Third Circuit Says ‘In Collections’ Credit Reporting Was Not Inaccurate Under FCRA

Case Snapshot

• Court: U.S. Court of Appeals for the Third Circuit
• Case: Bandes v. TransUnion LLC et al.
• Core Issue: Whether reporting a debt as “in collections” was inaccurate under the FCRA after a prior collection lawsuit was dismissed with prejudice
• Key Allegation: Consumer argued the debt could no longer legally be collected after the dismissal and therefore should not have been reported as active and in collections
• Court Holding: The court found the consumer failed to allege an objectively and readily verifiable inaccuracy under the FCRA
• Outcome: Third Circuit affirmed dismissal of the complaint
• Notable Detail: The court acknowledged an ongoing circuit split over whether certain legal disputes about debt enforceability can create actionable FCRA inaccuracies

The U.S. Court of Appeals for the Third Circuit has affirmed the dismissal of a Fair Credit Reporting Act lawsuit alleging that a debt collector and consumer reporting agency inaccurately reported a debt as “active and in collections” after a prior collection lawsuit was dismissed with prejudice.

In the May 8 ruling, the court held that the consumer failed to identify an “actionable inaccuracy” under the FCRA because it was not objectively clear that the dismissal permanently barred future attempts to collect the debt in court. 

The case involved consumer Bryan Bandes, who sued TransUnion LLC and Midland Credit Management Inc. after Midland furnished information reflecting that his credit card debt remained in collections. Bandes did not dispute owing the debt or failing to repay it. Instead, he argued that a Pennsylvania state court’s earlier dismissal of Midland’s collection lawsuit with prejudice for failure to prosecute meant the debt could no longer legally be collected in court and therefore should not have been reported as “in collections.”

Both the district court and the Third Circuit rejected that argument.

Court Declines to Resolve Broader FCRA Circuit Split

The appellate panel acknowledged that courts remain divided on whether legal disputes surrounding debt enforceability can create inaccuracies actionable under the FCRA. Some courts require a strictly factual inaccuracy, while others have held that a legal dispute may qualify if the issue is “objectively and readily verifiable.”

The Third Circuit declined to resolve that broader question in this case.

Instead, the court focused on whether the dismissal of Midland’s prior collection action clearly prevented future collection activity. The panel concluded the consumer had not shown that the dismissal carried the kind of definitive legal effect necessary to make the credit reporting materially false or misleading.

The opinion noted that Pennsylvania courts generally do not give claim-preclusive effect to dismissals for failure to prosecute, even when labeled “with prejudice.” The court also pointed to local procedural rules allowing such dismissals to potentially be reopened upon a showing of good cause.

Because the legal effect of the dismissal was not “objectively and readily verifiable,” the court held that describing the account as “in collections” was not inaccurate under the FCRA.

Why the Decision Matters

The ruling adds to a growing body of FCRA litigation examining when legal disputes over debt enforceability can support claims against furnishers and consumer reporting agencies.

While the Third Circuit stopped short of fully adopting either side of the existing circuit split, the opinion reinforces the difficulty consumers may face when attempting to convert unresolved legal disputes into actionable credit reporting inaccuracies.

For debt collectors, furnishers, and CRAs, the decision provides additional support for the position that disputed legal interpretations alone may not satisfy the FCRA’s inaccuracy standard unless the alleged defect is clear, objective, and readily verifiable.

The court’s opinion in Bandes v. TransUnion LLC was issued as a nonprecedential decision.