Credit reporting agencies make mistakes. Even when they’re not at fault, the credit reports they prepare often contain inaccurate information about consumers. When this happens, can the consumer sue the credit reporting agency for defamation? Well, maybe. Virginia defamation laws usually apply where false statements have been made to others that cause harm to one’s reputation, but these are state laws which may be preempted by the federal Fair Credit Reporting Act. Federal laws preempt state laws when they apply to the same situation.
The relevant part of the FCRA provides that, with certain exceptions, “no consumer may bring any action or proceeding in the nature of defamation, …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.” That’s a mouthful, but the key point to remember is this: you can’t sue a credit reporting agency for making an innocent mistake; to bring a defamation action based on an inaccuracy in your credit report, the falsity must have been made with malice or a willful intent to harm the consumer.
Let’s look at a real-world example. In Englert v. Nationstar Mortgage, Inc., Troy Englert claimed his mortgage company provided negative information about his mortgage account to credit reporting agencies, resulting in his being unable to secure financing to purchase another property. He claimed that he was current in his mortgage payments, but that shortly after Nationstar took over the servicing of his loan, they marked him as delinquent. He told them multiple times that he was not delinquent and that they were at fault in failing to credit a payment to his account, but Nationstar “did nothing” to remedy the situation and proceeded to inform credit reporting agencies that Englert was delinquent.
This was not enough to avoid preemption, the court found. For Nationstar to have acted with malice, it must have furnished consumer credit information with knowledge that it was false or with reckless disregard of whether it was false or not. (See New York Times Co. v. Sullivan, 376 U.S. 254, 280 (1964)). The court held that Mr. Englert’s evidence that he complained multiple times did not establish that Nationstar acted with malice, particularly given that the plaintiff has the burden of proving malice with clear and convincing evidence. A plaintiff can’t prove malice simply by relying on his own conclusory, unsupported statements. Because there was no proof that Nationstar knew Englert was current in his mortgage payments, or that it acted with reckless disregard of whether Englert was current or delinquent, the court held that the defamation claim was preempted by the FCRA.