On September 2, the U.S. District Court for the Northern District of Illinois denied summary judgment for a mortgage servicer on the FCRA claims of a borrower who alleged the company maintained a blanket policy of refusing to include dispute flags when reporting consumer information to credit reporting agencies (CRAs). The borrower claimed the servicer inaccurately reported a missed mortgage payment and then, after she disputed the error through the credit bureaus, failed to flag the disputed information in its responses, a practice the servicer allegedly followed in approximately 90 percent of indirect disputes. The court held that the FCRA requires furnishers to report bona fide disputes to CRAs even in the context of indirect disputes, following the 3rd, 4th, and 9th Circuits’ interpretations that a furnisher’s failure to include a dispute flag can constitute a materially misleading omission under 15 U.S.C. § 1681s-2(b). The court rejected the servicer’s argument that compliance with industry guidance issued by a trade association — which in 2017 directed furnishers not to use dispute-related compliance condition codes in response to indirect disputes — constituted a defense, finding that the standard of liability is established by statute, not by the practices recommended by a non-governmental industry group.

On willfulness, the court found that the servicer’s conduct was not arguably compliant with the FCRA, as three federal circuits had already held that furnishers must include dispute flags in responses to potentially meritorious indirect disputes before the servicer adopted its 2017 policy change. The court also rejected the servicer’s reliance on a recent appellate footnote as creating a circuit split, finding the footnote addressed the private enforceability of a different statutory subsection rather than the substantive requirements at issue. The court separately denied class certification without prejudice, finding that the plaintiff, who sought to represent a proposed class of nearly 50,000 consumers, had not demonstrated that the question of whether the servicer’s omissions were “materially misleading” — which requires examining whether each individual dispute was potentially meritorious — could be resolved on a classwide basis rather than through individualized inquiry.