The mortgagor purchased a residential home in Arizona with a loan that was assigned to the servicer. The mortgagor made the initial payment in August; however, the payment was unable to be processed, and the mortgagor made a second payment, which was processed. After the first payment was posted, the mortgagor requested that the bank reverse one of the payments. Unable to do so, the bank informed her that it would issue a refund instead; however, the mortgagor disputed the payment with her bank. Nevertheless, the mortgagor’s account reflected that the August payment had not been made, resulting in the misapplication of the September payment. Thereafter, the mortgagor decided to sell her Arizona home, pay off the mortgage, and attempt to purchase a new home in Texas. Because the mortgagor applied for a loan to finance the home in Texas, she requested that the servicer correct the record of her missing payments because it could negatively affect her credit score. Although the servicer allegedly confirmed that there were no missing payments and stated that it would notify the lender, the mortgagor’s loan application was denied. In response, the mortgagor filed a dispute with credit reporting agencies. The servicer confirmed that the payments were current, but it continued to report a 30-day delinquency. Then, the mortgagor sued the servicer for violations of the Fair Credit Reporting Act (FCRA) and later amended the action to add violations of the Texas Debt Collection Act (TDCA). The district court dismissed all claims.
In Schultz v. Homebridge Fin. Servs., Inc., No. 24-50193, 2025 WL 1467431, 2025 U.S. App. LEXIS 12502 (5th Cir. May 22, 2025) (opinion not yet released for publication), the Fifth Circuit affirmed dismissal of the mortgagor’s willful violation of FCRA and TDCA claims, but reversed dismissal of her negligent FCRA claim. Under the FCRA, a plaintiff may recover actual, statutory, and punitive damages for a willful violation, which is defined as “knowingly and intentionally committing an act in conscious disregard for the rights of others.” Cousin v. Trans. Union Corp., 246 F.3d 359, 372 (5th Cir. 2001). The court emphasized that while the servicer’s actions certainly constituted poor customer service, they did not constitute willful violations. The court noted that FCRA liability did not attach until the furnisher of credit received a dispute from a credit reporting agency. Here, the servicer’s alleged willful violation occurred before the mortgagor’s credit dispute, and therefore, the willful violation FCRA claim failed. However, the FCRA also allows plaintiffs injured by negligent reporting to recover actual damages. Here, the court held that the mortgagor did adequately state a claim because she alleged that she suffered a higher interest rate on her new mortgage for the Texas home. The court emphasized that the servicer’s failure to investigate and correct the inaccurate reporting plausibly caused the higher interest rate on the Texas home. Lastly, the court held that the mortgagor’s TDCA claims were time-barred. The statute of limitations on TDCA claims is two years, and the mortgagor first filed the claims in February 2023. Because the alleged misrepresentations occurred in 2020 and the mortgagor filed the original complaint in September 2021, the TDCA claims must relate back to the original pleading to proceed. Fed. R. Civ. P. 15(c)(1)(B). Here, the court opined that the TDCA claim “raised a new theory of deceptive debt collection,” which had no relation to the original FCRA claim. Therefore, the court dismissed the TDCA claim.
By Charlie Cole [email protected]
Edited By Hayden Mariott [email protected]
Edited By Kristin Meurer [email protected]