FYI: 6th Cir Rejects FCRA "Credit File Disclosure" Claim for Lack of Spokeo Standing

The U.S. Court of Appeals for the Sixth Circuit recently held that a plaintiff lacked Article III standing to sue a consumer reporting agency under the federal Fair Credit Reporting Act (FCRA) for allegedly failing to disclose all information in his file.

 

In so ruling, the Sixth Circuit held that the alleged deprivation of information had no consequences for the consumer and imposed no real risk of harm to establish injury in fact.

 

A copy of the opinion is available at:  Link to Opinion

 

The consumer reporting agency (CRA) advises merchants on whether it should accept a check from a retail customer.  The merchant sends the bank account number on the check and the customer's driver's license number, called identifiers, to the CRA to run each identifier through the CRA's system. 

 

The merchant refuses the customer's check if the CRA recommends a decline.  On the other hand, if the CRA approves the transaction, the merchant accepts the check. 

 

The customer requested a copy of his file from the CRA under the federal FCRA and provided a copy of his driver's license. 

 

As you may recall, the FCRA creates a cause of action that has three elements: (1) duty - a consumer agency must disclose "[a]ll information in the customer's file" upon request; (2) breach of duty - any consumer agency that fails to meet this requirement is liable to the affected individual; and (3) damages - the affected individual may recover statutory damages of $100 to $1,000 for a willful violation.  15 U.S.C. §§ 1681g(a)(1), 1681n(a)(1)(A).

 

The CRA's report contained 23 transactions in which the customer presented his driver's license alongside the check.  The report did not contain two transactions because those checks were not presented with the customer's license.  

 

The report contained a disclaimer indicating that the CRA had additional information not included in the report, and invited the customer to contact the CRA for more information.  Although the CRA had never advised a merchant to decline any of the customer's checks, the customer filed a complaint alleging that the CRA violated FCRA and moved for class certification. 

 

The CRA moved for summary judgment based on lack of Article III standing.  The trial court dismissed the case for lack of standing.  This appeal followed.

 

As you may recall, Article III standing requires the customer to show that he suffered an injury caused by the CRA that a judicial decision can redress.  Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). The Sixth Circuit began its analysis by observing that "standing requires a concrete injury even in the context of a statutory violation," and "a bare procedural violation" would not "satisfy the injury-in-fact requirement of Article III."  Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016).

 

In the Sixth Circuit's view, there were three possible ways in which the customer could establish Article III standing based on his cause of action.  

 

First, the statutory violation created an injury in fact because the violation led to a traditional injury. 

 

The Sixth Circuit noted that the customer did not allege that the CRA's conduct caused a declined check or a denied rental application.  The customer even acknowledged that the incomplete report did "have any effect on [him] whatsoever."  All in all, the Sixth Circuit found no tangible injury as applied to the customer. 

 

Second, the statutory violation did not injure the customer in any traditional way, but the risk of injury was so imminent that it satisfied Article III. 

 

As you may recall, "threatened injury must be certainly impending to constitute injury in fact," and "[a]llegations of possible future injury"  are not sufficient.  Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409 (2013).

 

The Sixth Circuit found nothing in the record indicating that the CRA created a risk that the customer would suffer a check decline, or any other harm covered by FCRA. 

 

In the Sixth Circuit's view, the risk of incomplete disclosure causing the customer to suffer a check decline was highly speculative because the customer had not suffered a check decline in the five years since he requested his file from the CRA.

 

As the Sixth Circuit explained, the customer offered no evidence of what he would have done differently with a report containing the missing information and what he did with the report he received.  Under these circumstances, full disclosure by the CRA would not have reduced the risk a merchant would decline the customer's check.

 

The Sixth Court also noted that the CRA alleviated any risk of harm by including a disclaimer warning the customer that the report did not contain all linked information and instructed the customer to call to get his information.  According to the Sixth Circuit, if the customer contacted the CRA he could have learned which accounts were linked him and asked the CRA to delete any inappropriate links.

 

The Sixth Circuit concluded that the CRA's failure to disclose information created only a negligible risk that the customer would suffer a check decline.

 

Third, "the statutory violation did not create a tangible injury any traditional sense, but Congress used its authority to establish the injury in view of its identification of meaningful risks of harm in this area."

 

The customer argued that the CRA's failure to provide the two missing transactions violated FCRA and the breach of that duty created "a procedural or intangible injury."

 

However, the Sixth Circuit found that the alleged statutory violation did not harm the customer's interests under FCRA because there were no adverse consequences.  Specifically, "the undisclosed information was irrelevant to any credit assessment about [the customer]."

 

The customer argued that the possible risk of a check decline established standing under Macy v. GC Services Ltd., 897 F.3d 747 (6th Cir. 2018). 

 

In Macy, two debtors received a letter from a debt collector notifying them that their credit card accounts had been referred to the company for collection.  Macy, 897 F.3d at 751.  The debtors argued that the letter violated section 1692g(a) of the Fair Debt Collection Practices Act (FDCPA) because it failed to state that the debtors could dispute their debt "in writing" within 30 days.  Id. 

 

The Sixth Circuit in Macy concluded that the debtors had standing because the debt collector's letter created a material risk that the debtors might forfeit other protections for their concrete economic interests.  Id., at 758 ("an oral inquiry or dispute of a debt's validity has different legal consequences than a written one").

 

The Sixth Circuit explained that the difference between Macy and this case came down to a difference in how Congress exercised its power.

 

Congress enacted the FDCPA to curb abusive debt collection activities by providing a shield from imminent economic harm.  Because an oral dispute would forfeit the right to force the debt collector to verify the debt and block collections until the debt is verified, the debt collector's conduct in Macy created a greater risk of future harm that did not exist here.

 

Thus, the Sixth Court concluded that the type of incomplete disclosure the customer received did not constitute an injury in fact to confer Article III standing.

 

Accordingly, the Sixth Circuit affirmed the trial court's dismissal order.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: 1st Cir Holds Fannie Mae Not Liable for Unauthorized Acts of Its Agents

The U.S. Court of Appeals for the First Circuit, on an issue of first impression at the federal appellate level, recently held that the Merrill doctrine -- which prevents federal government instrumentalities from being bound by the unauthorized acts of their agents -- applies to Federal National Mortgage Association ("Fannie Mae").

 

Accordingly, the First Circuit affirmed the trial court's entry of summary judgment in favor of Fannie Mae.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff borrower ("Borrower") took out a loan secured by a mortgage on his home.  The lender subsequently assigned the loan to Fannie Mae, which arranged for to be serviced by a loan servicer ("Servicer").

 

Over the next eight years, the Borrower occasionally failed to make payments, though on each occasion he worked with the Servicer to cure the default. 

 

However, in the summer of 2015, the Borrower missed a payment, and received a mortgage statement providing an arrearage of $5,428.61, and requesting that he call the Servicer to bring the loan current.  After speaking with the Servicer, the Borrower mailed a check for $6,167.21 on September 17, 2015, which was to cover his arrearage and his anticipated October 2015 loan payment. 

 

Two days later, the Borrower received a notice of foreclosure of his home.  He immediately wrote the Servicer to confirm that he had sent a check sufficient to cure the default, and to request that the foreclosure be halted. The Servicer returned his check and notified him that the amount tendered was not correct.

 

The Borrower then contacted the Servicer by phone, and was told that the problem was that he had submitted a personal check, not a cashier's check.  The Borrower therefore sent the Servicer a cashier's check in the same amount.

 

However, the foreclosure proceeded and Fannie Mae acquired the property on October 16, 2015. 

 

The Servicer returned the cashier's check with instructions for the Borrower to contact his representative to confirm the amount owed. When the Borrower did so, the representative did not know the amount needed to wipe out the foreclosure and reinstate the loan.

 

The Borrower thereafter filed a complaint in state court against the Servicer and Fannie Mae asserting claims for declaratory judgment regarding he invalidity of the foreclosure, wrongful foreclosure, and seeking money damages for economic loss and emotional distress.

 

The action was removed to federal court, where the Borrower filed an amended complaint seeking only a declaratory judgment with respect to the alleged invalidity of the foreclosure.  The Servicer was dropped from the complaint as it had not participated in the foreclosure proceeding.

 

The Borrower subsequently filed another amended complaint to assert damages claims alleging violations of several state and federal debt collection and consumer protection laws and regulations, as well as common law tort claims for deceit and negligent misrepresentation.

 

After the court dismissed the statutory claims, the only claims left were the common-law claims alleging that Fannie Mae was vicariously liable for deceit and negligent misrepresentation committed by the Servicer's employees.

 

Fannie Mae thereafter filed a motion for summary judgment based on its affirmative defenses that the claims were barred under the Merrill doctrine and economic loss doctrine.

The trial court granted Fannie Mae's summary judgment motion on the basis of the Merrill doctrine, ruling that Fannie Mae was a federal instrumentality protected from vicarious liability for the unauthorized acts of its agents. 

 

The Borrower appealed. 

 

Initially, the Borrower argued that the grant of summary judgment was improper because the record was not sufficiently developed and additional discovery should have been permitted.  However, the First Circuit determined that the Borrower could not raise this argument as he had already agreed in a status conference in the trial court that "the parties are now in agreement that there's no discovery that needs to be conducted . . . to respond to the pending motion for summary judgment."

 

After disposing of the Borrower's argument regarding discovery, the First Circuit noted that "[t]he pivotal question with respect to the trial court's summary judgment ruling is whether Fannie Mae is a federal instrumentality for purposes of the Merrill doctrine." 

 

As you will recall, the Merrill doctrine comes from Fed. Crop Ins. Co. v. Merrill, 332 U.S. 380, 384 (1947), and stands for the proposition that the federal government cannot be bound by the unauthorized acts of its agents. 

 

The "Merrill doctrine is designed, in part, to ensure appropriate protection of the public" fiscal operations, and it also "rests solidly 'upon considerations of sovereign immunity and constitutional grounds – the potential for interference with the separation of governmental powers between the legislative and executive.'"

 

However, because the Merrill doctrine only operates to safeguard federal instrumentalities, "it remains for us to determine whether Fannie Mae is a federal instrumentality for purposes of the Merrill doctrine – a task that no other federal appellate court has yet undertaken." 

 

On that issue, the Borrower argued that because Fannie Mae is not a federal instrumentality for purposes of sovereign immunity or the Federal Tort Claims Act, it also is not for purposes of the Merrill doctrine.  The Borrower further argued that as a shareholder owned corporation, Fannie Mae is not entitled to the protections of the Merrill doctrine.

 

The First Circuit disagreed, noting that "the fact that an entity is deemed not to be a federal instrumentality for a particular purpose does not signify that the entity should not be deemed to be a federal instrumentality for some other purpose."

 

Further, "the question of instrumentality status is not determined either by Fannie Mae's corporate form or by whether Fannie Mae serves a 'proprietary' (as opposed to 'sovereign') function."  Instead, the Court held, "our inquiry hinges on whether Congress created Fannie Mae to serve an important governmental objective."

 

In reaching its determination that Fannie Mae is a federal instrumentality for purposes of the Merrill doctrine, the First Circuit found instructive the Seventh Circuit's ruling in Mendrala v. Crown Mortg. Co., 955 F.2d 1132 (7th Cir. 1992), wherein the court looked to the governing statute of Federal Home Loan Mortgage Corporation ("Freddie Mac"), and found that Freddie Mac "has a public statutory mission: to maintain the secondary market and assist in meeting low - and moderate – income housing goals."  The Seventh Circuit determined that the mission "would be thwarted if Freddie Mac could be held 'responsible for the unauthorized actions' of its agent."

 

The First Circuit noted that "Freddie Mac and Fannie Mae are siblings under the skin," and that "like Freddie Mac, Fannie Mae serves an important governmental objective: 'to maintain the secondary mortgage market and assist in meeting low – and moderate – income housing goals."

 

Therefore, "[e]nabling Fannie Mae to be held liable for the unauthorized acts of its agents, particularly those who are employees of a private entity, would frustrate Congress's intent as expressed in the prescribed nature of Fannie Mae's authority." 

 

The First Circuit therefore held "that Fannie Mae is a federal instrumentality for purposes of the Merrill doctrine and, thus, cannot be held liable for the unauthorized acts of its agents." 

 

Because the Borrower's claims were predicated on the theory that Fannie Mae should be held liable for the acts of the Servicer's employees, and because the record did not show that those acts were actually authorized, the First Circuit affirmed the ruling of the trial court.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments