In 2017, the Equifax data breach led to the personal information of more than 140 million Americans being compromised. In the wake of this incident, some consumers started suing Equifax in small claims court – and won.
The success of these plaintiffs generated considerable attention on the Internet, with other consumers seeking to join in on the action. Apps like Fairshake and DoNotPay made it easier than ever for consumers to file lawsuits, and seek justice in small claims court.
However, in our view, suing credit bureaus in small claims court isn’t the best approach. Here’s why.
Federal Court Is The Proper Place To Sue Credit Bureaus
The Fair Credit Reporting Act (known as the FCRA) is a federal law which controls what appears on your credit reports, and regulates credit bureaus. The FCRA requires that information on your credit reports must offer “maximum possible accuracy.”
If information on your credit reports is innacurate, you have the right to dispute these errors with the credit bureaus. Under the FCRA, the bureaus have 30 to 45 days to investigate your dispute, and let you know what they find out.
Credit bureaus are required to conduct a “reasonable reinvestigation”, meaning that they actually review your dispute, and find out if there are in fact errors on your credit reports. Typically, we recommend disputing credit errors by certified mail, rather than online.
The bureaus are required to send your dispute to the party whose account you’re disputing. So, let’s say you’re disputing a collection account.
The credit bureaus must forward your dispute to the debt collector, who will have an opportunity to investigate the account. The debt collector must either verify the information as accurate (meaning, nothing changes), update the account (i.e. some aspect of the account changes, but the account remains on your credit reports), or delete the account (which removes it from your credit reports). If a debt collector fails to respond to the dispute, then the account is automatically deleted.
If an error on a credit report is not corrected after a dispute, you might have grounds to sue the credit bureaus (and the creditor or debt collector who reported the innacurate account). If the error is damaging your credit standing in some way, and making it potentially difficult for you to be approved for credit in the future, you might have a real case.
Remember, the FCRA is a federal law. Therefore, if you file a lawsuit under the FCRA, you’ll be able to sue in federal court.
Here’s another piece of good news: You won’t have to pay for an attorney, or pay court costs. In a succesful FCRA lawsuit, your attorney’s fees, and other costs, are paid by the defendants (i.e. credit bureaus and debt collectors). The same is typically true if a case is settled before trial.
Therefore, your attorney isn’t typically going to ask you for money, to work on your case. This allows you to protect your rights in court, free of charge. Of course, this also means that the attorney might be picky about whether they take your case. If they don’t think they can settle or win the case (and thus recover attorney’s fees), they’re not going to want to touch it.
How much money can you recover in a succesful FCRA lawsuit? That depends on the specifics of your case.
If you’re able to show that you were denied for credit, or employment, due to a credit bureau or creditor’s failure to correct errors on your reports, you might claim tens or hundreds of thousands of dollars in damages. If you can’t really prove damages, but your credit standing was damaged by an error, you may obtain damages of $100 to $1,000 per violation anyways.
What is the key takeaway here? There’s a process in place, to correct errors on your credit reports – and to take legal action if they aren’t resolved to your satisfaction. Ideally, you’ll have an expert attorney help you with this process.
Therefore, suing the credit bureaus in small claims court isn’t the ideal approach. Why not properly dispute the errors on your credit reports – and sue in federal court, if serious credit reporting errors are not properly resolved? The FCRA was written to protect your rights, so use it to your advantage.
In federal court, you can have a lawyer represent you (typically without charge), and might obtain considerably more in damages, if you settle or win your case. Compare this to representing yourself in court, and having to put your case together yourself. Clearly, working with an attorney is a better approach.
Suing In Small Claims Can Lead To Closure Of Your Credit File
There’s another reason you shouldn’t sue the credit bureaus in small claims court: It could lead to the closure of your credit file. Here, we’ll share a story.
One of our colleagues (who is a fellow FCRA attorney), was approached by a potential client (let’s call him David) who had sued the credit bureaus in small claims court. Apparently, David was trying to remove a bankruptcy (which really belonged to him), from his credit reports.
One of the credit bureaus (TransUnion, I believe), sent a representative to the court hearing. This representative informed the judge that TransUnion would be closing David’ credit file.
Basically, this means that David would not longer have a credit report from TransUnion. Instead of repairing his credit, David’s credit file was closed.
Remember, TransUnion is a private company, and is not obligated to report anyone’s credit information. As long as they’re not discriminating on the basis of race, religion or other protected categories they’re perfectly allowed to refuse to do business with a particular consumer.
What is the long-term impact of this? If David wants to apply for a mortgage, he’ll have trouble. Most mortgage lenders require credit reports and scores from all three credit bureaus. If one credit bureau is unavailable (because they’ve chosen not to report that individuals’ credit history), then approval becomes that much more difficult.
Applying for auto loans, credit cards, business funding, and apartment rentals, might also present similar difficulties. The absence of credit history from one credit bureau, can create major complications.
If we take a broader look at this situation, we see that David would have been better off, had he never sued TransUnion (or other credit bureaus). If the bankruptcy was not reported accurately, he might be able to sue, or pursue other remedies. If it were reported correctly, David could have simply rebuilt his credit, and moved forward.
Suing the credit bureaus created a needless set of complications, which will impact David for years to come. There was no reason for David to take on this unnecessary set of risks. Suing credit bureaus rarely makes sense.
The Final Word
Rather than suing the credit bureaus in small claims court, you should use the existing legal process, to dispute negative items which appear on your credit reports. If the errors aren’t corrected, and they’re serious, then you might have grounds for a lawsuit.
If not, there are many other credit repair tactics you can make use of, not to mention the many strategies to help you build a stronger credit score. You’ve got options. So, don’t sue the credit bureaus in small claims court. You’ve got other options.
