals for the Third Circuit recently ruled that a claim that a credit report is inaccurate or misleading in violation of the Fair Credit Reporting Act (FCRA) must be assessed to a “reasonable reader” standard, rather than the frequently applied “reasonable creditor” standard.

The underlying case, which originated in three separate district court cases that were consolidated on appeal, involved three student borrowers who missed payment deadlines on their loans, leading to the closure of their accounts and their transfer to other companies. Upon transfer, the borrowers no longer owed any balances to their original creditors, but each borrower’s credit report still contained a negative payment status note for their transferred account indicating that the account was 120 days past due. Borrowers dispute the accuracy of this rating, saying it violates the FCRA’s requirement that credit reporting agencies (CRA) “follow reasonable procedures to ensure maximum possible accuracy” of credit reports.

The district courts granted the CRA’s motion for judgment on the pleadings after assessing the borrowers’ claims on a “reasonable creditor” standard. Upholding the district court rulings but rejecting the “reasonable creditor” standard they employed, the Third Circuit held that because the FCRA permits the use of credit reports not only by sophisticated creditors, but also by less sophisticated users such as landlords and employers, a “reasonable creditor” standard does not accurately reflect the intent of the FCRA. Instead, the Third Circuit has adopted a “reasonable reader” standard. which determines how a reasonable reader, who could be any authorized user under the FCRA, would have understood a credit report. The Third Circuit further explained that a court applying the “reasonable reader” standard should do so by reading a disputed credit report entry not in isolation, but in its entirety.

Applying the “reasonable reader” standard and evaluating each borrower’s credit report in its entirety, the Third Circuit found that while the negative rating on the statement of compensation did not indicate whether the disputed student loan was currently in default, separate notes indicating that the account had been transferred and indicating the date the account was closed removes any risk of misleading a reasonable reader.


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