A District Court judge in New York has partially granted a motion to dismiss in a Fair Credit Reporting Act case that zeroes in on a question many have wrestled with since the pandemic: how should mortgage loans be reported after exiting COVID-related forbearance? The decision allows part of the plaintiff’s claims to move forward, while dismissing others that hinge on more unsettled legal questions around CARES Act requirements and loan servicing practices.
The background: The plaintiff entered into COVID-era forbearance agreements on two mortgage loans, pausing payments from March 2021 through March 2022. When the loans exited forbearance, the servicer allegedly demanded a lump sum payment of more than $60,000, representing all deferred payments. The plaintiff instead attempted to resume normal monthly payments or negotiate alternative repayment terms, but those efforts were rejected.
- The servicer then reported the loans as severely delinquent, ultimately reflecting 120+ days past due on credit reports furnished to the defendants.
- The plaintiff disputed the reporting, arguing that it was inaccurate and failed to account for the protections and structure of COVID-related forbearance. He also claimed the credit reporting agencies conducted inadequate investigations, relying too heavily on automated dispute verification processes and failing to consider key context.
The ruling: Judge Kenneth M. Karas of the District Court for the Southern District of New York drew a clear distinction between what constitutes an actionable inaccuracy under the FCRA and what falls into the category of unresolved legal disputes or servicing disagreements.
- On the lump sum issue, Judge Karas sided with the defendants. He found that whether the servicer could require a lump sum repayment after forbearance is not a “readily verifiable” fact but rather a legal question that remains unsettled. As the judge noted, existing guidance suggests borrowers are often given multiple repayment options, but “nothing in the CARES Act bars a loan servicer from requiring repayment in full.”
- Because of that ambiguity, the judge held that the reporting tied to the lump sum demand could not form the basis of an FCRA inaccuracy claim.
- However, the plaintiff found traction on a more technical but important issue: how delinquency was calculated after forbearance ended. The plaintiff alleged that industry practice and internal positions of the reporting agencies supported measuring delinquency from the end of the forbearance period, not the beginning.
- Judge Karas agreed that this allegation raises a factual question that is “objectively and readily verifiable,” allowing that portion of the claim to proceed.
- At the same time, the judge rejected arguments that reporting ongoing monthly payment obligations was misleading, even if the servicer refused to accept partial payments. The judge emphasized that credit reporting agencies are not responsible for adjudicating disputes between consumers and furnishers when the underlying debt and missed payments are not in dispute.
