Some lawyers like to sue for credit reporting errors in state court rather than in federal district court. I’m one of them. Unfortunately, I can’t always get what I want (hat tip to Mick Jagger).
There is one good reason for doing so – the filing fee is significantly lower. The costs of serving the credit reporting agency or furnisher of information is just about the same in state or federal court, but it’s that lower filing fee that really gets me.
Cheap? Perhaps. But if my client’s going to have to pay a filing fee why not make it as low as possible?
15 U.S.C. § 1681t seems to preempt state law regarding all subject matters covered by Section 1681s-2 relating to the responsibilities of those who furnish information to credit reporting agencies.
Section 1681h(e), however, explicitly preempts certain suits relating to credit reporting errors, stating as follows:
no consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information, or any person who furnishes information to a consumer reporting agency, based on information disclosed pursuant to section 1681g, 1681h, or 1681m of this title, or based on information disclosed by a user of a consumer report to or for a consumer against whom the user has taken adverse action, based in whole or in part on the report except as to false information furnished with malice or willful intent to injure such consumer.
So which one controls? 1681t or 1681(h)(e)?
New York federal courts have noted that Congress did not withdraw § 1681h(e) when it added § 1681t(b)(1)(F) to the Code in 1996. This allows the court to use what’s been called the “temporal approach,” which goes like this:
[S]tate law claims based on actions of a furnisher of information after the furnisher has received notice of inaccuracies are held preempted by § 1681t(b)(1)(F), while actions taken before notice has been received may not be preempted. . . . [T]he notice referred to here need not be from a credit reporting agency, as is required to sustain a private cause of action under § 1681s-2(b) of FCRA; notice may be received from the a [sic] credit reporting agency or from the consumer himself. . . . Under the temporal approach, causes of action predicated on acts that occurred before a furnisher of information had notice of any inaccuracies are not preempted by § 1681t(b)(1)(F), but are instead governed by § 1681h(e). As a result, according to the temporal approach, plaintiffs may bring claims for actions that take place before a furnisher has notice of inaccuracies, but — pursuant to the plain language of § 1681h(e) — these claims can only go forward if a plaintiff alleges that the furnisher of information provided inaccurate information with malice or willful intent to injure the consumer.
Kane v. Guar. Residential Lending, Inc., No. 04-CV-4847 (ERK), 2005 U.S. Dist. LEXIS 17052, at * 21-23 (E.D.N.Y. May 9, 2005).
In other words, the question is one of time – when did the furnisher of information find out about the credit reporting errors?
If the problem arose before the credit reporting error was known then we can sue in state court but only if a consumer alleges that the furnisher of information provided inaccurate information with malice or willful intent to injure the consumer.
In the end, it all comes down to timing.
Though I prefer to file cases related to credit reporting errors in state court, I can do so only in certain situations. Filing in the wrong place can subject you to a bad result in court, and it’s ultimately not worth the savings.