Recently, the Eastern District of Kentucky denied a motion to dismiss under the Fair Credit Reporting Act (FCRA) after finding the plaintiffs alleged sufficient facts to support a reasonable inference that credit reports were pulled without a permissible purpose.

In May v. Equifax Information Services, LLC, the plaintiffs alleged Rocket Mortgage, LLC violated 15 U.S.C. § 1681b of the FCRA, which prohibits using or obtaining a consumer’s credit report without a permissible purpose. The case arose out of a mortgage held by Rocket Mortgage on a property owned by one of the plaintiffs. In 2018, after that plaintiff’s account fell into default, Rocket Mortgage foreclosed and sold the property. The complaint alleged that the 2018 foreclosure sale satisfied the mortgage, but that Rocket Mortgage nevertheless accessed the plaintiff’s credit reports between 2021 and 2022.

Rocket Mortgage moved to dismiss the plaintiffs’ complaint, arguing it contained only bare allegations regarding the lack of a permissible purpose for the purported credit pulls — one of the elements a plaintiff must prove to show a violation of § 1681b. Although the complaint did not address whether the plaintiffs had any ongoing debt obligations to Rocket Mortgage in 2021 and 2022, the plaintiffs alleged the mortgage was satisfied by the 2018 foreclosure sale. The court held this was sufficient to support a reasonable inference that Rocket Mortgage lacked a permissible purpose related to the review of the closed account.

In reaching this conclusion, the court noted that the plaintiffs addressed the permissible purposes enumerated under the FCRA for accessing a consumer’s credit report and alleged facts showing why these permissible purposes were inapplicable. For instance, in cases where a debtor-creditor relationship existed and the debt was discharged but certain obligations remained, courts have found lenders may still use the borrower’s credit report to review the account until all obligations are fulfilled. If there were ongoing debt obligations, Rocket Mortgage might have had a legitimate reason to review the credit report. However, the plaintiffs alleged the foreclosure sale satisfied the mortgage entirely or that Rocket Mortgage waived any deficiency, supporting the reasonable inference that there were no ongoing debt obligations.

Rocket Mortgage also argued that it may have accessed the credit report to extend new credit to the plaintiffs, which could constitute a permissible purpose under the FCRA. However, the plaintiffs alleged they had no business dealings with Rocket Mortgage during the relevant period, supporting an inference that Rocket Mortgage did not have a permissible purpose related to extending new credit either.

Our Take

The court’s decision to deny Rocket Mortgage’s motion to dismiss underscores the importance of ensuring that companies obtain credit reports with a clear and documented permissible purpose. Mortgage companies and other financial institutions should review their policies and procedures for accessing consumer credit reports to ensure compliance with the FCRA. This case highlights the need for thorough documentation and justification for each pull of a credit report, especially when dealing with accounts that have been closed or satisfied.

Caroline Buggé is not licensed to practice law in any jurisdiction; application pending for admission to the Virginia Bar.