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FCRA Class Action Defense Cases–Cavin v. Home Loan Center: Seventh Circuit Affirms Summary Judgment In Favor Of Defense In FCRA Class Action Holding Letters Sent To Class Action Plaintiffs Constituted Firm Offers Of Credit

District Court Properly Granted Defense Motion for Summary Judgment in Class Action Alleging Violations of Fair Credit Reporting Act (FCRA) because Mailer need not Contain Every Material Loan Term and because Offer may be Conditioned on Additional Information such as Verification of Employment and Income Seventh Circuit Holds

Plaintiffs filed a class action complaint against Home Loan Center, doing business as HomeLoanCenter.com, alleging violations of the federal Fair Credit Reporting Act (FCRA); specifically, the class action alleged that Home Loan Center sent them a mailer for a “SmartLoan mortgage program” but that the mailer was not a “firm offer of credit” and therefore violated the FCRA. Cavin v. Home Loan Center, Inc., ___ F.3d ___ (7th Cir. July 2, 2008) [Slip Opn., at 1]. The letters referenced in the class action were sent “to thousands of Illinois residents” and stated that the recipient had been “pre-approved to receive HomeLoanCenter.com’s exclusive SmartLoan program.” Id., at 2. The mailers contained a box with the figures of 1.00%/4.27%, adjacent to two columns that listed various monthly payments for various loan amounts. Id. The letters stated that no fees would be charged to get the loan process started, and that defendant could “prequalify [the recipient] right over the phone in minutes and provide [the recipient] with a customized loan program that suits [the recipient’s] needs.” Id. The letter also provided, “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., at 2-3. The mailers stated that not all applicants would be approved and reiterated that terms and conditions applied to the offer, id., at 3. The parties filed cross-motions for summary judgment; the district court agreed with defense attorneys that the mailers did not violate the FCRA and accordingly entered judgment in favor of defendant. Id., at 1-2. The Seventh Circuit affirmed.

The FCRA permits a finance company to obtain an individual’s credit report, but “the company needs to obtain it with the intent of extending a firm offer of credit to the potential customer.” Cavin, at 4 (citing 15 U.S.C. § 1681b(c)(1)(B)(I)). 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 consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer except that the offer may be further conditioned…” 15 U.S.C. § 1681a(l). In this case, class action plaintiffs argued that defendant accessed their credit information “without a permissible purpose” because the mailers sent to them and other members of the putative class did not constitute a firm offer of credit within the meaning of the FCRA. Id., at 3-4. Specifically, plaintiffs argued that material terms of the loan program were not disclosed and/or were not adequately explained, id., at 5. The Seventh Circuit disagreed, explaining at page 5, “The mailer identified the basis for calculating interest, the length of the loan, the possibility of a rate change after thirty days, the minimum payment option with accompanying deferred interest, and the information needed to obtain the loan.” That is all that was required because the FCRA does not require the initial communication “‘contain all of the important terms that must be agreed on before credit is extended.’” Id., at 5 (citation omitted). On the contrary, requiring a financial institution to disclose all material terms would result in the mailer being more difficult for the consumer to understand. Id., at 5-6 (citation omitted). The Circuit Court explained that “the proper inquiry in ascertaining whether a letter is a firm offer is whether the offer will be honored, not whether all of the material terms are listed.” Id., at 6.

The Seventh Circuit rejected also plaintiffs’ argument that certain phrases in the mailers demonstrated that defendant was not extending a firm offer of credit; plaintiffs pointed to language such as “not all applicants will be approved,” “terms and conditions apply,” and “rates are subject to change without notice,” in support of this argument. Cavin, at 6. The Court noted, however, that the FCRA permits lenders “to condition the offer on the consumer’s eligibility for the loan based upon factors, such as verification of income and provision of collateral.” Id. (citing 15 U.S.C. § 1681a(1)(2)). The phrases highlighted by plaintiffs simply stated conditions permitted under the FCRA, id. Moreover, the FCRA permits lenders to require additional information, such has verification of employment and income, before extending credit. Id. Accordingly, the mailers sent by Home Loan Center constituted firm offers of credit and thus did not violate the FCRA. Id., at 9. The district court therefore did not err in ruling against class action plaintiffs and granting defendant’s motion for summary judgment. Id.

The author again thanks David Kanno for alerting us to this opinion.

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