In a win for Ballard Spahr client Specialized Loan Servicing LLC (SLS), the U.S. Court of Appeals for the Ninth Circuit recently held that SLS, a mortgage servicer, properly reported a Covid-19 forbearance plan under the CARES Act amendments to the Fair Credit Reporting Act (FCRA). The amendments require furnishers to “report [a consumer’s] credit obligation or account as current” if the furnisher agreed to provide forbearance or other relief on a consumer’s loan. 15 U.S.C. § 1681s-2(a)(1)(F)(ii)(I).
Importantly, the Ninth Circuit held SLS’s reporting of a “D” in the monthly payment history profile (PHP), in addition to reporting the account status as “current,” complied with the FCRA. This is the first appellate court decision addressing this provision of the CARES Act amendments to the FCRA. After the amendments, there was considerable discussion, including guidance from the CFPB, about the proper way to report Covid forbearances. This holding should provide comfort to those reporting in a similar manner.
Further, the Ninth Circuit held that the plaintiff’s Covid-19 forbearance plan did not create a contract because simply pushing a button indicating financial hardship was not consideration. This should help limit the types of claims borrowers may pursue.
Eric Mitchell, the plaintiff in Mitchell v. Specialized Loan Servicing LLC, applied for a Covid-19 forbearance from SLS for his second mortgage loan using an automated interactive voice response telephone system. Mitchell indicated, by pushing a button, that he was suffering from an “economic hardship” related to the pandemic. SLS did not require Mitchell to provide any documentation or proof of an economic hardship as part of his application for relief. SLS approved the forbearance plan for three months, and at Mitchell’s request, extended it to six months. SLS reported Mitchell’s account status as “current” with no reported date of first delinquency and no past due balance. For the monthly payment history profile (PHP), SLS reported the code “D”, which means no payment history, no data, or unknown.
During the forbearance plan, Mitchell attempted to finance the purchase of a Range Rover for $96,000. When two banks denied Mitchell financing, he blamed SLS’s credit reporting, disputed SLS’s credit reporting with the Credit Reporting Agencies, and then sued SLS. In the lawsuit, Mitchell argued that SLS’s use of the “D” code in the PHP was improper. Instead, Mitchell argued SLS should have used the “0” code in the PHP, for “0 payments due (current account).” Mitchell sued SLS for allegedly violating the FCRA, the California Consumer Credit Reporting Agencies Act (CCRAA), California’s Unfair Competition Law (“UCL”), and for breach of his forbearance agreement. Mitchell also sought to represent a class of other borrowers that entered forbearance plans with SLS.
The trial court granted summary judgment for SLS, dismissed his claims, and denied his motion for class certification. Mitchell appealed. The Ninth Circuit held SLS complied with the CARES Act amendments to the FCRA by reporting Mitchell’s “account status” as a “current account.” SLS’ use of “D” rather than “0” in the PHP field did not change that conclusion. The Ninth Circuit agreed with the trial court that guidance from the Consumer Data Industry Association (CDAI) supports the use of D as “an acceptable option” when reporting the account status as current.
The Ninth Circuit further rejected Mitchell’s argument that the CFPB guidance regarding Covid-19 forbearance reporting, stating that a furnisher “should consider all of the trade information they furnish that reflects a consumer’s status as current or delinquent”, meant that SLS was required to report “0” in the PHP. The Ninth Circuit noted that the CFPB guidance does not mention the PHP and that the guidance did not persuade it that reporting the PHP as D violated the FCRA. Thus, Mitchell’s FCRA claim failed because he failed to show SLS’s investigation into the dispute notices was unreasonable and because Mitchell failed to make a prima facie case that SLS’s reporting was inaccurate.
The Ninth Circuit further noted that even if it were to assume SLS’s reporting was inaccurate, Mitchell did not show SLS acted willfully or negligently because no appellate court had interpreted the CARES Act amendments to the FCRA. Because the FCRA language at issue is “less than pellucid” and no appellate court has interpreted this amendment to the FCRA, a defendant like SLS will “nearly always avoid liability” under the negligence or willfulness standard.
Moreover, the Ninth Circuit held that even if SLS acted negligently, Mitchell did not show any damages. Specifically, his efforts to finance a $96,000 Range Rover did not show he was damaged because the denials were for reasons unrelated to SLS’s reporting. Instead, the denials appeared to be related, at least in part, to Mitchell’s prior bankruptcy.
The Ninth Circuit also affirmed the trial court’s holding that the CCRAA and UCL claims failed because SLS’s reporting was accurate, complied with the FCRA, and Mitchell did not show any damages.
The panel also affirmed summary judgment for SLS on the plaintiff’s breach of contract claim, holding that the forbearance plan was not an enforceable contract because it lacked consideration. In determining there was no consideration, the Ninth Circuit distinguished Mitchell from other cases in which plaintiffs “expended time and energy and made financial disclosures . . . which they would not have been required to do under the original contract” because Mitchell only chose an option from SLS’s automated telephone system. In short, applying for forbearance under SLS’s process did not amount to consideration because it did not confer a benefit or cause the plaintiff to suffer prejudice, nor was there a bargained-for exchange.
Ballard Spahr partner, Matt Morr, represented SLS in the trial court and before the Ninth Circuit.