The U.S. Court of Appeals for the Fifth Circuit recently confirmed that the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA"), does not allow recovery for commercial or investment property losses.
The Court also concluded that where a plaintiff points to no evidence that the denial of credit was actually caused by the defendant's inaccurate credit reporting, judgment is proper in favor of the furnisher.
Finally, the Fifth Circuit concluded that a plaintiff is not entitled to emotional distress damages where the only evidence of emotional distress is the plaintiff's own self-serving and conclusory deposition testimony.
A copy of the opinion is available at: Link to Opinion
The plaintiff borrower acquired two mortgages with the defendant lender. The borrower alleged that the defendant lender erroneously reported various delinquencies on the loans to the three consumer reporting agencies (CRAs).
The borrower alleged that she engaged in numerous communications with the lender and the CRAs to remove the allegedly erroneous information. The lender eventually removed all negative reports for both loans.
The borrower alleged that she suffered actual damage because her poor credit supposedly prevented her from obtaining a loan to acquire property and to repair her home, and that she suffered emotional distress as a result of her frustrations.
More specifically, the borrower alleged that she was going to use the proceeds of the loan she was denied as a real estate investment, as she was in the business of buying and fixing up real estate. She also alleged she intended to rent the property and obtain rental income.
The trial court granted summary judgment in favor of the lender, and the borrower appealed. Only the disposition of the Fair Credit Reporting Act (FRCA) claims was challenged on appeal.
As you may recall, the FCRA was enacted to protect an individual from inaccurate or arbitrary information in a consumer report. Numerous courts have concluded that the FCRA does not cover reports used or expected to be used only in connection with commercial business transactions.
Moreover, courts have specifically held that real estate investment losses due to allegedly inaccurate credit information are not within the scope of the FCRA.
Accordingly, the Fifth Circuit held that the borrower's loan application and the related credit information involved an attempted commercial transaction, and therefore was not within the scope of the FCRA.
However, the borrower also alleged that the lender's FCRA violations resulted in denial of an emergency loan for repairs on her personal residence after it was impacted by a hurricane.
The Fifth Circuit noted that, in order to prevail on a FCRA claim for actual damages, the plaintiff must present evidence sufficient to raise a material fact question on the issue of whether the denial of credit was proximately caused by the defendant's alleged misreporting of the plaintiff's credit history.
Here, the Fifth Circuit found that the borrower no evidence to this effect. In fact, the Court noted, the borrower's credit reports showed that numerous different financial institutions reported late payments from the borrower, not just the defendant lender. Thus, she raised no issue of material fact and the district court did not err.
The borrower further alleged she was entitled to emotional distress damages resulting from the stress and anxiety of fighting with lender and trying to clear up her credit. The Fifth Circuit found that the borrower failed to present sufficient evidence to create an issue of material fact as to whether she suffered compensable emotional distress.
The Fifth Circuit held that the FCRA permits recovery for humiliation and mental distress and for injury to one's reputation and creditworthiness. However, the Court held, a claim related to emotional distress requires a "degree of specificity" and "must be supported by evidence of genuine injury," such as "the observations of others," "corroborating testimony," or "medical or psychological evidence."
The Fifth Circuit had previously held that self-serving testimony that a plaintiff was upset, hurt, angry, or frustrated, was insufficient to support an award for emotional distress. The only evidence the borrower in this case showed was her own vague deposition testimony that she was a "complete wreck" and had a lot of "anxiety and stress."
The Court held that this uncorroborated testimony lacks specificity and fails to show the nature and extent of the actual emotional harm. Thus, the Fifth Circuit held, there was no issue of material fact and the district court did not err.
Accordingly, the Fifth Circuit affirmed the district court's judgment.
Ralph T. Wutscher
Maurice Wutscher LLP
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