A District Court judge in Illinois has denied a defendant’s motion for summary judgment in a Fair Credit Reporting Act class action alleging a mortgage servicer never marks accounts as disputed when responding to disputes forwarded by credit reporting agencies, while also declining to certify a nationwide class of nearly 50,000 borrowers.
The background: The defendant services residential mortgages and reports to the CRAs. Following a 2017 off-cycle update to the Consumer Data Industry Association’s Credit Reporting Resource Guide, the defendant’s employee handbook directs that no compliance condition code, including the XB dispute flag, be used when responding to an ACDV.
- In early 2022, the plaintiff switched the bank account from which her mortgage payments were drawn and requested a one-time draft to cover her March payment. The defendant pulled $4,875.32, more than double the $2,314.16 due, and the plaintiff called the next day to report the double charge.
- The defendant said it credited the excess to April and mailed a refund check, which the plaintiff says never arrived. Its systems never marked March as paid, and in April it reported the plaintiff to all three major CRAs as 30 days late.
- The plaintiff disputed the debt with each CRA. The CRAs sent ACDVs to the defendant, which responded the same day that it stood by its reporting, with no dispute flag.
- The plaintiff alleged the defendant kept reporting the account as late “for years” with no indication it was disputed, and that it fails to flag disputed mortgage accounts about 90% of the time.
- She sued under section 1681s-2(b), alleging failures both to correct the late payment and to mark it as disputed, and sought to certify a class on the latter claim. The defendant argued the dispute-notice provision in subsection (a)(3) carries no private right of action, that flagging an indirect dispute is redundant because the CRA already knows about it, and that it was following unambiguous industry guidance.
The ruling: Judge Rebecca R. Pallmeyer of the District Court for the Northern District of Illinois held, following the Third, Fourth, and Ninth Circuits, that omitting a flag on a potentially meritorious dispute can make reported information materially misleading under subsection (b), which consumers can enforce.
- The redundancy argument failed because neither the statute nor the case law distinguishes direct from indirect disputes, and a furnisher’s flag confirms the dispute is genuine and reaches CRAs beyond the one that forwarded it.
- Quoting another court, the judge wrote that the Metro 2 manual “may be the industry standard, but it is not the law of the land,” and said she was “puzzled” the guidance has not been modified despite years of contrary rulings.
- Willfulness goes to the jury. The defendant adopted its no-flag policy in 2017, after all three appellate decisions were on the books, and its reliance on the absence of a private right of action “if anything, bolsters a finding of willfulness,” suggesting it knew the rule but doubted consumers could enforce it.
- The FCRA requires no particular Metro 2 code; if XB implies an active investigation, the defendant never explained why XC or XH would not do.
- Class certification was denied without prejudice because whether each borrower’s dispute was “potentially meritorious” is an individual question that predominates, and the plaintiff had not shown CRA screening filters out anything beyond obviously frivolous disputes.
- “[The defendant] may be justified in feeling that CDIA led it astray. But the FCRA requirements are what they are, and compliance with the industry standard does not defeat that.”
