The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), analyzing a recent decision of interest:
The United States District Court for the Northern District of Illinois (the Court) denied a creditor’s motion to dismiss a Fair Credit Reporting Act (FCRA) claim where the plaintiff alleged that because her debt to that creditor had been discharged in bankruptcy, it could not show a permissible purpose for pulling her credit report. Billups v PHH Mortgage Corp., 2021 WL 1648114 (N.D. Ill. April 27, 2021).
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Plaintiff Andrea Billups had a mortgage loan with PHH Mortgage Corporation, as successor by merger to Ocwen Loan Servicing, LLC (Ocwen), prior to her 2011 bankruptcy case. Her personal obligation on the mortgage was discharged in September 2011. In district court litigation, Billups alleged that beginning in 2013 and continuing through foreclosure proceedings which concluded in 2018, Ocwen improperly obtained her credit report in violation of the FCRA, sent misleading communications in violation of the Fair Debt Collection Practices Act (FDCPA), and committed the common law tort of intrusion upon seclusion. Billups asserted that after her bankruptcy discharge extinguished her personal liability on the mortgage loan, Ocwen had no “permissible purpose” to access her credit report. She claimed that due to Ocwen impermissibly obtaining and disseminating information in the report, she was denied credit to purchase real property and for other purposes.
Ocwen filed a motion to dismiss all three claims, two of which were granted by the Court (the FDCPA and tort of intrusion claims) for failing to state a claim. The Court, however, denied dismissal on the pleadings of the FCRA claim, because whether Ocwen had a permissible purpose for pulling the credit report presented a factual question which could not be decided on a motion to dismiss.
The Court looked first to the reason the FCRA was enacted: “to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.” 15 U.S.C. § 1681(b). To achieve this goal the FCRA imposes civil liability on a person who willfully or negligently obtains a credit report for an unauthorized purpose. Id. Merely accessing a credit report without consent does not alone cause an entity to incur FCRA liability. The “purpose behind the inquiry” is determinative of whether the access is actionable.
Permissible purposes are defined by the statute at 15 U.S.C. § 1681b(a), which has been interpreted through case law to include preparation for litigation regarding a business debt, collecting a debt, and collecting a mortgage debt. Although Ocwen argued that its foreclosure on its lien, which was not barred by the bankruptcy discharge, gave it a permissible purpose as a matter of law, the Court was not convinced that the bankruptcy discharge of the underlying debt did not change that landscape. Construing the pro se complaint liberally in favor of Billups, including making all reasonable inferences in favor of Billups, the Court concluded that without knowing the true purpose behind Ocwen’s acts, a legal determination of the propriety of pulling the credit report was not possible on a motion to dismiss.
The Court granted the motion regarding the FDCPA claim without leave to amend for insufficient evidence of violative acts which occurred within the applicable statute of limitations. As to the common law tort claim, the Court found that the FCRA expressly preempts state law negligence and invasion of privacy claims and granted dismissal without leave to amend for that reason.
The Court here believed the impact of a bankruptcy discharge of in personam liability on a mortgage created a factual question whether the mortgagee was allowed to pull the borrower’s credit report. If this nonprecedential ruling creates a following, it could impact the volume of FCRA litigation which is filed during post-bankruptcy foreclosure proceedings. It seems likely that borrowers’ credit reports are regularly pulled when a foreclosure is pending, without thought given to whether the underlying obligation was discharged. Although I tend to believe that the continuing right for the creditor to enforce its lien through foreclosure can create a permissible purpose to pull a credit report, there is apparently no dispositive ruling which says that act is “permissible per se.” Until there is such ruling, on one side or the other of the question, I expect many cases will be filed making arguments similar to those asserted here by Billups.
This submission was authored by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., ret.), a member of the ad hoc group, with editorial contributions from Corey R. Weber, a partner at Brutzkus Gubner Rozansky Seror Weber LLP, a member of the ad hoc group and past Chair of the CLA Business Law Section. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.