In an unpublished ruling, the U.S. Court of Appeals for the Eleventh Circuit recently affirmed dismissal of a borrower's putative class action suit filed against a mortgagee alleging violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA") for failing to conduct a reasonable investigation into disputed information reported to the credit reporting agencies ("CRAs").
In so ruling, the Court concluded that the borrower failed to demonstrate that a reasonable investigation would have uncovered an inaccuracy in certain information provided by the mortgagee to the CRAs, and the mortgagee had no duty to investigate a separate dispute because the borrower did not allege that it had received notice of the dispute from the CRAs triggering the requirements to investigate under § 1681s-2(b).
A copy of the opinion is available at: Link to Opinion
After a borrower ("Borrower") defaulted on his mortgage loan (the "Loan"), the mortgagee ("Mortgagee") began reporting the Loan account as 120+ days past due to the CRAs.
Mortgagee filed an action to foreclose the mortgage Loan in Broward County, Florida, and final judgment of foreclosure was entered in its favor in May 2014. After the Borrower's Loan was transferred to another entity, the Mortgagee closed Borrower's Loan account in March 2015. The Borrower subsequently paid the foreclosure judgment in full in June 2015 to Mortgagee's successor-in-interest.
Two years later, the Borrower retrieved his credit reports and learned that the Mortgagee had reported his account as 120 days past due between May 2013 and February 2015. The Borrower sent letters to the CRAs disputing Mortgagee's reporting, who in turn, provided Mortgagee notice that the Borrower disputed its reporting.
During the course of its investigations, one of the CRAs asked the Mortgagee to review and verify its furnished information and respond to the Borrower's claims. The updated credit report attached to the investigation showed that although Mortgagee had stopped furnishing monthly updates of the Borrower's payment status when it closed his account in March 2015, the Loan was nonetheless reported as past due as of July 2017—more than two years it was paid off in the foreclosure judgment amount.
After the Mortgagee informed Borrower that its investigation concluded that it had provided accurate information to the CRAs, the Borrower filed a putative class action lawsuit against the Mortgagee alleging that it failed to comply with its duty to conduct an adequate investigation under subsection 1681s-2(b) of the FCRA.
Specifically, the Borrower claimed that Mortgagee (i) "inaccurately" reported to the CRAs that he was 120+ days past due for 22 months beginning in May 2013, because the filing of the foreclosure action relieved him of any obligation to make payments (while not disputing that he failed to make payments), and; (ii) failed to accurately and/or completely report to the CRAs that he fully satisfied his obligations under the Loan after he paid the foreclosure judgment, as the updated credit reports indicated the Loan account was past due as of July 2017.
As you may recall, the FCRA among other things imposes two obligations upon "furnishers" who provide customer information to the CRAs.
First, a furnisher is prohibited from "furnish[ing] any information relating to a consumer to any [CRA] if the person knows or has reasonable cause to believe that the information is inaccurate." 15 U.S.C. § 1681s-2(a)(1)(A).
Second, upon notification from a CRA that a consumer disputes the accuracy or completeness of furnished information, a furnisher must "(A) conduct an investigation with respect to the disputed information;" "(B) review all relevant information provided by the [CRA];" and "(C) report the results of the investigation to the [CRA]." Id. § 1681s-2(b)(1).
Notably, the Borrower did not allege that he ever notified the CRAs or Mortgagee that he disputed the Loan's past-due status as of 2017.
The Mortgagee moved to dismiss the Borrower's complaint, and the trial court granted the motion to dismiss with prejudice on the basis that (i) Mortgagee correctly reported the status of the Borrower's mortgage Loan between May 2013 to February 2015 in satisfaction of its obligations under the FCRA; (ii) Borrower's allegations that he had no obligation to make monthly payments following acceleration was a "a legal conclusion devoid of factual support," and insufficient to bring a claim under section 1681s-2(b) of the FCRA; (iii) Borrower provided no authority to support his claim that the Mortgagee was obliged to inform the CRAs that the Borrower had satisfied the foreclosure judgment after the Loan account had been transferred, and; (iv) providing leave to amend was futile. This appeal followed.
Noting its recent analysis in Felts v. Wells Fargo Bank, N.A., 893 F. 3d 1305 (11th Cir. 2018), the Eleventh Circuit explained that a consumer's claims under subsection 1681s-2(b) of the FCRA contemplates three possible outcomes of a satisfactory investigation: (1) the information is accurate and complete, (2) the information is inaccurate or incomplete, or (3) the information cannot be verified. Id. at 1312. When an investigation concludes that the disputed information was verified as accurate, its obligations to conduct an investigation is evaluated under a reasonableness standard which "will turn on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true." Id.
As to the Borrower's first cause of action regarding Mortgagee's purportedly inaccurate reporting for between May 2013 and February 2015, the Eleventh Circuit noted that neither the Borrower's complaint nor his arguments on appeal allege that he in fact made payments during this time period; thus, the Borrower could not demonstrate that a reasonable investigation would have uncovered an inaccuracy in the information reported, as required. Felts at 1313 (11th Cir. 2018).
The Eleventh Circuit also rejected the Borrower's argument that the filing of the foreclosure action and acceleration of the Loan relieved him from any obligation to make payments, as his legal theory conflicted with Florida law. See Deutsche Bank Tr. Co. Americas v. Beauvais, 188 So. 3d 938, 946-47 (Fla. 3d DCA 2016). Even if he were correct about his legal obligation to pay, the Court noted, the Borrower's FCRA claim would nonetheless fail because a plaintiff must show a factual inaccuracy rather than the existence of disputed legal questions to bring suit against a furnisher under § 1681s-2(b). Chiang v. Verizon New Eng., Inc., 595 F.3d 26, 35 (1st Cir. 2010).
Next, the Court turned to the Borrower's separate claim that the Mortgagee failed to update the CRAs that the foreclosure judgment was paid off, which resulted in his reports continuing to show the Loan as past due as of July 2017. The Eleventh Circuit concluded that it need not decide whether or not a duty existed to update the CRAs after it had transferred the account to another lender, because even if it had a duty to refresh the previously-furnished information, the Borrower's claims arise under section 1681s-2(b), which only governs a furnisher's investigation duties.
Here, the Borrower never alleged that the Mortgagee received notification from the CRAs that the disputed the Loan's past due status as of July 2017 or that the CRAs provided Mortgagee notice of any such dispute, and fails to allege that he even contacted the CRAs to dispute that aspect of his credit reports. Without receiving notification from the CRAs that the Borrower disputed reports of his Loan as past due as of July 2017, Mortgagee had no obligation to conduct a 1681s-2(b) investigation. See 15 U.S.C. 1681s-2(b)(1); see also id. 1681i(a)(2)(A). As such, these claims, too, fail to state a claim under the FCRA.
Lastly, because the Borrower could not overcome the factual deficiencies of his purported claims, the appellate court concluded that the district court did not abuse its discretion in dismissing the Borrower's complaint with prejudice because amendment would be futile.
Accordingly, dismissal of the Borrower's FCRA claims with prejudice was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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