In an unpublished decision, the Ninth Circuit Court of Appeals ruled that a complaint sufficiently alleged that Federal National Mortgage Association (“Fannie Mae”) may act as a consumer reporting agency (“CRA”) under the Fair Credit Reporting Act, which could potentially subject Fannie Mae to the accuracy requirements imposed by section 1681e(b) of the FCRA.
In McCalmont v. Federal National Mortgage Association, plaintiffs James McCalmont and Katherine McCalmont sued Fannie Mae under the FCRA for “failing to adopt and follow reasonable procedures to assure maximum possible of the information concerning the individual about whom a credit report relates,” a purported violation of section 1681e(b) of the statute. According to the complaint, the McCalmonts attempted to obtain a mortgage two years after they sold their home on a short sale basis. They claimed that the lenders obtained and relied upon a Desktop Underwriter Findings Report from Fannie Mae, which falsely coded their short sale as a foreclosure, in denying their loan applications.
The McCalmonts argued that Fannie Mae acted as a CRA and furnished consumer reports when it leased or licensed its DU system to lenders and mortgage loan brokers. The complaint alleged that Fannie Mae’s DU system “assembles, reviews, assesses and evaluates all of the information it obtains from the lender and/broker, and the consumer reporting agencies and/or resellers, including the consumer reports, and generates its own report,” known as the DU Findings Report. The McCalmonts alleged that the DU Findings Report qualified as a consumer report under the FCRA because it allegedly contained information regarding the seven factors outlined in the definition of “consumer report.”
Fannie Mae moved to dismiss, arguing that it is not a CRA because it does not regularly assemble or evaluate information on consumers. The district court agreed with Fannie Mae and dismissed the complaint, finding that “[i]t is the lenders which obtain an applicant’s credit reports from credit reporting agencies and it is the lenders which input the information about the applicant into the DU system, which then analyzes the information.” According to Fannie Mae, it “merely provides access to the DU system to assist the lenders with purchase eligibility guidance.” The district court characterized Fannie Mae as the seller of a piece of software and held that it could not be characterized as a CRA.
On appeal, the Ninth Circuit reversed and held that the complaint “contains sufficient plausible allegations to raise the reasonable inference that Fannie Mae ‘regularly engages . . . in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties,’ and therefore qualifies as a ‘consumer reporting agency.’” The Court also found that based on the allegations in the complaint, the DU Findings Report qualifies as a “consumer report” under the FCRA. Finally, the Court held that the “complaint alleges facts sufficient to raise a plausible inference that Fannie Mae failed to ‘follow reasonable procedures to assure maximum possible accuracy’ of the DU Findings Report.
This is an expansive reading of the definitions of a “consumer reporting agency” and “consumer report” under the FCRA. The case will now go back to the district court, where Fannie Mae could, with the benefit of an evidentiary record, try to secure a ruling that it is not a CRA. However, the Ninth Circuit’s ruling sets a low bar for what a plaintiff must allege to characterize a defendant as a CRA, raising the specter that we will see increased FCRA filings that target actors, systems, and activities that many would consider non-FCRA. Effectively, the Ninth Circuit’s holding allows conclusory allegations that a system assembles and evaluates credit information as sufficient to subject a defendant to an FCRA case, at least enough to survive a facial challenge to the pleadings.