The U.S. Court of Appeals for the Seventh Circuit recently affirmed a summary judgment ruling in favor of a mortgage loan servicer and held that no reasonable jury could find that the servicer provided patently incorrect or materially misleading information sufficient to support a claim under Section 1681s-2(b) of the federal Fair Credit Reporting Act.
In so ruling, the Seventh Circuit set a standard for incompleteness or inaccuracy under Section 1681s-2(b), requiring a showing that the information the data furnisher provided was (1) patently incorrect, or (2) materially misleading, including by omission. "Materially misleading", the Court held, means "misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions." Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009).
A copy of the opinion is available at: Link to Opinion
A borrower obtained a home mortgage loan, and eventually failed to make her monthly payments. The borrower successfully negotiated and settled her debt through a short sale of her home.
The borrower was later denied a new mortgage loan because her credit report reflected late payments on her previous mortgage in various months following the short sale. She disputed the information to a credit reporting agency.
To confirm the accuracy of its records, the credit reporting agency sent the previous loan's servicer four Automated Consumer Dispute Verification ("AVDV") forms. In its ACDV responses, the servicer amended the codes for Pay Rate and Account history, among other changes. The amended code for Pay Rate stated "Changed from empty to '3,' meaning 90 days delinquent," and the code for Account History said "Changed from '3' (90 days delinquent) in December 2018 and January, June, August, and October 2019 to dashes '–' for all months after December 2015, meaning 'no reporting.'"
The borrower contended that the amended codes for Pay Rate and Account History were inaccurate, pointing to how the credit reporting agency interpreted and reported the amended data in her credit report. Specifically, the agency reported this amended data to indicate the borrower was currently delinquent on the mortgage with missed payments in months following the settlement and short sale.
The borrower sued the servicer under the federal Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681s-2(b), claiming that the servicer failed to conduct a reasonable investigation of disputed data and provided false and misleading information to the credit reporting agency. She relied on evidence about persistent inaccuracies in the credit reports produced using the amended data. The trial court granted the servicer summary judgment, and the borrower timely appealed.
As you may recall, Section 1681s- 2(b) requires a data furnisher to investigate and review disputed information forwarded by a credit reporting agency for completeness and accuracy and then send verified or amended data back to the agency.
The Seventh Circuit agreed with other federal circuit courts that two threshold requirements exist for a claim under Section 1681s- 2(b): (1) the plaintiff must make a prima facie showing that the data furnisher provided incomplete or inaccurate information; and (2) the plaintiff must show that the incompleteness or inaccuracy was the product of an unreasonable investigation — that is, had the furnisher conducted a reasonable investigation, it would have discovered that the data it provided was incomplete or inaccurate.
The trial court resolved this case on the borrower's failure to prove inaccuracy, and the Seventh Circuit focused its analysis on that element. Thus, the Court took the opportunity to set the standard for incompleteness or inaccuracy under Section 1681s-2(b), requiring a showing that the information the data furnisher provided was (1) patently incorrect, or (2) materially misleading, including by omission. By materially misleading, the Court meant "misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions." Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009).
Having clarified the legal standard, the Seventh Circuit turned to the two alleged inaccuracies in the servicer's ACDV responses. First, the borrower took issue with the dashes in the Account History section for all months after December 2015. She stated that the dashes were a verification of the inaccurate late payments reflected in the old data. However, the Court noted that the mortgage was settled and paid off in January 2016. Therefore, the Court held that it was accurate to show no reporting of payments for all months after December 2015.
Second, the borrower contended the Pay Rate of "3" (90 days delinquent) could only signify that her mortgage loan account was currently delinquent — which would be inaccurate — rather than historically delinquent as of the time the account was settled. The Seventh Circuit determined that the dispositive question here was whether the code as presented on the ACDV form would materially mislead a reasonable observer to conclude that the borrower was currently delinquent.
Like the trial court, the Seventh Circuit concluded that, when reviewed in context, the Pay Rate of "3" was not materially misleading. The Court observed that the "3" code was directly beside an Account Status code of "13," which meant that the account was closed. Furthermore, a few columns down, the Balance and Amount Past Due correctly stated $0 and the Date Closed and the Date of Last Payment were accurately marked as "01-14-2016" and "09-09-2015," respectively. Finally, the Special Comments Code was verified as "AU," which represented that the borrower's loan was paid in full for less than the remaining balance. The Court reasoned that a debtor cannot be currently delinquent on a loan that no longer exists.
With this full context, the Seventh Circuit held that no reasonable jury could find that the "3" code meant that the borrower was currently delinquent on her debt. See generally Lash v. Sparta Cmty. Hosp. Dist., 38 F.4th 540, 542 (7th Cir. 2022). Accordingly, the Court held the Pay Rate of "3" was not materially misleading as a matter of law.
Thus, the Seventh Circuit affirmed the trial court's summary judgment in favor of the servicer.
Ralph T. Wutscher
Maurice Wutscher LLP
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