The FCRA does not literally preempt all state laws regulating furnishers of credit information

By Michael Klazema on 3/19/2012

Menashi v. Am. Home Mortg. Servicing, Inc., 2011 U.S. Dist. LEXIS 114387 (M.D. Fla. Oct. 4, 2011)


Facts: Plaintiff filed suit against the three CRAs, Wilmington Trust Company and American Home Mortgage Servicing, Inc. (“AHMSI”), the servicer of Plaintiff’s mortgage, alleging violations of § 559.72(5), (6), and (9) of the Florida Consumer Collection Practices Act (“FCCPA”). Plaintiff’s claim arose from the modification of his home mortgage under the Home Affordable Modification Program (“HAMP”). Plaintiff and AHMSI negotiated a mortgage modification under HAMP and after a three-month HAMP “trial period plan,” AHMSI offered Plaintiff a permanent HAMP agreement, which he accepted. Less than a year later, AHMSI rejected a mortgage payment from Plaintiff and informed him that the HAMP mortgage modification, while a valid contract, was a “mistake” that AHMSI would no longer honor. AHMSI then reported to the three CRAs that Plaintiff was behind on his mortgage. Plaintiff insisted the report was false and alleged the CRAs engaged in wrongful credit reporting. AHMSI alleged and Plaintiff conceded that §§ 559.72(5) and (6) are preempted by the Fair Credit Reporting Act (“FCRA”). The court held that the FCRA only preempts those state law causes of action against furnishers of credit information that regulate credit reporting – including a cause of action under a state law not directed expressly to the regulation of credit information, such as a debt collection act.

  • Preemption. Section 1681t(b)(1)(F) prohibits states from imposing a law “with respect to any subject matter regulated under § 1681s-2 of [the FCRA], relating to the responsibilities of persons who furnish information to consumer reporting agencies.” If a state law regulates credit reporting only in limited circumstances, § 1681t(b)(1)(F) preempts the state law only in those limited circumstances. Here, the FCRA preempted the FCCPA only if AHMSI violated § 559.72(9) while engaged in credit reporting activity regulated by § 1681s-2. Plaintiff did not allege that AHMSI rejected the mortgage modification with the purpose of altering or inaccurately reporting his credit information. If AHMSI refused to honor the mortgage modification because it decided the modification was a “bad deal,” that decision had no connection to the purpose of § 1681s-2 and falls outside its scope. The Court rejected AHMSI claims that the FCRA literally preempts all state causes of action against furnishers of credit information. 
  • Injunctive Relief. Only the FTC may obtain an injunction under the FCRA. The Court denied Plaintiff’s request for equitable relief under the FCRA and granted Trans Union’s motion to dismiss.

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