FYI: 7th Circ Sets Standard for FCRA "Incomplete or Inaccurate Furnishing" Claims

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
The Loop Center Building
105 W. Madison Street, 6^th 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

 

 

 

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FYI: 9th Cir Holds Phone "Subscriber" Who Was Not the Phone's User Had Article III Standing to Assert TCPA Claim

The U.S. Court of Appeals for the Ninth Circuit recently held that the owner and subscriber of a phone number listed on the Do-Not-Call Registry suffered an injury in fact sufficient to confer Article III standing when unwanted text messages were sent to the number in alleged violation of the TCPA, even when the owner and subscriber was not the actual user of the phone.

 

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

 

Plaintiff filed a putative class action lawsuit alleging that various defendants violated the federal Telephone Consumer Protection Act of 1991 ("TCPA"), 47 U.S.C. § 227 et seq by sending her five (5) unwanted text messages. Plaintiff's cell phone number was registered on the Do Not Call Registry. Plaintiff further alleged that her minor son also utilized and accessed the cell phone.

 

In her complaint, Plaintiff alleged that the messages sent by Defendants were "irritating, exploitative and invasive," and that they were the type of communications she sought to avoid when she registered her number on the Do Not Call Registry. Plaintiff's operative amended complaint alleged that the defendants violated § 227(c) of the TCPA and its implementing regulations by sending text messages to numbers listed on the national Do-Not-Call Registry.

 

The defendants moved to dismiss the amended complaint for failure to state a claim, and for lack of Article III standing. The trial court granted the defendants' motion to dismiss on the issue of standing. Because the trial court concluded that Plaintiff lacked standing, it did not reach any merits issues, including whether Plaintiff properly stated a claim as a matter of law. This appeal followed.

 

The sole issue on appeal was whether the Plaintiff had Article III standing under the TCPA. As you may recall, the "'irreducible constitutional minimum'" of Article III standing requires a plaintiff to "have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."  Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).  Here, the Appellate Court's analysis solely focused on whether or not Plaintiff suffered an injury in fact.

 

The Ninth Circuit noted that it has previously held that the receipt of "unsolicited telemarketing phone calls or text messages" in violation of the TCPA is "a concrete injury in fact sufficient to confer Article III standing." The Appellate Court acknowledged that Plaintiff suffered a cognizable injury because Plaintiff was the owner and subscriber of the cell phone at issue, she listed its number on the Do-Not Call Registry to avoid invasive and irritating solicitation calls, and the defendants sent five text messages to that number in a seven-month period.

 

However, in order to constitute an actual 'injury in fact' the aggrieved party seeking review must himself be among the injured." Lujan, 504 U.S. at 563 (quoting Sierra Club v. Morton, 405 U.S. 727, 734–35 (1972)).

 

Here, the defendants alleged that Plaintiff's thirteen year old son voluntarily opted in to receive the communications from the defendants. The defendants further argued that Plaintiff only provided the phone to her son and that she has not suffered an injury because she did not allege that she was the actual user or recipient of Defendants' text messages. The trial court agreed with the defendants' argument, but the Court of Appeals did not.

 

Instead, the Ninth Circuit ultimately held that the owner and subscriber of a phone number listed on the Do-Not-Call Registry suffers an injury in fact when his or her phone receives text messages in alleged violation of the TCPA.

 

In support of its ruling, the Ninth Circuit noted that Plaintiff's claims derive from her registration on the national Do-Not-Call Registry. Specifically, 47 U.S.C. § 227(c)(1) directs the FCC to promulgate regulations authorizing "residential subscribers" to place their phone numbers on the Registry, and provides a private right of action to redress unsolicited calls.

 

The Appellate Court further noted that nothing in its precedent or the text of the TCPA suggests that the owner of a cell phone must also be the phone's primary or customary user in order to be injured by unsolicited phone calls or text messages sent to its number in violation of the TCPA.

 

Despite the defendants' arguments that Plaintiff's son solicited the text messages by signing up through an online form and was the actual recipient of the message, the Appellate Court held that while this may be relevant to the merits of the claim, it is not relevant to the inquiry of whether the Plaintiff has Article III standing.  Determining whether such consent was provided "requires an analysis of the merits of Plaintiff's TCPA claim," and has no bearing on the question of Article III standing. Wakefield v. ViSalus, Inc., 51 F.4th at 1118 (9th Cir. 2022). As a result, the Ninth Circuit further held that whether Plaintiff's son solicited the messages or consented to the messages are legally are relevant only to the merits of Plaintiff's claim, not to her standing.

 

Accordingly, the Ninth Circuit reversed the trial court's dismissal on Plaintiff's complaint for lack of Article III standing, and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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

 

 

 

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