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Ninth Circuit revives FCRA suit

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Banking, Case Law, Consumer Protection, Nonbank Financial
Wednesday, June 1, 2022
The Ninth Circuit Court of Appeals has reversed a lower court’s summary judgment ruling in favor of a defendant sued for violation of the Fair Credit Reporting Act (FCRA).

The issue arose after plaintiff Marshall Gross became delinquent and foreclosed on two mortgages. The home upon which the mortgages were secured was sold at auction for a value nearly $40,000 below what Gross originally paid. Because of this disparity, the junior mortgage was not fully covered. Because Arizona law precludes suit on a foreclosure deficiency, CitiMortgage, which bought the junior loan from a different bank in 2007, lost its investment entirely.

Several years after the foreclosure of his home, Gross ventured to buy another. However, his efforts were rebuffed due to a credit report which erroneously indicated he still owed money on the junior mortgage as well as interest and late fees. This report was done in conflict with Arizona law which abolished any such liability on the debt following the foreclosure.

Gross, in his efforts to correct the error, contacted the credit reporting bureaus to inform them he did not owe any money on the mortgage because of the foreclosure.

After the dispute was filed, CitiMortgage updated the report to the credit agencies stating he was more than 180 days late and the balance owed had increased from $38,010 to $50,000.

Months later, CitiMortgage changed the balance owed to zero and reported the debt as “charged off,” meaning it wrote it off as uncollectible, not as paid or resolved.

Gross brought this suit against CitiMortgage and Citibank for violation of the FCRA, claiming the lender provided inaccurate information to the three national credit reporting agencies and they failed to reasonably investigate his disputes.

CitiMortgage contended its reports were accurate as a matter of law and that they had performed reasonable investigations.

As has become a more frequent practice for the agency, the Consumer Financial Protection Bureau (CFPB) filed an amicus brief in support of the plaintiff’s appeal, urging the appellate court to reverse and remand the decision of the lower court so that the issue of the extent to which CitiMortgage must reasonably investigate can be decided.

“While CitiMortgage did not necessarily have to resolve the legal question whether the Arizona anti-deficiency statute extinguished the debt in order for its investigation to comply with FCRA, it violated FCRA by conducting no investigation whatsoever of this question,” the CFPB amicus brief read.

“Regardless of how much investigation may have been reasonable, CitiMortgage should not have been excused from performing any investigation whatsoever of the legal question.”

The appellate court determined the “reasonable investigation” conducted by the defendant when the plaintiff disputed the information needed to be left up to a jury to decide.

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