A District Court judge in Texas has granted a defendant credit union’s motion to dismiss charges it violated the Fair Credit Reporting Act over how it furnished information to the credit reporting agencies after an insurance company admitted it failed to make a payment because of a system error.
The background: The plaintiff opened an auto loan and purchased both traditional auto insurance and a GAP insurance policy intended to cover any remaining balance in the event of a loss. After the vehicle was severely damaged in a hailstorm, the primary insurer paid a large portion of the balance, leaving a remaining amount that the GAP policy was expected to cover.
- The credit union filed a claim with the GAP insurer, but the insurer later admitted it failed to issue payment due to a system error.
- While that issue was being resolved, the plaintiff stopped making monthly payments, believing the remaining balance would be covered. During that period, the credit union reported the account as delinquent, first 30 days past due and later 60 days past due.
- The plaintiff disputed the reporting with the credit bureaus, which forwarded the disputes to the credit union. The credit union verified the information as accurate. The plaintiff then filed suit, alleging the credit union furnished inaccurate information, failed to conduct a reasonable investigation, and failed to correct the reporting.
The ruling: Judge James Wesley Hendrix of the District Court for the Northern District of Texas adopted a magistrate judge’s recommendation and dismissed the claims with prejudice, focusing heavily on the requirement that a plaintiff must show the reported information was inaccurate or materially misleading.
- Here, the judge emphasized a critical fact that ultimately drove the outcome: the plaintiff did not make the required payments. Because of that, the reported delinquencies were factually correct.
- The plaintiff argued that the reporting was misleading given the pending insurance payment. Judge Hendrix rejected that argument, finding no sufficient allegation that the credit union told the plaintiff he could stop making payments while waiting for the GAP claim to be resolved. The judge also declined to stretch the facts to support that interpretation, noting that courts are not required to accept unsupported legal conclusions.
- On the investigation claim, the judge reinforced another important point for furnishers: without a threshold showing of inaccuracy, claims related to the adequacy of an investigation cannot survive.
- The court also pointed to an alternative remedy available to consumers in situations like this, suggesting that a consumer statement explaining the context of the delinquency may be more appropriate than litigation when the reporting itself is accurate.
