Law School Case Brief
Horsch v. Wells Fargo Home Mortg. - 94 F. Supp. 3d 665 (E.D. Pa. 2015)
If a furnisher fails to comply with the requirements in the Fair Credit Reporting Act, 15 U.S.C.S. § 1681 et seq., regarding how furnishers of credit information must respond when they are given notice of a dispute over consumer credit records, then 15 U.S.C.S. § 1681n and § 1681o authorize consumers to bring suit for damages caused by a furnisher's breach when that breach is willful or negligent, respectively. First, however, the Fair Credit Reporting Act provides that a consumer who disputes an item on his credit reports must notify a credit reporting agency (CRA), which must in turn give notice to the furnisher that provided the disputed credit information. To succeed in a suit arising under § 1681s-2(b), therefore, a plaintiff must prove: (1) that he notified a CRA of the dispute under 15 U.S.C.S. § 1681i; (2) that the CRA notified the party who furnished the information, and; (3) that the party who furnished the information failed to investigate or rectify the disputed charge.
Plaintiffs Karl Peter Horsch, Kimberly Horsch and several others (collectively, "Consumers") took out mortgages serviced by defendants Wells Fargo Home Mortgage and others in the usual form of a note and mortgage. Several of the Consumers later went through the bankruptcy process under Chapter 7 or Chapter 13. The bankruptcy discharges meant upon lack of the monthly payment, defendants could foreclose on and sell the Consumers' properties, but they could not sue the Consumers for any shortfall between the sale proceeds and the amounts borrowed. The Consumers continued to make their monthly mortgage payments on schedule, though they found that any post-bankruptcy payments were not reflected on their credit reports—rather, those reports indicated only that the Consumers owed no money ("zero balances") on those accounts, because defendants considered such payments to be voluntary once personal liability on the Consumers' notes had been removed. The Consumers filed two putative class actions against defendants in federal district court, asserting that defendants' practice wit regard to post-bankruptcy mortgage payments constituted either a willful or negligent violation of the Fair Credit Reporting Act ("FCRA"), 15 U.S.C.S. § 1681 et seq. The Consumers fell into two classes. The first class consisted of borrowers who declared bankruptcy (Consumer Debtors). The second class consisted of certain of the borrowers' spouses, who were co-debtors on the mortgages but who did not themselves declare bankruptcy (Consumer Co-debtors). All Consumers claimed that defendants painted an inaccurate or incomplete picture of their credit history, which they alleged made it more expensive or impossible to apply for other credit. They further argued that, at a minimum, defendants should have flagged the relevant credit report entries as "under dispute." They also alleged that defendants should have reported the current monthly payments on the mortgages and their payment history. Defendants filed a motion to dismiss, arguing that their reporting was accurate, as well as in compliance with instructions provided by federal regulators and rulings made by the only federal courts to have weighed in on the issue.
Did the Consumer Co-debtors state a viable cause of action for willful or negligent violation of FCRA based on defendants' practice of reporting zero balances on their credit reports?
The court granted defendants' motion to dismiss as to the Consumer Debtors and denied the motion to dismiss as to the Consumer Co-debtors. The court held that in a suit under the FCRA, where, as in the present case, debtor plaintiffs claimed that their credit reports were inaccurate or incomplete because they did not reflect any payments made to their mortgage servicers after the notes were discharged in bankruptcy, it was accurate to report zero balances on their accounts, and the information furnished by defendants was not inaccurate or incomplete because defendants had no duty to rectify the information. The Consumer Co-debtors, however, who did not themselves declare bankruptcy and who remained personally liable on the notes securing mortgages, made out a plausible claim that defendants willfully or negligently violated the FCRA because defendants had not put forward any sound support for their practice of reporting zero balances on the credit reports of non-bankrupt co-debtors.
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