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FCRA Ruling Rejects Argument that Foreclosure and Acceleration of Mortgage loan Rendered Reports of Monthly Delinquencies Inaccurate

Fair Credit Reporting Act (FCRA) litigation has increased in 2017 and shows little sign of slowing. While a plaintiff’s actual damages may be minimal, the statute’s award of reasonable attorney’s fees and costs for a prevailing plaintiff undoubtedly incentivizes the plaintiffs’ bar to develop new legal theories of inaccurate or misleading reporting. Fortunately, such legal theories may be susceptible to early motions to dismiss.

Recently, in Leones v. Rushmore Loan Management Services, LLC (Rushmore), 2017 WL 6343622 (S.D. Fla. Dec. 11, 2017), the plaintiff defaulted on her mortgage loan. Rushmore’s predecessor accelerated the loan and filed a separate mortgage foreclosure action. Rushmore subsequently took over servicing and reported, for six consecutive months, that plaintiff’s mortgage loan was delinquent by 120 days or more. Rushmore’s reporting also noted that foreclosure proceedings had been initiated. Plaintiff disputed Rushmore’s reporting to two consumer reporting agencies that, in turn, notified Rushmore about the dispute. Rushmore did not materially change its reporting.

In response, plaintiff filed suit. She claimed that Rushmore violated the FCRA by failing to properly investigate and correct its allegedly inaccurate or misleading reporting. Rushmore moved to dismiss. Significantly, plaintiff had not alleged that she had, in fact, made payments for the time periods reported as delinquent. Rather, her FCRA claim rested on the contention that Rushmore’s reporting was “incomplete” because the mortgage foreclosure action accelerated the mortgage so that plaintiff had neither the ability—nor the obligation—to make monthly payments.

The district court rejected plaintiff’s novel theory and dismissed the action with prejudice. The court recognized that, while an omission can create a misleading impression that is actionable under the FCRA, Rushmore’s reporting of delinquencies and a pending foreclosure was accurate and complete according to the complaint’s allegations. It further noted that plaintiff alleged, at most, a non-actionable legal defense to the debt, rather than an actionable factual inaccuracy. And since the reporting was factually accurate, Rushmore had no duty to investigate. Thus, as Leones illustrates, a motion to dismiss may be an effective defense to FCRA claims premised on novel legal theories, rather than on allegations of inaccurate facts.

Copyright © by Ballard Spahr LLP

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About this Author

Daniel McKenna, Ballard Spahr Law Firm, Philadelphia, Litigation Attorney
Partner

Daniel JT McKenna devotes his practice to privacy and data security, consumer financial services, and mortgage banking litigation.

Mr. McKenna's privacy practice focuses on new product and process design, privacy impact assessments and audits, privacy management and policy, incident planning, incident response and notification, third-party and vendor management, privacy counseling, regulatory comments, and litigation. His clients include banks, loan service providers, health care providers, manufacturers, colleges and universities, and member...

215.864-8321
DeMaree, Associate, BallardSpahr, Litigation, Commercial
Associate

Lindsay C. Demaree is an associate in the firm's Litigation Department focusing on consumer financial services litigation and commercial litigation involving real estate, insurance, and product liability claims. She regularly represents financial institutions in actions involving mortgage disputes, lien priority issues, as well as federal and state consumer protection laws such as the Fair Credit Reporting Act. Ms. Demaree also has extensive experience defending negligence and product liability tort claims for a wide array of clients, including tire manufacturers, pharmaceutical companies, and common carriers.

Representative Matters

  • Successfully prosecuted mortgage lender's petition to overturn mediation decision so lender could foreclose on its collateral
  • Played a key role in drafting jury instructions, trial briefs, and post-trial motions in $2 billion pharmaceutical product liability case that resulted in a full defense jury verdict for client
  • Defended individuals against business tort claims arising from a dispute over the Skywalk, the glass bridge overlooking Grand Canyon West
  • Played a prominent role in defending a tire manufacturer against double wrongful death claims
  • Represented a financial management company in an interpleader action, successfully recovering attorneys' fees for her client over the objections of three other parties
  • Worked on first-party insurance bad faith claims and disputes involving insurance agents

Professional Activities

Member, State Bar of Nevada

Member, Clark County Bar Association

Contributing Editor, Communiqué, Official Journal of the Clark County Bar Association

Member, Howard D. McKibben Inn of Court

Education 

UNLV William S. Boyd School of Law (J.D. 2010, magna cum laude)
Articles Editor, Nevada Law Journal; Recipient, full academic scholarship; CALI Award for Community Law: Climate Impact Planning Seminar

Yale University (B.A. 2005)

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