In December 2021, a federal judge granted a motion for summary judgment in Mitchell v. LLC Specialty Loan Service, finding that defendant Specialized Loan Servicing LLC (Specialized Loan) correctly reported the status of plaintiff Eric Mitchell’s (Mitchell) loan using a designation indicating “no payment history available this month”. The court ruled that this designation was consistent with a recent provision of the CARES Act, which, depending on the circumstances, requires providers to report a credit obligation as current if accommodation is made due to the COVID-19 pandemic, unless the account is overdue. before housing is granted. The court held that because Specialized Loan used the correct designation, his actions were not unreasonable and he was entitled to summary judgment.
In this case, Mitchell took out a second mortgage on his home in 2019, and Specialized Loan began paying off the loan in January 2020. Mitchell then applied for and was approved for forbearance due to the negative economic impact of the COVID-19 pandemic. Mitchell subsequently requested a second abstention, which was also granted. Specialized Loan informed him that during this forbearance period, “we will report your account as current to the credit bureaus so that there is no negative impact on your credit.” While Mitchell was under the forbearance plan, he applied for a $96,000 loan but was denied. He alleges the denial was because consumer reporting agencies (CRAs) “interpreted the reports…in a way that negatively impacted [his] credit report. As a result, he filed challenges, alleging that credit rating agencies had not flagged the suspension of his payment obligations as neutral or positive and therefore his information was inaccurate. After investigating Mitchell’s dispute, Specialized Loan determined that it was reporting the loan correctly because it was reporting the payment history profile with a “D” code for the months Mitchell’s loan was under the payment plan. abstention. 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 unfair competition and common law claims. Mitchell also claimed the report was a breach of contract. Mitchell’s primary theory of liability was that Specialized Loan failed to properly report its account pursuant to 15 USC § 1681s-2(a)(1)(F), which was added as part of the CARES Act. In general, this provision requires a provider to “report the credit obligation or account as current” during the COVID-19 pandemic, unless the account was past due prior to hosting. Specifically, Mitchell argued that Specialized Loan’s use of the code “D” instead of “0” did not constitute “fully up-to-date” because “D” indicates “no payment history available this month” while that 0 indicates “0 overdue payments (checking account).”
The court held that Specialized Loan’s use of the “D” designation indicated a checking account and that there was no competent authority interpreting the law that would provide otherwise. Accordingly, since Specialized Loan correctly flagged Mitchell’s loan as outstanding, which was in compliance with the CARES Act, the FCRA and the CCRAA, the court found that its investigation and response to Mitchell was reasonable and that his report was accurate. Accordingly, 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, finding that Mitchell’s claim for breach of contract failed because the forbearance agreement was not an enforceable contract backed by a counterparty.
Troutman Pepper will continue to monitor these and other similar cases regarding the proper manner for financial institutions to report accounts that are forborne due to the COVID-19 pandemic.