Originally posted on The Legal Intelligencer
Seventh Circuit Issues Seemingly Internally Inconsistent FCRA/FDCPA Decision
In its recent decision in Freeman v. Ocwen Loan Servicing, No. 23-2512, the U.S. Court of Appeals for the Seventh Circuit upheld a district court’s dismissal of a borrower’s Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) claims arising out of her mortgage servicer’s erroneous reporting that her mortgage was in default. In doing so, the court issued a concerning and seemingly internally inconsistent decision.
A Mortgage Servicer’s Mistake Causes Significant Problems
Demona Freeman secured a loan to purchase her home. The loan was assigned to the Bank of New York Mellon and serviced by Ocwen Loan Servicing. After Freeman fell behind on her mortgage payments, BNY Mellon filed a foreclosure action against her. Freeman subsequently filed for bankruptcy and later made all the payments necessary to secure an order of discharge in the bankruptcy.
Despite the discharge, Ocwen erroneously classified Freeman’s loan as delinquent based on an incorrect loan payment due date in its records. Thus, Ocwen considered Freeman to be in default of her loan. It rejected all monthly payments she attempted to make and demanded she cure the nonexistent default in a single payment. Because of Ocwen’s error,BNY Mellon brought another foreclosure action against Freeman, which was later voluntarily dismissed.
Freeman communicated Ocwen’s error to the company multiple times. Yet, in its attempts to collect on the inaccurate default, Ocwen called Freeman over 12 times in a month and sent agents to her home once a week for almost three years.
Freeman sued Ocwen, alleging it violated the FCRA by failing to conduct a reasonable investigation after consumer reporting agencies (CRAs) notified it she disputed the reporting of her loan as delinquent. She also alleged Ocwen violated the FDCPA, arguing that its actions caused her to suffer various injuries.
The U.S. District Court for the Southern District of Indiana granted Ocwen’s motion to dismiss Freeman’s FCRA claim and granted the company’s motion for summary judgment on her FDCPA claim. Freeman appealed the lower court’s rulings.
On Appeal, Freeman’s FCRA Claim Failed for Lack of fair Notice
When pleading her FCRA claim, Freeman alleged Ocwen incorrectly reported to various CRAs that her loan was delinquent and that Ocwen received notice from “one or more consumer reporting agencies” that she disputed its reporting of her loan as delinquent. The court held that these “barebones” allegations could not sustain her claim because they did not give Ocwen fair notice of her claim against it and its basis.
Explaining that Ocwen could not respond to a claim that it failed to comply with its obligations under the FCRA if it did not know which CRA’s notification it needed to respond to with an investigation, the court held Freeman failed to allege which CRA she notified. To support its position, the court cited a U.S. Court of Appeals for the Third Circuit case, SimmsParris v. Countrywide Financial, 652 F.3d 355, 359 (3d Cir. 2011), that held that a notice of a credit reporting dispute must be received by an entity like Ocwen from the CRA that received notice of a dispute from a consumer.
The court held as it did despite Freeman’s complaint attaching a letter from Ocwen’s counsel stating that counsel included with it copies of the disputes transmitted by the CRAs to Ocwen. The court noted that the exhibit contained only a brief letter from Ocwen’s counsel and not copies of the disputes or references to a CRA. According to the court, this fell short of the FCRA’s requirement that “a plaintiff must allege that she notified a CRA and identify the CRA she notified.”
Freeman Fared No Better on Her FDCPA Claim
As to Freeman’s FDCPA claim, the Seventh Circuit held she lacked Article III standing because, on the record before it, none of her alleged harms sufficed for standing.
The court rejected Freeman’s claim that she suffered a tangible injury through monetary harm when she incurred legal fees to defend against the second foreclosure. The court cited various precedents that neither seeking legal advice in response to communications regarding a disputed debt nor hiring a lawyer to resolve confusion about a proper course of action are concrete injuries that confer Article III standing. Additionally, the court held Freeman’s argument failed as a matter of proof because the district court excluded all evidence that could show she was monetarily harmed, including an itemization of her attorney fees. (The district court excluded the document because Freeman did not disclose the fee amount on it during discovery, which the court determined prejudiced Ocwen because it could not conduct discovery related to the document.)
The court also rejected Freeman’s alleged intangible injuries. First, she alleged she suffered reputational harm akin to defamation because Ocwen’s dissemination of inaccurate credit reporting damaged her credit, may have caused her to be denied credit, and discouraged her from seeking credit opportunities out of fear of embarrassment.
The court, relying on its decision in Ewing v. Med-1 Solutions, 24 F.4th 1146 (7th Cir. 2022), held that Freeman provided no evidence that a third party understood the defamatory significance of Ocwen’s erroneous communication about her loan, which, according to the court, was the crux of its holding in Ewing. Even though the record showed that QuickenLoans and Chase requested Freeman’s credit report from TransUnion and that those reports contained Ocwen’s inaccurate reporting, the court held that the evidence did not add up to “specific facts establishing that Ocwen disseminated the inaccurate reporting to a third party … who understood the defamatory significance of the inaccurate reporting.” Instead, the court said, the record before it “merely shows that TransUnion included Ocwen’s inaccurate reporting in its own credit reports, indicating nothing about TransUnion’s or another third party’s assessment ofFreeman’s creditworthiness.”
The court was similarly unpersuaded by Freeman’s other allegations of intangible injuries that were analogous to false light, invasion of privacy, intrusion upon seclusion and abuse of process. As to the false light analogue, the court held she lacked standing to pursue that claim because anxiety, embarrassment, and stress were not concrete injuries in fact for FDCPA claims and Freeman did not allege Ocwen had knowledge of or acted in reckless disregard as to the falsity of the second foreclosure and the false light she would have been placed in.
Likewise, the court held Freeman lacked standing for her FDCPA claim that Ocwen’s phone calls and door knocks caused an injury analogous to invasion of privacy or intrusion upon seclusion. The court relied on its precedents holding that annoyance, intimidation, and stress without physical manifestations or a medical diagnosis does not amount to a concrete harm, and noted Freeman had offered no admissible evidence as to the physical symptoms she suffered because of Ocwen’s conduct. The court ruled the same for her claim that was analogous to abuse of process in which she alleged she suffered psychological pressures from defending against the second foreclosure. Again, the court heldFreeman alleged no physical manifestation of these pressures nor put forth any medical diagnosis, and held that psychological harm on its own could not establish standing for an FDCPA claim.
A Seemingly Internally Inconsistent Decision
The Seventh Circuit’s analysis in Freeman seems straightforward. But when taking a closer look, there appear to be internal inconsistencies in it.
First, regarding Freeman’s FCRA claim, the court claimed “her failure to identify the CRA(s) she notified did not give Ocwen ‘fair notice of what the claim is and the grounds upon which it rests.’” But the court noted that Ocwen’s counsel sent a letter, presumably to Freeman, that concerned the disputes transmitted by CRAs to Ocwen. Thus, it seems indisputable that Freeman disputed Ocwen’s erroneous reporting regarding her loan, and that Ocwen received disputes from CRAs regarding it. This seems to refute the court’s claim that “Ocwen cannot effectively respond to a claim that it failed to comply with its FCRA obligations if it does not know which CRA’s dispute notification it needed to respond to with an investigation.” It also appears to satisfy the requirement stated in the Third Circuit’s SimmsParris case cited by the court that Ocwen had to have received notice from the CRA(s) that received notices of Freeman’s dispute.
Second, the court’s discussion of its Ewing decision shows a curious interpretation of how credit reporting works. The court held that no third party understood the defamatory significance of Ocwen’s inaccurate reporting of Freeman’s loan because the record before it showed that TransUnion, a CRA, included Ocwen’s inaccurate reporting in its credit reports, which did not indicate TransUnion’s or another third party’s assessment of Freeman’s creditworthiness.
But as the court noted, Quicken Loans and Chase requested Freeman’s credit report from TransUnion containing the inaccurate reporting. They undoubtedly knew the significance of an erroneously reported delinquent loan.
Additionally, TransUnion’s assessment of a consumer’s creditworthiness takes into account the nature of debts and whether they are disputed. If the court treated this issue as a holding on the facts before it, and Freeman and her counsel failed to submit evidence on this point, that’s one thing. But one could read the court’s holding as being a matter of law. If that’s the case, the court appears confused as to how credit reporting works.
Though the Seventh Circuit’s decision here in Freeman v. Ocwen Loan Servicing, reads like a straightforward decision upholding dismissals of FCRA and FDCPA claims based on fair notice and standing grounds, a slightly deeper analysis of the decision reveals internal inconsistencies within it. Time will tell whether they are limited to this case or whether district courts within the Seventh Circuit will cite Freeman for propositions based on the court’s internal inconsistencies.
Either way, Freeman is concerning for those consumers within the Seventh Circuit attempting to plead FCRA and FDCPA claims against companies in the financial, credit reporting and debt collection industries.
John Soumilas is a partner at Center City, Philadelphia-based Francis Mailman Soumilas, a leading consumer rights lawfirm. He can be reached at jsoumilas@consumerlawfirm.com.