The Court of Appeals for the Fifth Circuit has partially overturned a lower court’s dismissal of a Fair Credit Reporting Act and Texas Debt Collection Act case on the grounds the defendant may have been negligent under the FCRA.
The background: The case stems from a 2020 payment dispute between the plaintiff and the defendant, her mortgage servicer. After purchasing a home in Arizona, the plaintiff refinanced her loan, which was transferred to the defendant for servicing. She made a timely August 2020 payment, but due to unexplained issues, the payment was not processed until after she had already submitted a second one. The result: two payments posted for August.
- When she sought a refund, the defendant offered to issue a check. Instead of waiting, she initiated a bank dispute.
- Confusion ensued over which payment was refunded and which was disputed, ultimately leading to the servicer to determine the plaintiff missed a payment.
- The plaintiff’s subsequent payment was applied to what the defendant believed was an overdue balance. The mishandling led to derogatory reporting on the plaintiff’s credit report.
- Despite assurances from the servicer that it would “take care of” the issue and inform her new lender, the plaintiff’s mortgage application for a new home was denied.
- The plaintiff filed written disputes with the credit bureaus.
- Though the defendant later corrected one reporting error, it continued to show a 30-day delinquency.
- A District Court judge from the Western District of Texas dismissed the plaintiff’s lawsuit, ruling that she had not plausibly alleged a willful FCRA violation or actual damages, and that her TDCA claims were time-barred.
The ruling: The appeals court affirmed the dismissal of the willful FCRA and TDCA claims, but held that the plaintiff had sufficiently alleged a claim for negligent violation of the FCRA. Specifically, the court pointed to the defendant’s failure to correct inaccurate reporting after receiving the plaintiff’s dispute. Under the FCRA, liability for a furnisher’s failure to investigate begins only after receiving notice from a credit reporting agency.
- “[The defendant’s] conduct prior to [the plaintiff’s] written dispute may have caused the late payments to appear on her credit report,” the court wrote, “but [the defendant’s] alleged negligence after the dispute plausibly kept it there.”
- The court also found that the damages claimed by the plaintiff, in the form of higher interest rates on a later mortgage and emotional distress, were plausibly linked to the servicer’s inaction.
