On January 9, 2019, a divided three-judge panel of the Ninth Circuit held that the Federal National Mortgage Association, or Fannie Mae, is not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act (the “FCRA”). The case, Zabriskie v. Federal National Mortgage Association, was brought by prospective borrowers who were unable to refinance their current mortgage loans due to allegedly erroneous information in their credit histories, as reported by Fannie Mae software that is commonly used by mortgage lenders.
Mortgage lenders typically use proprietary underwriting software licensed from Fannie Mae to determine whether a prospective loan will be eligible for purchase by Fannie Mae on the secondary mortgage market. Lenders input a prospective borrower’s information, as well as information from credit bureaus, into the software to determine the prospective loan’s eligibility. The Zabriskies alleged that the output report from this software erroneously indicated that the Zabriskies had experienced a recent foreclosure (when in reality they had experienced a short sale), and thus, a loan to the Zabriskies would not be eligible for purchase by Fannie Mae. The Zabriskies sued on the theory that Fannie Mae was a consumer reporting agency under the FCRA, and that Fannie Mae had breached its statutory duty to ensure accurate consumer information on its consumer reports.
Reversing the district court below, the Ninth Circuit panel held that Fannie Mae does not satisfy either prong of the statutory definition of “consumer reporting agency.” First, the panel held that Fannie Mae’s provision of underwriting software to mortgage lenders does not amount to the “practice of assembling or evaluating” consumer credit information; rather, lenders input information from third parties (including credit bureaus) into Fannie Mae’s software tool. Second, the panel held that Fannie Mae’s purpose is not to furnish consumer reports to third parties; rather, the purpose of Fannie Mae’s software tool is to facilitate Fannie Mae’s transactions with lenders on the secondary mortgage market. The panel stated that its conclusions were buttressed by the fact that Congress clearly intended Fannie Mae to operate only within the secondary mortgage market, and not deal directly with borrowers, or owe any duties to borrowers.
One judge on the Ninth Circuit panel dissented. Judge Lasnik would have held that because Fannie Mae’s software works by translating data from credit bureaus (which in this case resulted in the Zabriskies’ short sale being reported as a foreclosure), Fannie Mae has met the requirements to be considered a consumer reporting agency. In addition, Judge Lasnik stated that Fannie Mae is not merely a software provider, but rather that Fannie Mae’s purpose is to obtain consumer credit information and generate a lending recommendation. Finally, Judge Lasnik cited to an unpublished Ninth Circuit order from 2017, in which the court suggested that Fannie Mae was a consumer reporting agency subject to the FCRA.