The United States District Court for the District of Massachusetts recently held that the federal Fair Credit Reporting Act (FCRA) preempts Massachusetts state law claims for violations of the Massachusetts Credit Reporting Act, Mass. Gen. Laws ch. 93, § 54A, and the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A.

The decision also held that the mere furnishing of information following a bankruptcy discharge, without more, is not actionable.

A copy of the opinion is available at: Link to Opinion.

The decision adds to a growing split among federal courts on both issues.

Credit Reporting a Loan Modification and Bankruptcy Discharge

In 2008, Plaintiff, Mark Lance, obtained a mortgage and note for his home from National City Bank, which was acquired by PNC Bank in 2008. In August 2010, Lance filed for Chapter 7 bankruptcy, receiving a discharge order in December 2010.

In May 2013, PNC began a foreclosure against Lance’s home.  In January 2014, Lance and PNC reached an agreement resolving the foreclosure through a permanent modification to the mortgage loan.  According to Lance, although he agreed to the modification, he was no longer personally liable for the mortgage debt because of his Chapter 7 discharge and because the mortgage debt was not “reaffirmed” by him in his bankruptcy case.

In July 2014, Lance was offered employment with a bank contingent on credit and background checks.  The prospective bank employer withdrew the job offer after it found that PNC credit reported that Lance’s mortgage had been in foreclosure from May 2013 through January 2014, and had a past due balance of $99,726.

A Mortgage Lien is a “Credit Relationship” Even if Personal Liability is Discharged

Lance alleged that PNC’s act of reporting his discharged mortgage constituted an effort to collect a debt in violation of the bankruptcy discharge injunction.  PNC argued that it did not engage in misreporting because its right to enforce the mortgage was unaffected by Plaintiff’s bankruptcy discharge.

As the Court noted, it is well established that a mortgage lien on real property, including all amounts due thereunder, passes through bankruptcy unaffected.  Absent a reaffirmation, following a Chapter 7 discharge, although a debtor is not personally liable for the mortgage loan, he still “owes” the lender in the form of the property (the collateral).  The debtor must either make new arrangements with the lender to keep the property, return it to the lender, or wait for it to be foreclosed upon. Because of the mortgage lien, a “credit relationship” exists between the lender and the debtor, wrote the Court.

Here, in January 2014, more than seven months after Lance obtained the discharge, he agreed to a loan modification with PNC, evidencing Lance’s continuing credit relationship with PNC.  As a result, PNC was under no obligation under the Bankruptcy Code to change the way it reported the status of Plaintiff’s mortgage loan.

Mere Reporting of a Discharged Loan Balance Does Not State a Claim

Even assuming Lance had no credit relationship with PNC after the bankruptcy discharge, standing alone, the act of reporting a discharged debt is not a violation of § 524(a).  To violate § 524(a), a creditor must act in a way that improperly coerces or harasses the debtor. Reporting a debt to a credit reporting agency – without any evidence of harassment, coercion or some other linkage to show that the act is one likely to be effective as a debt collection device – fails to qualify on its own as an “act” that violates § 524.

Under the circumstances, the Court held that PNC’s single instance of failing to update Lance’s credit report was not so objectively coercive as to warrant relief under § 524.  Therefore, Count One of Plaintiff’s complaint was dismissed.

FCRA Preempts Mass. Credit Reporting Act Claim

The Court also dismissed Lance’s claims which alleged that PNC’s credit reporting violated the Massachusetts Credit Reporting Act under Mass. Gen. Laws ch. 93, § 54A.

PNC argued that Lance’s claims were preempted by the FCRA, which provides that “[n]o requirement or prohibition may be imposed under the laws of any State …relating to the responsibilities of persons who furnish information to consumer reporting agencies…”  15 U.S.C. § 1681t(b)(1)(F).

The Court noted that, at first glance, Lance’s Massachusetts Credit Reporting Act claim would appear to fall directly within the FRCA’s preemptive language because FCRA explicitly preempts any requirement imposed by state law that clearly relates to the responsibilities of a furnisher of credit information. The FRCA also provides an express exemption for the Massachusetts Credit Reporting Act noting that § 1681t(b)(1)(F) “shall not apply – (i) with respect to section 54A(a) of chapter 93 of the Massachusetts Annotated Laws . . . .” 15 U.S.C. § 1681t(b)(1)(F).

However, the FCRA expressly exempts only section 54A(a) of the state law from its preemptive reach. It includes no such exemption for section 54A(g) of the Massachusetts Credit Reporting Act, which creates a private cause of action for Lance to assert the state law violation.  In the Court’s view, the absence of express language exempting § 54A(g) from the FCRA’s preemption provision was fatal to Lance’s Massachusetts Credit Reporting Act claim.

Mass. Consumer Protection Act Preempted by FCRA

The Court also dismissed Lance’s claim that PNC’s credit reporting violated the Massachusetts Consumer Protection Act, Mass. Gen. Laws Ch. 93A.

PNC argued that this claim was also preempted because it was based on its reporting of Lance’s consumer credit information.  Lance argued his Chapter 93A claim survived preemption because it was based on the existence of unfair practices independent from the subject matter of  PNC’s credit furnishing obligations under FCRA.  Specifically, Lance alleged that the Chapter 93A claim was based on PNC’s unlawful debt collection by means of credit reporting, rather than the inaccurate credit reporting itself.

As the Court noted, however, Plaintiff’s argument could not withstand analysis.  The conduct at issue, and PNC’s debt collection practices – insofar as they were coextensive with its reporting on a discharged debt – were exactly the type of conduct Congress intended to regulate under the FCRA. As a result, the Court held that Plaintiff’s Chapter 93A claim was also preempted.  Accordingly, Plaintiff’s complaint was dismissed in its entirety.