Introduction

The case of Howard Pittman vs. Experian Information Solutions, Inc., decided by the United States Court of Appeals for the Sixth Circuit on August 23, 2018 (901 F.3d 619), addresses critical issues surrounding the enforceability of Trial Modification Plans (TPPs) under the Fair Credit Reporting Act (FCRA) and breach of contract claims against mortgage servicers. Howard Pittman, the plaintiff, alleged that two mortgage servicers, iServe Servicing, Inc. and Servis One, Inc., dba BSI Financial Services, negligently and willfully violated FCRA provisions by inaccurately reporting his loan status, and additionally sued BSI for breach of contract.

The district court granted summary judgment in favor of the defendants, dismissing Pittman's FCRA and breach of contract claims. Upon appeal, Pittman challenged several judicial decisions, including the denial of his motions to amend the complaint and compel depositions, and the summary judgments granted to iServe and BSI.

Summary of the Judgment

The Sixth Circuit Court of Appeals evaluated Pittman's claims under the FCRA and breach of contract. The appellate court concluded that there were substantive issues of fact regarding whether iServe had entered into an enforceable agreement to permanently modify Pittman's loan and whether iServe and BSI failed to accurately report the status of Pittman's mortgage under the FCRA. Specifically, the court found that:

• The Trial Modification Plan (TPP) constituted a unilateral contract obligating iServe to offer a permanent loan modification upon Pittman's fulfillment of the TPP's conditions.
• There were genuine disputes regarding whether the TPP was properly reported to the credit reporting agencies, as required under the FCRA.
• Pittman's breach of contract claim against BSI was not barred because missing two payments did not constitute a substantial breach under Michigan law.

Consequently, the appellate court reversed parts of the district court's judgment and remanded the case for further proceedings to address these unresolved factual issues. However, the court upheld the district court's decisions to deny Pittman's motions to amend his complaint and to compel depositions of iServe representatives.

Analysis

Precedents Cited

The court extensively referenced prior cases to support its reasoning:

• SPENCE v. TRW, INC. (92 F.3d 380, 382 (6th Cir. 1996)) – Established that a showing of inaccuracy is essential for an FCRA claim.
• Wigod v. Wells Fargo Bank, N.A. (673 F.3d 547, 554 (7th Cir. 2012)) – Held that a TPP with conditions precedent constitutes an enforceable offer for permanent modification.
• Shaw v. Equifax Info. Sols., Inc. (204 F. Supp. 3d 956, 959 (E.D. Mich. 2016)) – Confirmed that inaccuracy is a critical element of an FCRA claim.
• Goss v. ABN Amro Mortg. Grp. (549 F. App'x 466, 471 (6th Cir. 2013)) – Found that a TPP without a promise to modify the loan does not satisfy FCRA requirements.
• Chrysler Int'l Corp. v. Cherokee Exp. Co. (134 F.3d 738, 742 (6th Cir. 1998)) – Discussed the standard for substantial breach of contract under Michigan law.

Legal Reasoning

The primary legal question revolved around whether the TPP entered into by Pittman constituted an enforceable modification of his loan and whether the servicers accurately reported his loan status in compliance with FCRA.

FCRA Claims: The court emphasized that under FCRA § 1681s-2(b), furnishers of credit information must ensure the accuracy and completeness of the information they report to credit reporting agencies. Pittman argued that the servicers failed to report the existence and compliance with the TPP, thereby inaccurately portraying his mortgage as delinquent.

The appellate court disagreed with the district court's conclusion that there was no reporting error. It found that:

• The TPP represented a unilateral contract obligating iServe to offer a permanent modification upon Pittman's compliance with the trial payments.
• The lack of a permanent modification agreement, despite Pittman's compliance, suggested that the servicers failed in their FCRA duties.
• Pittman's adherence to the TPP terms created a genuine dispute regarding the accuracy of the servicers' reporting practices.

Breach of Contract: Under Michigan law, a substantial breach is one that significantly impairs the contract's essence. The district court had previously held that Pittman's failure to make two mortgage payments constituted a substantial breach. However, the appellate court found this reasoning flawed, reasoning that missing two payments did not render BSI's performance impossible or effectively negate the original contract terms.

Impact

This judgment has significant implications for both consumers and mortgage servicers:

• Consumers are afforded greater protection under the FCRA, ensuring that servicers must accurately report mortgage statuses, especially when borrowers comply with modification agreements.
• Mortgage servicers must rigorously adhere to the terms of TPPs and other loan modification agreements to avoid potential FCRA violations.
• The decision clarifies that not all breaches of contract, especially minor ones like missing a couple of payments, bar plaintiffs from pursuing breach of contract claims.
• It underscores the necessity for servicers to maintain comprehensive and accurate records of loan modifications and to communicate these effectively to credit reporting agencies.

Consequently, this case reinforces accountability among financial institutions in their reporting practices and contractual obligations, thereby enhancing consumer rights in credit reporting contexts.

Complex Concepts Simplified

Trial Modification Plan (TPP)

A TPP is an agreement between a borrower and a loan servicer that allows the borrower to test a modified payment plan for a limited period. If the borrower successfully adheres to the modified payments during the trial period, the servicer agrees to make the modification permanent.

Fair Credit Reporting Act (FCRA)

The FCRA is a federal law designed to ensure the accuracy, fairness, and privacy of information in consumer credit reports. It imposes obligations on credit information furnisher entities (like mortgage servicers) to provide accurate and complete information to credit reporting agencies.

Summary Judgment

Summary judgment is a legal procedure where one party seeks to obtain a judgment without a full trial, arguing that there are no genuine disputes of material fact and that they are entitled to judgment as a matter of law.

Statute of Frauds

The Statute of Frauds requires certain types of contracts to be in writing and signed by the parties involved to be enforceable. In this case, it pertains to the requirement that loan modification agreements be in writing and signed by an authorized representative of the financial institution.

Substantial Breach of Contract

A substantial breach occurs when one party fails to perform a vital part of the contract, significantly undermining the contract's purpose and making further performance by the other party impossible or meaningless.

Conclusion

The appellate court's decision in Howard Pittman v. Experian Information Solutions, Inc. underscores the critical importance of accurate reporting under the FCRA and the enforceability of loan modification agreements when borrowers comply with their terms. By overturning parts of the district court's decision, the Sixth Circuit has reinforced consumer protections against inaccurate credit reporting and clarified the standards for what constitutes a substantial breach in contractual agreements.

Moving forward, mortgage servicers must exercise diligence in documenting and reporting loan modifications to credit agencies to avoid FCRA violations. Additionally, consumers should be aware of their rights and the enforceability of modification agreements, ensuring that their compliance with such agreements is accurately reflected in their credit reports.

This judgment serves as a pivotal reference point for future cases involving credit reporting inaccuracies and contract breaches in the mortgage servicing domain, promoting fairness and accountability within the financial industry.