Supreme Court Contemplates Whether Sovereign Immunity Is Waived Under The Fair Credit Reporting Act

In Department of Agriculture, Rural Development Rural Housing Service v. Kirtz, the Court is considering whether civil liability provisions of the Fair Credit Reporting Act (FCRA) unequivocally and unambiguously waive the sovereign immunity of the United States.

FCRA was enacted in 1970 to promote banking efficiency and protect consumer privacy.  Originally, FCRA affected only consumer reporting agencies and “users” of consumer reports. In FCRA’s remedial provisions, it imposed civil liability on any consumer reporting agency or use of information that violated FCRA’s provisions. It also contained one provision imposing liability on a “person” for violating FCRA. The Act defined “person” as “any individual, partnership, corporation, trust, estate, cooperative, association, government, or governmental subdivision or agency, or other entity.” In 1996, Congress amended FCRA by expanding its regulatory focus to include persons who furnish information to consumer reporting agencies. The amended Act also includes a provision that obligates a “person” to conduct an investigation and take specific steps after receiving notice of a dispute about the completeness or accuracy of any information provided by the person to a consumer reporting agency. 

The United States Department of Agriculture (USDA) operates the Rural Housing Service, which offers loans and other financial services to promote housing in rural areas. Reginald Kirtz alleged that a credit report by a consumer reporting agency was inaccurate in saying that his payments on a Rural Housing Service loan were past due when the loan was allegedly fully paid.  Kirtz alleged that he sent a dispute letter to the credit reporting agency which alerted the USDA, but the USDA failed to investigate or correct the disputed information. Kirtz then filed suit against the USDA, the consumer reporting agency, and another loan provider. Kirtz claimed that the USDA’s failure to investigate and correct the disputed information violated an FCRA provision that imposes obligations on persons that furnish credit information to credit reporting agencies. Claiming that the violations were negligent and willful, Kirtz sought actual, statutory, and punitive damages, as well as attorney’s fees.  The USDA moved to dismiss the claims on the ground that it did not fit into the Act’s definition of “person” because in the 1996 amendment to FCRA, the remedial provisions that were amended to include “person(s)” do not “unequivocally and unambiguously” waive the sovereign immunity of the United States for purposes of imposing monetary liability.

The district court dismissed Kirtz’s claims for that reason,  explaining that a waiver of government immunity must be “unequivocally” in the statutory text. The court explained that ambiguity exists when the plausible reading of the statute does not impose monetary liability on the government, and issued a partial final judgment for the USDA.  The Third Circuit, however, reversed and stated that it agreed with the Seventh and D.C. Circuits, which both concluded that the United States is subject to liability under FCRA. These Circuit Courts reasoned that FCRA’s express definition of a “person” explicitly applies for purposes of the subchapter it is in, necessarily including the enforcement or remedial provisions.

The central issue before the Supreme Court is whether the civil liability provisions of FCRA unequivocally and unambiguously waive the sovereign immunity of the United States. If so, the United States could be exposed to substantial liability over its lending and credit reporting practices. This, in turn, could reach other Acts where sovereign immunity has been presumed. On the other hand, if the civil liability provisions are found not to waive sovereign immunity, filers could find it hard to get damages for violating consumer protection laws.

During oral argument, the Justices focused on the definition of “person” as it appears in FCRA and whether the definition of “person” that implicitly waives sovereign immunity applies to those enforcement or remedial provisions. Justices Kagan and Jackson inquired as to Congress’s intent for the 1996 amendment and whether that intent had the “necessary logical implication” of waiving sovereign immunity. Chief Justice Roberts also focused on the improbably broad definition of “person” to include the United States government to be liable for damages, especially punitive, with Justice Kavanaugh suggesting that Congress may not have realized that it was imposing this liability on the government.

This case was argued on November 6, 2023. A decision is expected later in the term. Stay tuned for Dykema’s client alert discussing the Court’s opinion.

For more information, please contact Chantel Febus, James Azadian, David Schenck, Theodore Seitz, Christopher Sakauye, McKenna Crisp, Monika Harris, or Puja Valera.