The Scales Tilt Away from the Federal Government – Third Circuit Joins the Seventh Circuit in Finding Waiver of Sovereign Immunity by the Fair Credit Reporting Act (FCRA)

ABSTRACT: The Third Circuit Court of Appeals found a waiver of sovereign immunity under the Fair Credit Reporting Act (“FCRA”) and reversed a District Court’s dismissal in favor of the United States Department of Agriculture Rural Development Rural Housing Service. Now two Circuits (the Third and Seventh), plus the District of Columbia, have found that the FCRA unequivocally and unambiguously waives the federal government’s sovereign immunity from private damages claims.

We have our eyes on Department of Agriculture Rural Development Rural Housing Service v. Reginald Kirtz, where the Supreme Court will resolve a Circuit Split regarding whether the Fair Credit Reporting Act (“FCRA”) unequivocally and unambiguously waives the federal government’s sovereign immunity from private damages.  The Third and Seventh Circuits, plus the District of Columbia, have found the FCRA unequivocally and unambiguously waives the government’s sovereign immunity, while the Fourth and Ninth Circuits have found no waiver of sovereign immunity under the FCRA.  The Supreme Court granted certiorari on June 20, 2023, and hearing on the matter is set for November 6, 2023. 

The Third Circuit Court of Appeals reversed a District Court’s dismissal of litigation brought by Reginald Kirtz against the United States Department of Agriculture Rural Development Rural Housing Service (“USDA”).  Kirtz filed suit against the USDA, Transunion, and the servicer of his student loans alleging violations of RCRA §1681.  Specifically, Kirtz alleged that a Transunion credit report erroneously stated that his payments on a USDA loan were past due, when the loan had been fully paid; Kirtz also alleged that he sent a dispute letter to Transunion who notified the USDA of the issue, but that the USDA failed to make a good-faith effort to investigate or correct the disputed information as required by the FCRA.

The USDA sought dismissal of Kirtz’s litigation on the grounds that the FCRA does not include a waiver of sovereign immunity by the U.S. Government from civil liability and damages by a private plaintiff.  Kirtz’s position was that the FCRA’s definition of “person” includes any government or governmental subdivision or agency, and 1996 amendments to the FCRA provided for civil liability against any person who failed to investigate a disputed deficiency on their credit report.  The District Court found, relying on opinions from the Fourth and Ninth Circuits as persuasive authority, that the FCRA did not include an unequivocal waiver of sovereign immunity, and dismissed Kirtz’s claims. 

The court of appeals found that the plain text of the statute operates as a waiver of sovereign immunity, emphasizing the fact that the applicable subchapter expressly incorporates the definition of person used in the FCRA that includes the government and governmental agencies; the court also stressed that other statutory schemes expressly preserve the U.S. Government’s sovereign immunity against civil suits, and there was no such express reservation included in the FCRA. 

Background of the Fair Credit Reporting Act

Congress enacted the FCRA in 1970, to promote efficiency in the Nation’s banking systems and to protect consumer privacy.  As originally enacted, the FCRA imposed duties almost exclusively on “consumer reporting agencies,” those entities engaged in “assembling or evaluating consumer credit information … for the purposes of furnishing consumer reports to third parties.”  Two separate single provisions imposed duties or liability on a “person,” which included “any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency or other entity.”  Section 606 limited the conditions under which a “person” could procure or cause to be prepared a consumer report, and Section 619 imposed criminal penalties when a “person” obtained consumer information under false pretenses.

In 1996 Congress amended the FCRA to expand its regulatory focus beyond consumer reporting agencies, to include persons who furnish information to those agencies.  A provision of the 1996 enactment required a “person” to conduct an investigation upon receipt of notice of a dispute regarding the completeness or accuracy of any information provided by the person to the consumer reporting agency.  The 1996 amendments included expanding the remedial provisions to apply to any “person” and not just any “consumer reporting agency or user of information” and added a provision allowing for statutory damages in addition to actual damages applicable to “persons.” 

Question Presented to Supreme Court

Whether the civil-liability provisions of the Fair Credit Reporting Act, 15 U.S.C. 1681 et seq., unequivocally and unambiguously waive the sovereign immunity of the United States.

The USDA’s Position Before the Supreme Court

The USDA will contend that waivers of sovereign immunity must be unequivocal and unambiguous, and the FCRA does not include such an express waiver.  The USDA premises its contention on the argument that the 1970 enactment plainly did not waive the sovereign immunity of the United States, which appears beyond legal dispute.  Further, the USDA will contend that the 1970 enactment did not really intend for the United States to be deemed a “person,” despite the inclusion of government and governmental agencies within the definition, because the criminal penalties for obtaining consumer information under false pretenses would never apply to the U.S. Government.  Against that background, the USDA will contend that the 1996 enactment cannot have silently subjected to the United States to civil liability. 

The USDA will also contend that other Acts’ expressly including a waiver of sovereign immunity directly in the text of the Act evidences no intent of Congress to waive sovereign immunity through the FCRA.  Finally, the USDA will take the position that any ambiguity regarding a plausible application of sovereign immunity expressly precludes finding waiver of the same.

What to Expect

The Supreme Court will decide what is truly the law of the land in the upcoming session.  The United States Government is the country’s largest employer and largest lender.  Future FCRA litigation may include claims against governmental agencies.  The uncertainty of financial litigation could be exacerbated as student loan pauses come to an end and loan servicers begin to report repayments and failures.

Check back for an update on our thoughts after oral arguments and after an opinion is rendered.