Mortgage-Offer Mailer Constituted a “Firm Offer of Credit” Under the FCRA (Fair Credit Reporting Act) Warranting Summary Judgment in Favor of Defense Illinois Federal Court Holds
Plaintiffs filed a class action against Home Loan Center for alleged violations of the federal Fair Credit Reporting Act (FCRA) alleging that impermissibly accessed credit reports for purposes of mailing out “pre-approval” mortgage flyers, three of which were mailed to plaintiffs. Cavin v. Home Loan Center Inc., 469 F.Supp.2d 561, 2007 WL 92509, *1 (N.D. Ill. 2007). Plaintiffs did not respond to the loan offers. Id., at *2. Defense and plaintiffs attorneys filed cross-motions for summary judgment; defense attorneys argued that the mailers constituted “firm offers of credit” under the FCRA thus entitling Home Loan Center to obtain the credit reports; plaintiffs argued that mailers did not constitute firm offers because they are too vague. Id., at *3. The district court granted the defense motion, denied the plaintiffs’ motion, and entered judgment in favor of Home Loan Center on the class action complaint.
We do not summarize here all of the language contained in the mailers or the details of the loan program at issue. Class action defense attorneys facing FCRA claims should review the opinion in its entirety in order to understand its full scope. Briefly, the mailers advertised a “SmartLoan” program and stated “This ‘prescreened’ offer of credit is based on information in your credit report indicating that you meet certain criteria.” Cavin, at *1. The mailers set forth “sample loan payments for loans ranging from $100,000 to $600,000.” Id. The reverse side of the mailers stated, “This offer may not be extended if, after responding to this offer, you do not meet the criteria used in the selection process. Further, HomeLoanCenter.com will verify income and employment, review credit, and analyze debt and your equity position in the subject property prior to final loan approval.” Id. Additionally, the mailers stated, “This advertisement does not constitute an offer to enter into an interest rate and/or discount prior agreement.” Id. The mailers were not firm commitments to make a loan, expressly stating “Not all applicants will be approved.”
Id., at *2.
In ruling on the cross-motions for summary judgment, the federal court observed that the parties did not dispute whether Home Loan Center had “express permission to access [plaintiffs’] credit reports,” Cavin, at *2. The class action turned “on whether the SmartLoan mailers constituted a ‘firm offer of credit'” under the FCRA. Id. Plaintiffs urged that the mailers were “vague and totally lacking in terms,” failed to “inform the consumer what is being offered,” and failed to disclose that the mortgage is a negative amortization loan. Id., at *2-*3. The defense countered that the mailers “offered a valuable and popular home mortgage loan worth hundreds of thousands of dollars” and that any missing terms were because mortgage loans “have features and terms that cannot be fixed in advance based solely upon data obtained from prescreening programs.” Id., at *3. Defense attorneys also argued that plaintiffs could not prove actual damages because they never sought or obtained a loan based on the mailers.Id.
Under the FCRA, a firm offer of credit is “any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a report to the consumer, to meet the specific criteria used to select the consumer for the offer.” 15 U.S.C. § 1681a(1). The district court noted that, under Seventh Circuit case authority, “an offer must have sufficient value to the consumer to be considered a firm offer of credit.” Id., at *4 (citing Cole v. U.S. Capital, 389 F.3d 719, 726 (7th Cir. 2005)). As Cole held, “‘From the consumer’s perspective, an offer of credit without value is the equivalent of an advertisement or solicitation.'” Id. (quoting Cole, at 726-27). Subsequent to Cole, the Seventh Circuit decided Perry v. First Nat’l Bank, 459 F.3d 816 (7th Cir. 2006), which identified three factors to be considered in determining whether an offer has value: “(1) whether it appears likely the offer would be honored; (2) whether the material terms of the offer are adequately disclosed; and (3) whether the amount of credit being offered is minimal or subject to so many limitations that it is of little value.” Id., at *5.
The district court first rejected plaintiffs’ argument that the offer was worthless because few recipients of the mailers applied for loans, quoting language in Perry that most people do not respond to solicitations “regardless of how attractive the terms of the offer are.” Cavin, at *6 (quoting Perry, at 826). Nor was the offer “illusory” because “not all applicants will be approved”; the court reasoned that the FCRA permits offers to be “conditioned on certain requirements” and “a review of the mailers in their entirety indicates that approval was contingent on factors that are permissible under the statute, such as verification of income and provision of collateral.” Id. The district court further held – with respect to the sentence “This advertisement does not constitute an offer to enter into an interest rate and/or discount prior agreement.” – that the use of the term “advertisement” was not controlling on the facts of the case, as the word “offer” appeared “in numerous other places” in the mailers, and that the sentence was meant to clarify that the offer did not fall within Minnesota law governing “mortgage-rate lock agreements.” Id., at *6-*7. Thus, the court concluded that the loan offered in the mailer would be honored.
With respect to the adequacy of the disclosure of material terms of the offer, the district court found that the mailers – while “not provid[ing] the precise interest rate that will apply to each individual borrower” and “not disclos[ing] every term and condition of the loan” – adequately complied with the FCRA because the mailers need not disclose “every single loan term for an offer to be considered firm.” Cavin, at *7. The court explained that this is particularly true with respect to mortgages, which are “tailored to the individual consumer depending on factors such as how much he or she wishes to borrow, his or her current income, and the value of the property offered as collateral.” Id. The district court held that “[t]he ultimate question is whether the mailers, considered as a whole, contain enough terms for consumers to determine whether the offer has any value to them.” Id., at *9 (citing Cole, at 728). The district court found that the disclosures in the mailers were adequate, and further rejected a claim that the terms of the offer were deceptive. Id., at *9-*10.
Finally, the district court considered whether the offer was “minimal,” and easily found that it was not as it “could amount to several hundred thousand dollars.” Cavin, at *10. The fact it was an “interest only” loan program did not matter because even if many consumers would not find such an offer attractive “the loan may have utility for some consumers.” Id., at *11. Accordingly, the court concluded that Home Loan Center accessed plaintiffs’ credit reports for a permissible purpose under the FCRA and granted summary judgment in favor of the defense on the class action complaint.
NOTE: The district court was advised of, and considered, the Missouri district court opinion in Klutho v. Home Loan Center Inc., Case No. 06cv1212 (E.D. Mo. November 1, 2006), which held that the terms described by defendant in a similar mailer were “incomprehensible.” The Cavin court refused to follow Klutho because the language of the mailers differed and because the procedural posture of the cases differed (Klutho involved a motion to dismiss rather than a motion for summary judgment). Cavin, at *9.