Ninth Circuit Finds Furnishers of Information May Be Responsible for Investigating Legal Disputes Under FCRA

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A panel of the Ninth Circuit has revived a suit on appeal against a major mortgage lender, finding that the Fair Credit Reporting Act (FCRA) makes no distinction between “legal” and “factual” inaccuracies. The appeal, which in 2021 attracted an amicus brief in support of the plaintiffs from the Consumer Financial Protection Bureau (CFPB), represents a victory for the federal agency’s efforts to expand courts’ interpretations of consumer reporting agencies and furnishers dispute investigation obligations under the FCRA.

This case accused the mortgage provider of delivering inaccurate information and failing to perform a reasonable investigation to ensure accurate reporting, both in violation of the FCRA.

This case began when the plaintiff acquired a so-called “80/20” loan in which two mortgage lenders provided a portion of the funds to acquire a home. When the plaintiff later defaulted on the loan and the senior loan provider began the foreclosure process, the resulting proceeds were not enough to cover the junior loan provider’s debt. Under Arizona’s state law, mortgage lenders are prohibited from filing suit on foreclosure deficiency, and as a result, the junior lender lost its investment.

Despite this, the lender continued to report the amount as “past due” and applied late fees and interest despite multiple filed disputes by the plaintiff. As a result, the plaintiff filed a suit claiming that the mortgage provider violated the FCRA by furnishing inaccurate information and failing to conduct a reasonable investigation.

A district court judge granted the defendant summary judgment on the claims in 2020, finding that the information the defendant had furnished was accurate as a matter of law and had conducted a reasonable investigation. However, this decision was reversed upon appeal by the Ninth Circuit.

In its review, the court found that the plaintiff had “more than satisfied his burden to make a prima facie showing of inaccurate reporting” and had established that the reports were “patently incorrect.” The panel also found a genuine factual dispute as to whether or not the furnisher performed a “reasonable” investigation under the FCRA, which is for a jury to determine. As a result, the Ninth Circuit reversed the district court’s ruling and remanded it for further deliberations.

In its analysis, the panel quoted the amicus brief filed by the CFPB filed in 2021, which argued that the FCRA provides no distinction between factual and legal disputes as it pertains to a furnisher’s investigative responsibilities under the law. The federal agency has filed similar briefs in several other cases as well. This case could potentially expand the responsibilities of furnishers of information under the FCRA to include consideration of legal questions as well as factual inaccuracies when investigating disputes.

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