Monday, December 24, 2012

FYI: 2nd Cir Rules No Private Right of Action Under FCRA for Alleged Mistaken Credit Reporting, Borrower Waited Too Long to Amend to Assert 1681s-2(b) Claim

The U.S. Court of Appeals for the Second Circuit recently held that a borrower had no private right of action under section 1681s-2(a) of the federal Fair Credit Reporting Act for reporting supposedly inaccurate information to credit reporting agencies. 
 
The Court of Appeals also ruled that, in light of undue delay in seeking to amend the complaint and prejudice to defendant lender, the lower court properly denied the borrower leave to amend to include an allegation that the dispute had been submitted to a credit reporting agency and triggered a duty to investigate and verify the accuracy of the reported information.    
 
A copy of the opinion is attached. 
 
Plaintiff, a real estate developer ("Borrower") purchased land in Florida with a loan secured by a mortgage on the property.  The Note required Borrower to make interest-only payments for the first three years followed by a "balloon" payment for the balance of the loan.  Borrower failed to make the balloon payment when due.
 
Based on discussions with defendant lender ("Bank"), Borrower continued making the monthly interest payments, but never made the balloon payment.  Bank accepted and credited Borrower's account with those payments, but nevertheless notified credit reporting agencies that Borrower was late on his payments due to the outstanding balloon payment.
 
Borrower then filed a complaint against Bank, asserting claims for willful noncompliance with the federal Fair Credit Reporting Act ("FCRA").  Specifically, Borrower alleged that Bank knowingly disclosed false credit information, failed to correct the false information, and failed to investigate Borrower's dispute that he filed directly with Bank, the furnisher of the information.  The complaint, however, did not allege that Borrower had submitted a dispute to a credit reporting agency about the accuracy of Bank's reporting. 
 
Borrower first submitted a dispute with a credit reporting agency about a month after filing his lawsuit, but failed to amend the complaint to allege that he did so.   In its answer, Bank argued that there was no private right of action under Section 1681s-2(a) of the FCRA and that the complaint failed to state a claim under Section 1681s-2(b) of the FCRA because it failed to allege that the dispute was submitted to a credit reporting agency.  The requirement to file a claim with a credit reporting agency was again brought to Borrower's attention during a deposition almost a year after the filing of the complaint. 
 
After the completion of discovery and waiting almost 18 months since the filing of the complaint, Bank moved for summary judgment.   During that 18-month period, Borrower never attempted to amend his complaint to include an allegation that he had submitted the dispute to a credit reporting agency. 
 
Nearly two years after the commencement of the action, the district court granted summary judgment in favor of Bank, concluding in part that there was no private right of action for violations of Section 1681s-2(a) and that the complaint failed to state a claim under section 1681s-2(b), and denied leave to amend to add a claim under Section 1681s-2(b).
 
Borrower appealed.  The Second Circuit affirmed.
 
As you may recall, the FCRA provides that "A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate. . . . (B) A person shall not furnish information relating to a consumer to any consumer reporting agency if— (i)the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii)the information is, in fact, inaccurate.  15 U.S.C. § 1681s-2(a) ("Section 1681s-2(a)"). 
 
The FCRA further provides that Section 1681s-2(a) "shall be enforced exclusively . . . by the Federal agencies and officials and the State officials identified in section 1681 . . . ."  15 U.S.C. § 1681s-2(d). 
 
Moreover, a furnisher of information generally has a duty to correct and update inaccurate information provided to credit reporting agencies if a dispute is filed with the credit reporting agency, but if a dispute is filed directly with the furnisher of information, the furnisher only has a duty to investigate in certain circumstances established by regulation.  See 15 U.S.C. §§ 1681i(a)(1)(A), 1681s-2(a)(8), 1681s-2(b); 16 C.F.R. § 660.4 (relating to direct disputes).
 
Finally, under the FCRA, in certain circumstances a consumer may file a lawsuit against a furnisher of information who "willfully fails to comply with any requirement imposed under" the FCRA and may recover actual or statutory damages, as well as punitive damages, costs, and attorney fees.  15 U.S.C. § 1681n(a).  See also 15 U.S.C. § 1681s-2(c)(1)(limitation on liability).
 
Noting that a furnisher of information must investigate and verify the accuracy of information furnished to a credit reporting agency after a dispute is filed with the agency in accordance with Section 1681s-2(b)(1), but that the complaint only alleged violations of Section 1681s-2(a), the Second Circuit pointed out that the FCRA exclusively "restricts enforcement of [section 1681s-2(a] to federal and state authorities."  The Court thus ruled that, because borrower only alleged violations of Section 1681s-2(a), Borrower had no private right of action for violations of that particular subsection.
 
Turning to Borrower's assertion that the lower court had improperly denied leave to amend his complaint to include an allegation that Borrower had submitted his dispute to a credit reporting agency, the Second Circuit ruled that, in light of Borrower's long delay and the resulting prejudice to Bank, the lower court had correctly denied Borrower leave to amend.
 
Accordingly, the Court of Appeals affirmed the rulings of the district court.
 


Ralph T. Wutscher
McGinnis Wutscher LLP
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RWutscher@mtwllp.com
 

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