What Standards Govern Liability For Inaccurate Credit Reports About Discharged Debts? (Riddick v. Chex)

By: Donald L Swanson

What standards govern the potential liability of a credit reporting agency for inaccurate credit reports about debts discharged in bankruptcy?

That’s the question addressed in Riddick v. Chex Systems, Inc., Case No. 2:24-cv-700 in U.S. District Court for Eastern Virginia (decided October 10, 2025).

What follows is a summary of the Riddick opinion.

Facts

Plaintiff is a consumer with a bankruptcy discharge. 

Defendant is a consumer reporting agency subject to requirements of the Fair Credit Reporting Act (the “Act”).

After receiving a bankruptcy discharge that included an overdraft on Plaintiff’s bank account, Plaintiff applies for an account with a different bank; but

• Plaintiff’s application is denied because the discharged overdraft is reported by Defendant as “UNPAID”—even though Plaintiff no longer owes that debt because of the bankruptcy discharge.

Class Action Lawsuit

So, Plaintiff brings this class action lawsuit on behalf of herself and others who were subject to a consumer report by Defendant that erroneously indicates an outstanding balance on an account that had been discharged in bankruptcy.

Plaintiff seeks to recover punitive damages, which are authorized under the Act for a defendant’s willful violation. [Note: the Act also allows recovery of actual damages for negligent violations of the Act, but Plaintiff’s Complaint “does not engage with” that possibility.]

Plaintiff raises two possible ways that Defendant may have failed to implement reasonable procedures in releasing Plaintiff’s information.

First, Plaintiff alleges that Defendant should have ensured the accuracy of consumer data provided by banks, possibly by cross-referencing or using automated reviews of the public bankruptcy record.

Second, Plaintiff alleges that Defendant should have been aware that the bank with the discharged overdraft “was not a presumptively reliable source of consumer data” and, therefore, Defendant “should not have reported information from” that bank without further investigation.

Motion to Dismiss

Defendant moves to dismiss Plaintiff’s Complaint as failing to state a claim on which relief can be granted, under Fed.R.Civ.P. 12(b)(6)..

Legal standards for surviving such a motion include:

• the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face—
  • in other words, plaintiff must plead sufficient factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged; and
• factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all of the allegations in the complaint are true; but
  • the court is not bound to accept as true a legal conclusion couched as a factual allegation.

The District Court denies Defendant’s motion to dismiss.  What follows is a summary of its rationale.

Requirements of the Act

To state a claim under the Act, whether negligent or willful, a plaintiff must establish that, (i) the consumer reporting agency reported inaccurate information, and (ii) the agency failed (willfully or negligently) to follow reasonable procedures to ensure it did not report inaccurate information.

–Defendant Reported Inaccurate Information

Defendant acknowledges, for purposes of its motion to dismiss, that the information it reported about Plaintiff is inaccurate.

–Failures to Follow Reasonable Procedures

A plaintiff bears the burden of establishing that the consumer reporting agency failed to follow reasonable procedures to ensure maximum possible accuracy:

• normally, a jury must decide whether the defendant’s procedures meet the very high standard set by the Act; and
• a jury must consider whether the defendant’s procedures were reasonable in context, not in a vacuum.

Here, Plaintiff alleges that Defendant:

• reported that Plaintiff had an unpaid overdraft, even though that debt had been discharged in a publicly reviewable bankruptcy proceeding;
• had “ZERO procedures in place” to confirm the information it reported by comparing against public bankruptcy records;  
• had “frequent errors in bankruptcy related credit information”; and
• received multiple complaints through the Consumer Financial Protection Bureau (the “Bureau”) over the past decade flagging that its reports misrepresented debts discharged in bankruptcy;
  • which are the very same kind of debt misrepresentation contained in Defendant’s report about Plaintiff.

It is in such a context that Plaintiff alleges that Defendant disclosed consumer debt information without following reasonable procedures. Defendant did not, for example:

• investigate whether its data sources are reliable; or
• review public bankruptcy filings.

At this motion to dismiss stage of these proceedings, Plaintiff has alleged facts that, if true, could demonstrate that Defendant’s procedures were not reasonable in context.

–Willfulness

To recover damages, Plaintiff must show that Defendant’s violation of the Act was either willful or negligent. But Plaintiff’s Complaint asserts only that Defendant’s violation was willful, which brings punitive damages into play.

A willful violation under the Act encompasses reckless violations of the Act:

• so to demonstrate willfulness, an allegation of malice is not required—instead, Plaintiff needs only to plausibly assert that Defendant “knowingly and intentionally committed an act in conscious disregard for the rights of the consumer”; and
• like the reasonableness of procedures, a defendant’s willfulness is usually a question for a jury and is rarely resolved at earlier stages like a motion to dismiss or for summary judgment.

To guard against harm to consumers, the Act requires that agencies like Defendant use reasonable procedures to ensure their reports are accurate.  Defendant’s Complaint plausibly alleges that Defendant:

• knows it is subject to requirements of the Act and is aware that inaccuracies in its reports could lead to severe consequences for its many consumers;
• continues to use limited procedures despite knowing that it produced “frequent” errors, which shows a conscious disregard for consumers’ rights;
• knows that its procedures had failed in other circumstances to guard against reports containing inaccurate information about debts discharged in bankruptcy;
• knows that such inaccuracies are “systematic,” because it received multiple consumer complaints through the Bureau and because of lawsuits against it stemming from this same type of inaccurate information; and
• yet, Defendant sold consumer credit reports without implementing “any procedure to identify and correct these common errors prior to furnishing reports.” 

“Such factual allegations, if true,” the District Court holds, “could support a finding of willfulness.”

Conclusion

Very interesting.

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