The Court of Appeals of Indiana recently decided an interesting case involving breach of contract claims under the Fair Credit Reporting Act (FCRA) against a bank.
In Shah v. Wells Fargo Bank, N.A., 092518 INCA No. 18A-MF629, Paresh and Shobhana Shah borrowed $500,000.00 from TCF National Bank, secured by a real estate mortgage. Ultimately, the mortgage was assigned to Wells Fargo Bank, N.A. The Shahs entered into a loan modification agreement which increased the principal and changed the monthly payment. Following execution of the agreement and for two years, Wells Fargo issued incorrect billing statements to the Shahs. The Shahs failed to make any payments under the loan modification agreement.
Wells Fargo filed a foreclosure action, and the Shahs counterclaimed, alleging breach of contract, with the Shahs claiming their action arose under state contract law. Wells Fargo alleged the counterclaims were time-barred because they actually arose under the Fair Credit Reporting Act. The trial court granted summary judgment in favor of the bank, and the Shahs appealed.
Although Wells Fargo issued incorrect billing statements following the loan modification, the agreement did not require the bank to provide such statements. The Shahs claimed that the modification agreement was enforceable, but the bank breached the agreement and that the bank’s omissions and actions were negligent. Ultimately, the Shahs conceded the bank was entitled to judgment as to negligence, but insisted they should prevail on the breach of contract claim.
On appeal, the Shahs argued that the trial court erred in not concluding the loan modification was valid and enforceable and concluding there was no genuine issue of material fact the bank breached the agreement. The appeals court found the trial court actually did rule the loan modification was enforceable, so the only real issue on appeal concerned the breach of contract claim. The gravamen of the Shahs’ argument on breach is that the bank violated the FCRA by making false representations about the amount due via inaccurate billing statements and allegedly providing false information to credit agencies. In discussing the FCRA, Congress stated: “There is a need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality and respect for the consumer’s right to privacy.” 15 U.S.C. § 1681(a)(4); Trans. Union Corp. v. FTC, 81 F.3d 228, 234 (D.C. Cir. 1996). The Shahs argued their claim is not actually a federal FCRA, but a state-law claim that Wells Fargo breached the loan modification agreement by violating provisions of the FCRA, positing the federal Act was incorporated into the agreement. Wells Fargo countered that the claims are time-barred by the FCRA via preemption. The appeals court agreed with Wells Fargo, finding “While it is true that not all state-law claims based on credit-reporting malfeasance are barred, ‘FCRA explicitly preempts state-law claims violations of the federal act.’” Shah v. Wells Fargo Bank, N.A., ¶ 13; Todd v. Franklin Collection Serv., Inc., 694 F.3d 849, 852 (7th Cir. 2012) (citing 15 U.S.C. §1681(b)(1)(F); Purcell v. Bank of Am., 659 F.3d 622, 623-25 (7th Cir. 2011). The appeals court found the Shahs’ claims are explicit FCRA claims and so are preempted. The Court further found “To the extent that the Bank owed those duties to the Shahs, there is no getting around the fact that those duties originally arose from and were imposed by the FCRA. The Modification Agreement itself imposes no obligation on the Bank to either issue accurate billing statements or to issue accurate information about the Shahs’ credit history. To the extent that the Bank has these obligations, they arise by operation of the FCRA.” Shah v. Wells Fargo Bank, N.A., ¶ 15.
As a cautionary note to banks, the Court observed in a footnote to the above-cited case that the Shahs could have pursued FCRA claims in Indiana state court if they had filed timely, pursuant to the language of the FCRA’s enforcement section, 15 U.S.C. § 1681p. Accordingly, lenders should be careful regarding the accuracy of any billing statements they send to borrowers, as well as the accuracy of information reported to credit agencies, lest they expose themselves to possible Fair Credit Reporting Act liability.