United States: Lender's Requirement Of Dispute-Free Credit Report Does Not Violate ECOA

The Eastern District of Wisconsin issued a ruling dismissing an Equal Credit Opportunity Act case that asserted a novel claim regarding discrimination by a lender in requiring that the applicant remove disputes from his credit score before reviewing his application for a home equity loan. In Kolodzinski v. Pentagon Federal Credit Union, the Court granted PenFed's motion to dismiss with prejudice, holding that the plaintiff consumer had not exercised any right under the Consumer Credit Protection Act, Title 15, Chapter 41 of the U.S. Code.

Plaintiff John Kolodzinski applied for a home equity loan with PenFed. PenFed suspended the application when Kolodzinski's credit report revealed five disputes made on other accounts, informing him that it could not proceed unless the disputes were removed. Once Kolodzinski removed the disputes, his credit score dropped below the minimum threshold, and as a result his application was denied. He then filed suit for a violation of 15 U.S.C. § 1691(a)(3), which holds that it is unlawful for a creditor to discriminate against an applicant "because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act]." Kolodzinski contended that the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (which are both a part of the Consumer Credit Protection Act) give him the right to dispute an account. He contended that PenFed discriminated against him, in violation of ECOA, by requiring that he remove the disputes before proceeding with the application.

The Court found, however, that neither the FDCPA nor the FCRA confer on Kolodzinski a right to dispute debts; they simply ensure that any debts that he disputes are accurately reported. Additionally, the Court found that his theory was inconsistent with the purpose of ECOA, and its implementing Regulation B. Regulation B provides that "a creditor may restrict the types of credit history and credit references that it will consider, provided that the restrictions are applied to all credit applicants without regard to sex, marital status, or any other prohibited basis." 12 C.F.R. § Pt. 1002, Supp. I, cmt. to Paragraph 6(b)(6). PenFed elected to restrict the types of credit history it will consider to credit reports that are dispute free. Kolodzinski did not allege that PenFed's restriction was applied in a non-uniform way, and he therefore failed to establish that he was treated less favorably than any other applicant.

This case shows that the duties imposed on lenders by the FDCPA and the FCRA are not necessarily rights conferred on borrowers. Andrew Buxbaum, Sarah Warren Smith, and Ethan Ostroff of Troutman Sanders represented PenFed before the Eastern District of Wisconsin.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

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Authors
Andrew B. Buxbaum
Ethan G. Ostroff
 
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