Banks, lenders, and other financial institutions who submit information to credit reporting agencies should take note of a recent Third Circuit decision adopting a “reasonable reader” standard for evaluating whether a credit report was inaccurate or misleading under Fair Credit Reporting Act (“FCRA”).

In Bibbs v. Trans Union LLC, 43 F.4th 331 (3d Cir. 2022), the court considered whether a negative pay status notation reporting that an account was “120 Days Past Due Date” was misleading in violation of the FCRA.  The notation corresponded to student loan accounts that had been closed following nonpayment by the borrowers.  After the accounts were closed, their balances went to zero, and the borrowers’ payment obligations were transferred.   

The borrowers argued this was misleading because an unsophisticated individual could erroneously assume that they were currently more than 120 days late on a loan.  The court agreed that “creditor” as defined by the FCRA “broadly encompasses both sophisticated and unsophisticated individuals and entities alike” and held that courts must apply a reasonable reader—rather than creditor—standard to evaluate whether the report is misleading.  But it rejected Appellant’s “myopic” reading of the negative pay status notation, and held that courts must apply the standard “by reading the entry not in isolation, but rather by reading the report in its entirety.” After applying this standard, the court determined that even if the entry read in isolation could lead a reader to believe the account was currently past due, the rest of the report clearly showed that the loan was closed.  For example, the report stated “ACCT CLOSED DUE TO TRANSFER; TRANSFERRED TO ANOTHER OFFICE” and reported the “Date Closed:” was “04/05/2018.”  The court affirmed the district court’s ruling that the credit reports were accurate under §1681e(b).