Title Reports and the Fair Credit Reporting Act
Does a company that provides title reports to lenders in connection with consumer mortgages have to comply with the Fair Credit Reporting Act (FCRA)? In a recent “Precedential” opinion, the U. S. Court of Appeals for the Third Circuit considered the question and concluded that a company could reasonably believe it doesn’t. Fuges v. Southwest Financial Services, Ltd., No. 11-4504, (3rd Cir., Dec. 6, 2012).
Southwest Financial is in the business of providing “current owner title reports” to consumer lenders. The reports contain only the property owner’s name, address, marital status (if shown on the deed), and the amounts of any open mortgages, judgments or liens. They do not contain any of the additional information typically presented in a traditional credit report. When Fuges applied for a credit line mortgage, Southwest prepared a title report that incorrectly listed a judgment and a local property tax lien against her property. After initially denying the appication, the lender eventually changed its mind. Fuges, however, brought a “putative class action” against Southwest alleging, inter alia, willful violations of the FCRA. Southwest claimed it was not subject to the FCRA and hence, not liable.
In order to prove a willful violation Fuges was required to prove that Southwest’s actions 1) violated the terms of the FCRA and 2) that Southwest’s determination that it’s activities were not subject to the FCRA were not an “objectively reasonable” interpretation of the FCRA.
Agreeing with the lower court, the Third Circuit panel determined that Southwest was objectively reasonable in determining that it was not a “consumer reporting agency” and that its product was not a “consumer report” as defined in the FCRA, because the definitions “were ambiguous as applied to a company like Southwest....” In addition, both Courts noted that “there is no judicial or agency guidance that would suggest that Southwest’s reading of FCRA is contrary to the intended meaning of the provisions in question.”
COMMENT:
Obviously, this decision is good news for title information providers. But there are two important caveats: First, the Court’s approach became much easier when Fuges dropped a claim of negligent violation of the FCRA that she had initially alleged. Had she pursued it, the Court would probably have had to squarely face the issue of the applicability of FCRA to title reports. Second, as has been well documented in both the trade press and popular media, lenders and their providers will be operating in a stringent regulatory environment for the foreseeable future. For example, just this week the Consumer Financial Protection Bureau entered into a Memorandum of Understanding with the Department of Justice concerning joint enforcement procedures. This is only the latest in a series of MOU’s with various agencies, including FinCEN, FTC, HUD, CSBS, OCC, NCUA, FDIC and the Federal Reserve. Title information providers should obtain reliable legal advice concerning potential FCRA applicability to their products.
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