9th Cir. Says Fannie Mae is not a Consumer Reporting Agency under the FCRA

In Zabriskie v. Fannie Mae, Nos. 17-15807, 17-16000, 2019 U.S. App. LEXIS 30147, at *14-17 (9th Cir. Oct. 8, 2019), the Court of Appeals for the Ninth Circuit held that Fannie Mae is not a consumer reporting agency.  The facts were as follows:

Fannie Mae is a government-sponsored entity that Congress created in 1938. Its mission is to provide liquidity and “stability in the secondary market for residential mortgages.” 12 U.S.C. § 1716. To fulfill its mission, Fannie Mae purchases certain mortgage loans from lenders. Specific guidelines and requirements, detailed in a publicly available manual known as the “Selling Guide,” dictate which loans Fannie Mae will purchase. Lenders can use the Selling Guide to determine whether Fannie Mae will purchase the loans that they originate. Using the Selling Guide to evaluate a loan’s eligibility for purchase is called “manual underwriting.”  Lenders also have the option to automate the underwriting process through Fannie Mae’s proprietary software, called Desktop Underwriter (DU). DU automatically applies the guidelines and requirements dictated in the Selling Guide. Fannie Mae licenses DU to many different lenders. DU allows a lender to enter information about the borrower and the property that is the subject of the loan. The lender can also contract with credit bureaus—like Equifax, TransUnion, and Experian—to pay for and import the borrower’s credit report into DU. The lender then uses DU to underwrite the loan. DU analyzes all the inputted or imported information, and it generates a report, called DU Findings, on a loan’s eligibility for purchase by Fannie Mae. Besides initially creating and then updating the computer code comprising DU, no individual or entity at Fannie Mae is involved in the process of generating DU Findings. Relevant to the Zabriskies, the Selling Guide states that Fannie Mae will not purchase a loan for a certain period after a borrower experiences a “significant derogatory event,” such as a foreclosure. For example, Fannie Mae will not purchase a loan if the borrower experienced a foreclosure within the past seven years. It will not purchase a loan if the borrower experienced a preforeclosure or short sale within the past two years.  The Zabriskies had a “significant derogatory event”—a short sale after defaulting on their prior mortgage. After waiting two years, they attempted to refinance their current mortgage, and a number of lenders used DU to ascertain whether a loan to the Zabriskies would be eligible for purchase by Fannie Mae. Three of the eight DU Findings created in evaluating the Zabriskies’ prospective loan incorrectly stated that the loan was ineligible due to a foreclosure reported within the last seven years. It is undisputed that the Zabriskies did not have a prior foreclosure within the last seven years before the DU Findings were generated.  The Zabriskies sued Fannie Mae, arguing that it “falsely communicated to multiple of the Zabriskies’ potential mortgage lenders through its electronic platform that they had a prior foreclosure on a mortgage account.” They sued under FCRA, which requires a consumer reporting agency to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. 15 U.S.C. § 1681e(b).

The Court of Appeals held that the FCRA did not apply.

The Zabriskies urge us to construe FCRA liberally so that the statutory definition of consumer reporting agency encompasses Fannie Mae. It is true that FCRA‘s “consumer oriented objectives support a liberal construction” of the statute. Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th Cir. 1995) (citation omitted). FCRA “was crafted to protect consumers from the transmission of inaccurate information about them” and “to establish credit reporting practices that utilize accurate, relevant, and current information in a confidential and responsible manner.” Id. (citations omitted). But “it is quite mistaken to assume . . . that whatever might appear to further [a] statute’s primary objective must be the law.” Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1725, 198 L. Ed. 2d 177 (2017) (internal quotation marks omitted). Rather than “presume” that “any result consistent with [a party’s] account of the statute’s overarching goal must be the law,” we must “presume more modestly instead that the legislature says what it means and means what it says.” Id. (internal quotation marks and alterations omitted); see also United States v. Albertini, 472 U.S. 675, 680, 105 S. Ct. 2897, 86 L. Ed. 2d 536 (1985) (interpreting a statute “must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose” quoting Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194, 105 S. Ct. 658, 83 L. Ed. 2d 582 (1985)). Under the plain meaning of the statute, even if Fannie Mae engages in assembling or evaluating consumer information, it does not do so for the purpose of furnishing a consumer report to lenders.  Aspects of FCRA‘s statutory scheme suggest that Congress intended to exclude Fannie Mae from the definition of consumer reporting agency. See King v. Burwell, 135 S. Ct. 2480, 2496, 192 L. Ed. 2d 483 (2015) (“A fair reading of legislation demands a fair understanding of the legislative plan”).  FCRA imposes several duties on consumer reporting agencies, one of which is to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. 15 U.S.C. § 1681e(b). The Zabriskies contend that Fannie Mae violated this duty.  If we were to hold that Fannie Mae is a consumer reporting agency, it would be required to comply with the other FCRA duties to borrowers. Indeed, FCRA also requires consumer reporting agencies to provide a variety of disclosures to consumers. See, e.g., id. § 1681g(a) (duty to disclose information in the consumer’s file and the source of that information upon request); id. § 1681g(c)(2) (duty to provide a summary of rights with respect to any written disclosure made as required by FCRA); id. § 1681h(c) (duty to provide trained personnel to explain to the consumer any information given to him). That interpretation would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves. See 12 U.S.C. §§ 1716, 1719. FCRA itself appears to make a distinction between Fannie Mae and consumer reporting agencies. See 15 U.S.C. § 1681g(g)(1)(B)(ii) (stating that a mortgage lender should disclose a credit score generated by Fannie Mae using the procedures applicable to credit scores not obtained from consumer reporting agencies).  . . . We hold that Fannie Mae is not a consumer reporting agency because, even if it assembles or evaluates consumer information through DU, it does not do so for the purpose of furnishing consumer reports to third parties. Accordingly, the district court erred by granting the Zabriskies’ motion for summary judgment and by denying Fannie Mae’s cross-motion on this issue.