In Zabriskie v. Federal National Mortgage Association, 912 F.3d 1192 (9th Cir. Jan. 9, 2019) the Ninth Circuit reversed an Arizona district court’s ruling that Fannie Mae was a “consumer reporting agency” within the meaning of the FCRA.
Fannie Mae is a government-sponsored entity created by Congress in 1938. Its mission is to provide liquidity and stability in the secondary market for residential mortgages. To fulfill its mission, Fannie Mae purchases mortgage loans from certain lenders. Specific guidelines and requirements, contained 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 they originate, known as manual underwriting. Lenders also have the option to automate the underwriting process through Fannie Mae’s proprietary software.
The consumers brought action against Fannie Mae under FCRA, alleging that errors in Fannie Mae’s underwriting software resulted in their inability to secure refinancing for their homes and increased costs they incurred as a result of the delay. The district court ruled that Fannie Mae had acted as a “consumer reported agency” within the meaning of the FCRA.
The FCRA defines a consumer reporting agency as “any person which…(1) regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers (2) for the purpose of furnishing consumer reports to third parties.” On appeal, Fannie Mae argued that it did not “engage” because it merely provided software that allows lenders to assemble or evaluate such information.
As a matter of first impression, the Ninth Circuit applied the plain meaning of the statute holding that by licensing its proprietary software to lenders, Fannie Mae did not regularly engage in the practice of assembling or evaluating consumer information for it to qualify as a consumer reporting agency under FCRA. Even if Fannie Mae were assembling or evaluating consumer information through its proprietary software, it did not do so for the purpose of furnishing consumer reports to third parties, as required for it to be a consumer reporting agency under the FCRA.
The Ninth Circuit also found that aspects of the FCRA’s statutory scheme suggest that Congress intended to exclude Fannie Mae from the definition of a consumer reporting agency. For example, the FCRA requires consumer reporting agencies to provide a variety of disclosures to consumers. But Fannie Mae was intended to operate only in the secondary mortgage market, i.e., to deal directly with lenders, and not with borrowers themselves. “Indeed, the FCRA itself appears to make a distinction between Fannie Mae and consumer reporting agencies.”Download Related Document