Lemon Law and FCRA: The Role of Credit Reporting Agencies in Resolving Legal Disputes

In the case of Khankin v. JLR San Jose LLC et al., the plaintiffs claimed that the credit reporting agencies inaccurately reported them as delinquent on their lease even after they had lawfully elected to rescind their lease and return the vehicle under California’s “Lemon Law” (the Beverly-Song Warranty Act). They argued that this reporting was inaccurate because they were no longer legally obligated to make lease payments after rescinding the lease due to the vehicle’s defects. The court ruled that this claimed inaccuracy was a legal issue that a credit reporting agency could not resolve for the following reasons:

  • Legal Determination: The question of whether the plaintiffs validly rescinded their lease agreement under California’s “Lemon Law” is a legal determination. It involves interpreting state law and determining whether the manufacturer made a reasonable number of attempts to fix the vehicle, which would entitle the lessees to restitution and rescission of the lease.
  • Role of Credit Reporting Agencies: Credit reporting agencies are not tribunals and are not equipped to adjudicate contract disputes or legal issues. Their role is to collect and report information furnished by others. They are not required to provide legal opinions on the merits of a consumer’s dispute with a creditor or the legal validity of a debt.
  • Dispute Resolution: The court noted that a consumer disputing the legal validity of a debt that appears on their credit report should first attempt to resolve the matter directly with the creditor or furnisher. If the legal dispute is resolved in favor of the consumer, and the creditor or furnisher continues to report inaccurate information, then the consumer may have grounds for a claim under the Fair Credit Reporting Act.
  • Precedent: The court cited the Ninth Circuit’s decision in Carvalho v. Equifax Info. Servs. LLC, where it was held that credit reporting agencies are not required to engage in a searching inquiry into the consumer’s legal defenses to payment as part of their reinvestigation duties under the FCRA.
  • Based on these reasons, the court found that the claimed inaccuracy related to the rescission of the lease was a legal issue outside the competency of the credit reporting agencies, and therefore, it could not form the basis of the plaintiffs’ FCRA reinvestigation claim.

The case is Khankin v. JLR San Jose, LLC. et.al., U.S. District Court, Northern District of California, Case No. 3:23-cv-06145-JSC

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