On August 29, 2019, the U.S. Court of Appeals for the 6th Circuit affirmed a judgment in favor of a furnisher of credit information in an action filed under the federal Fair Credit Reporting Act “FCRA”) and other claims under state common law. The 6th Circuit held that the FCRA’s preemption provisions under 15 U.S.C. § 1681t(b)(1)(F) apply to state common law claims concerning a furnisher’s reporting obligations. By ruling that the FCRA preempts state common law claims, the 6th Circuit joins the 2nd and 7th Circuits who have ruled similarly.

In the case Scott v. First Southern National Bank[1], Plaintiffs owned two dental practices, several rental properties, a sports bar, and an indoor basketball gymnasium that they rent out as an event center. The Plaintiff’s obtained a $300,000 commercial line of credit from First Southern National Bank to further their investment opportunities. In June 2013, Plaintiffs sought a loan from First Southern to convert a vacant former hotel into apartment units and commercial spaces. The Plaintiff submitted with its loan application a total cost estimate of $941,793.32 for the renovation. On July 23, 2013, the Plaintiffs and First Southern executed a commercial loan agreement through which the bank extended the Plaintiffs a commercial loan for the renovation. The commercial loan agreement did not contain any promise that the bank would extend additional loans to the Plaintiffs.  However, the Plaintiffs believed that the First Southern would loan any extra funds needed to complete the renovation because of their previous banking relationship and they discussed the possibility of cost overruns before entering into the contract.

Plaintiffs later sought additional funds from First Southern to complete the renovation. A revised total estimated cost was $1,654,648.65, approximately $712,000 above the total cost for the project represented in Plaintiffs’ loan application.  While reviewing the Plaintiffs’ updated financial information, First Southern discovered that the Plaintiffs had incurred additional debt in the period since they first approved the construction loan and that the Plaintiffs had failed to disclose this new debt. First Southern refused to loan additional funds and also declined to extend the maturity date on the line of credit.

The Plaintiffs obtained financing from a different lender and used the proceeds to pay off their loans with the First Southern and to complete the renovation project.  However, First Southern’s automated computer system continued to report the Plaintiffs’ entire prior payment history, including the fact that they had previously been delinquent on the loans. First Southern told the Plaintiffs it would resolve the issue. In October 2014, First Southern updated its reporting to credit agencies to indicate the Plaintiffs had paid off their loans and were no longer delinquent.  Despite the update, the bank reported that the Plaintiffs were delinquent in September, October, and November of 2014, even though the Plaintiffs had paid off the entire balance of their loans in early September.

The Plaintiff’s filed a lawsuit alleging that First Southern violated the FCRA, 15 U.S.C. § 1681, et seq., by willfully and/or negligently failing to investigate their complaints and to correct its reporting; breached its duty of good faith and fair dealing; tortuously interfered with the Plaintiffs’ business relationships by deliberately reporting false information; and made fraudulent misrepresentations that it would loan additional funds to complete the renovation. After discovery, First Southern moved for summary judgment on all claims.  The Plaintiffs filed a motion for partial summary judgment on their claim that the bank breached its duty of good faith and fair dealing. The Federal District Court granted the First Southern’s motion for summary judgment and denied the Plaintiffs’ motion for partial summary judgment. The Plaintiff’s appealed to the 6th Circuit Court of Appeals.

On appeal, the 6th Circuit held  that the District Court properly granted summary judgment in favor of First Southern on the Plaintiffs’ FCRA claims. The FCRA creates a private right of action for consumers to enforce the requirements under section 1681s-2(b) only if the consumer files a dispute with a consumer reporting agency to trigger the furnisher’s duty to investigate. The Plaintiffs never filed a dispute with a consumer reporting agency, but instead contacted First Southern directly about the misreporting.  The 6th Circuit held that “the FCRA protects both consumers and furnishers” by requiring that a consumer file a dispute with a consumer reporting agency.  The consumer reporting agency can then screen the complaint and provide notice of the dispute to a furnisher if warranted.

On appeal the Plaintiffs also argued that the District Court erred in ruling that the FCRA preempted their state common law claims of breach of the duty of good faith and fair dealing and tortious interference with contractual relationships. The District Court held that the FCRA preempted these claims because they arose from First Southern reporting incorrect information to the credit bureaus and therefore had the same nexus as the FCRA claim.

The FCRA provides that “[n]o requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under [section 1681s-2 of this title], relating to the responsibilities of persons who furnish information to consumer reporting agencies.” 15 U.S.C. § 1681t(b)(1)(F).

The Plaintiffs cited Miller v. Wells Fargo & Co., 2008 WL 793676 (W.D. Ky. Mar. 24, 2008), arguing that FCRA preempts state statutory claims but not state common law claims as they alleged in their case. The 6th Circuit observed that, although a handful of trial courts have followed this “statutory approach,” two Courts of Appeals that have addressed the issue, both explicitly rejected the “statutory approach”, and held that FCRA also preempts state common law claims.  Purcell v. Bank of Am., 659 F.3d 622 (7th Cir. 2011); Macpherson v. JPMorgan Chase Bank, N.A., 665 F.3d 45 (2nd Cir. 2011). Like the 7th Circuit in Purcell and the 2nd Circuit in Macpherson, the 6th Circuit concluded that the FCRA preempts state statutory and common law causes of action concerning a furnisher’s reporting of consumer credit information. Accordingly, the 6th Circuit held that the District Court properly dismissed the Plaintiff’s state common law claims.

Lawsuits alleging FCRA violations have tripled in the last decade as privacy and accuracy concerns grow[2].  If you’re a furnisher of consumer credit information, such as a financial institution or employer, you need to know your rights, obligations, and potential liabilities under the FCRA. If you need assistance understanding how to safely proceed under the  FCRA or defend against alleged violations of the FCRA, contact the experienced litigation attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices


[1] Scott v. First Southern Bank, No. 18-6130 (6th Cir. 2019)

[2] Bronstad, A. (2019, October 23). Consumer Class Actions Nearly Tripled in the Past Decade, Report Says. National law Journal, Retrieved from http://www.law.com

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