North Carolina UDAP Claim Preempted by FCRA

On October 29, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of false credit reporting claims made under Article 1 of the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), agreeing with the lower court that those claims were preempted by the Fair Credit Reporting Act (FCRA). Ross v. Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, No. 08-1851, 2010 WL 4261819 (4th Cir. Oct. 29, 2010). In Ross, plaintiff sued her mortgage servicer for false reporting of credit information in violation of FCRA and the NCUDTPA. Plaintiff, who was living in the property secured by the loan and making the loan payments, was not an obligor on the loan. Nonetheless, when the loan went into default, defendant reported negative credit information to credit reporting agencies (CRAs). The district court awarded summary judgment to the defendant, dismissing plaintiff’s FCRA claim on statute of limitations grounds, and plaintiff’s NCUDTPA claim on the basis of FCRA’s preemption provision, 15 U.S.C. § 1681t(b)(1)(F) ("No requirement or prohibition may be imposed under the laws of any State (1) with respect to any subject matter regulated under ... (F) section 1681s2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies...."). Plaintiff appealed the preemption ruling, and the Court of Appeals affirmed. According to the court, "[plaintiff’s] NCUDTPA claim ... runs into the teeth of the FCRA preemption provision. Her claim concerns [defendant’s] reporting of inaccurate credit information to CRAs, an area regulated in great detail under §§ 1681s-2(a)-(b)." The court also rejected plaintiff’s argument that her NCUDTPA claims fell under FCRA’s preemption exemption for claims based on "malice or willful intent to injure," finding that plaintiff did not provide sufficient proof of such malice or willful intent to injure. To the contrary, "[t]he record is replete with evidence that [defendant] made a regrettable but honest mistake and took action to remedy this error once [plaintiff] brought it to [defendant’s] attention." According to the court, "[b]anks make mistakes, which include errors in their records. And while we would hope that these errors could be held to a minimum and corrected the first time they are brought to the bank’s attention, the failure to do so does not necessarily constitute malice."