Monday, September 10, 2007

mortgage insurance - Fair Credit Reporting Act - adverse action notice

Whitfield v. Radian Guaranty, Inc. - Third Circuit - August 30, 2007

Because of the poor credit history of Plaintiffs-borrowers, the Lender (Countrywide Home Mortgage) agreed to give them a mortgage for most of purchase price, on condition that they pay for mortgage insurance. The Lender arranged for mortgage insurance from defendant-insurer for $905/month (!), based on the loan-to-value and the consumers' credit score. Defendant conceded that the insurance premium would have been lower if the borrowers' credit score had been higher. Defendant-insurer did not send an adverse action notice to plaintiffs, according to their policy of not doing so when insurance is approved.

Plaintiffs sued, claiming that an adverse action notice was required under the Fair Credit Reporting Act, 15 USC sec.1681m(a)., since they paid more than the lowest insurance rate due to an adverse credit report. The FCRA requires that a user of information from a credit report takes any adverse action against an individual, that the user shall notice the individual of the adverse action, 15 USC 1681m(a).

Based in part on Safeco Insurance Co. b. Burr, 127 S.Ct. 2201 (2007), the court held that

a) an initial premium/first-time rate could be considered an increase in a charge for insurance for purpose of the adverse action notice requirement of the FCRA, and

b) privity of contract between the insurer and consumer-borrower is not a requirement of the FCRA