Gorman v. Wolpoff & Abramson examines creditor obligations under Fair Credit Reporting Act (FCRA)

What must a creditor do when notified of a dispute by a Credit Reporting Agency (CRA)? Under the Fair Credit Reporting Act (FCRA), the creditor is obligated to conduct “an investigation with respect to the disputed information.” 15 U.S.C. § 1681s-2(b)(1)(A). But does that investigation have to be “reasonable?” In a case involving a complicated dispute about credit card charges, the Ninth Circuit, in Gorman v. Wolpoff & Abramson, said that such investigations must be reasonable, following the Fourth Circuit.

Dismissing the contention that the absence of the word “reasonable” authorizes unreasonable investigations, the Court said:

“This court has not addressed MBNA’s contention about the FCRA’s investigation requirement. But, MBNA made — and lost — the same argument before the Fourth Circuit. Johnson v. MBNA Am. Bank, NA, 357 F.3d 426, 429-31 (4th Cir. 2004). Concluding that the statute includes a requirement that a furnisher’s investigation not be unreasonable, the Fourth Circuit first noted that the plain meaning of the term “investigation” is a “ ‘detailed inquiry or systematic examination,’ ” which necessarily “requires some degree of careful inquiry.” Id. at 430 (quoting Am. Heritage Dictionary 920 (4th ed. 2000)). Second, the Fourth Circuit reasoned that because the purpose of the provision is “to give consumers a means to dispute — and, ultimately, correct — inaccurate information on their credit reports,” id. at 430-31, a “superficial, unreasonable inquir[y]” would hardly satisfy Congress’ objective. Id. at 431. The Seventh Circuit, without discussing the issue, has also found an implicit reasonableness requirement. See Westra v. Credit Control of Pinellas, 409 F.3d 825, 827 (7th Cir. 2005) (“Whether a defendant’s investigation [pursuant to § 1681s-2(b)(1)(A)] is reasonable is a factual question normally reserved for trial.”); see also Johnson, 357 F.3d at 430 n.2 (“[D]istrict courts that have considered the issue have consistently recognized that the creditor’s investigation must be a reasonable one.” (citing cases)).

(Slip op., at pp. 277-278.) The Ninth Circuit found this reasoning more than sufficient. The Court went on to evaluate the reasonableness of a number of investigations by the creditor, finding them to be reasonable on the offered facts.

The Court then flirted with a pre-emption issue related to state law claims arising out of credit reporting: “The preemption question presents a difficult issue of first impression.” (Slip op., at p. 296.) But after building the suspense with a discussion of district courts in "disarray" on the issue, the Court concluded that an insufficiency of evidence would preclude a libel claim by the debtor, rendering a decision on the pre-emption claim unnecessary. The wind-up was good; the Court had me ready to learn how they were going to untangle the statutory interpretation issue that confounded district courts on the pre-emption question.