In December 2021, a federal judge granted a motion for summary judgment in Mitchell v. Specialized Loan Servicing LLC, holding that defendant Specialized Loan Servicing LLC (Specialized Loan) properly reported plaintiff Eric Mitchell’s (Mitchell) loan status by using a designation indicating “no payment history available this month.” The court held that this designation complied with a recent provision in the CARES Act, which, depending on the circumstances, requires furnishers to report a credit obligation as current if an accommodation is made due to the COVID-19 pandemic, unless the account was delinquent before an accommodation was granted. The court held that because Specialized Loan used the correct designation, its actions were not unreasonable, and it was entitled to summary judgment.

In this case, Mitchell took out a second mortgage loan on his home in 2019, and Specialized Loan began servicing the loan in January 2020. Mitchell later requested and was approved for a forbearance due to the negative economic impact of the COVID-19 pandemic. Mitchell subsequently requested a second forbearance, which also was granted. Specialized Loan informed him that during this forbearance period, “we will report your account as current to the credit bureaus so that there will not be any negative impact on your credit.” While Mitchell was under the forbearance plan, he sought a $96,000 loan but was denied. He alleges that this denial was due to the consumer reporting agencies (CRA) “construing the reports … in a way that negatively impacted [his] credit report.” As a result, he filed disputes, alleging the CRAs failed to report the suspension of his payment obligations as score-neutral or score-positive, and therefore, his information was inaccurate. After investigating Mitchell’s dispute, Specialized Loan determined it was correctly reporting the loan because it reported the payment history profile with a “D” code for the months Mitchell’s loan was under the forbearance plan. This “D” code indicates “no payment history available this month.”

Mitchell sued, alleging that Specialized Loan’s actions violated the Fair Credit Reporting Act (FCRA), the California Consumer Credit Reporting Agencies Act (CCRAA), and other state unfair competition and common law claims. Mitchell also claimed the reporting was a breach of contract. Mitchell’s primary theory of liability was that Specialized Loan failed to properly report his account in line with 15 U.S.C. § 1681s-2(a)(1)(F), which was added as part of the CARES Act. In general, this provision requires a furnisher to “report the credit obligation or account as current” during the COVID-19 pandemic, unless the account was delinquent before the accommodation. Specifically, Mitchell argued that Specialized Loan’s use of the “D” code instead of “0” did not constitute “fully current” because “D” indicates “no payment history available this month” whereas 0 indicates “0 payments past due (current account).”

The court held that Specialized Loan’s use of the “D” designation indicated a current account and that there were no relevant authorities interpreting the statute that would provide otherwise. Accordingly, since Specialized Loan properly reported Mitchell’s loan as current, which complied with the CARES Act, the FCRA, and the CCRAA, the court held that its investigation and response to Mitchell were reasonable, and its reporting was accurate. Therefore, the court granted summary judgment to Specialized Loan for the FCRA, CCRAA, and unfair competition claims.

The court granted summary judgment to Specialized Loan on the common law claims, holding that Mitchell’s breach of contract claim failed because the forbearance agreement was not an enforceable contract supported by consideration.

Troutman Pepper will continue to monitor these and similar cases regarding the proper way for financial institutions to report on accounts that are in forbearance due to the COVID-19 pandemic.