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KARWO v. CITIMORTGAGE

DAVID KARWO, Plaintiff,
v.
CITIMORTGAGE, INC., and GENERAL ELECTRIC MORTGAGE INSURANCE CORPORATION, Defendants.



The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Plaintiff David Karwo (hereinafter, "Karwo") filed suit against Defendants CitiMortgage, Inc. (hereinafter, "CitiMortgage") and General Electric Mortgage Insurance Corp. (hereinafter, "General Electric"), claiming that they violated the Fair Credit Reporting Act (the "FCRA"), 15 U.S.C. §§ 1681-1681x (2000). Specifically, Karwo claims that CitiMortgage failed to provide him with the requisite "adverse action notice" when he was charged a premium for mortgage insurance that purportedly was higher than the lowest rate available. The FRCA provides for civil liability for willful and negligent noncompliance. See 15 U.S.C. §§ 1681n-1681o. In addition, Karwo brings suit against General Electric on behalf of a class of persons in the United States with respect to whom General Electric made underwriting decisions for private mortgage insurance within the two-year statute of limitations set forth in the FRCA. See 15 U.S.C. § 1681p. Karwo also brings suit against CitiMortgage on behalf of a class of persons to whom CitiMortgage charged private mortgage insurance premiums.

  CitiMortgage has moved to dismiss Karwo's claim against it for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. CitiMortgage argues that Karwo fails to state a claim because (1) quoting a premium that is higher than the absolute lowest available premium cannot be an adverse action, and (2) CitiMortgage is not an insurer, and thus does not fall under the purview of the statute. For the following reasons, the Court denies CitiMortgage's motion to dismiss.

  II. FACTUAL BACKGROUND

  In 2003, Karwo sought a home mortgage loan from CitiMortgage. On or about December 18, 2003, Karwo received a mortgage commitment letter from CitiMortgage outlining the terms of the loan contract. This letter stated that CitiMortgage required and would obtain private mortgage insurance ("PMI") to protect CitiMortgage in case Karwo defaulted on the loan. On January 15, 2004, CitiMortgage obtained PMI from General Electric and notified Karwo that he would be responsible for the monthly premiums totaling $243.73. Karwo closed the loan on the following day.

  The crux of Karwo's complaint is that he (and other similarly situated individuals) did not receive the lowest premium available for PMI as a result of information contained in consumer credit reports. According to Karwo, this higher premium constituted an adverse action under the FCRA, 15 U.S.C. § 1681m(a), which required Defendants to provide the statutorily-required notice.

  III. DISCUSSION

  The FCRA requires that those taking adverse actions based on information contained in a consumer credit report notify the consumer affected of the following: (1) the adverse action taken, (2) contact information for the consumer reporting agency, and (3) consumer rights under the FCRA to obtain a free copy of the credit report and dispute the accuracy or completeness of the information contained in the report. See 15 U.S.C. § 1681m(a).

  A. Definition of "Adverse Action"

  Under the FCRA, the term "adverse action" includes "an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance." 15 U.S.C. § 1681a(k)(1)(B)(i). CitiMortgage contends that Karwo's claim fails because setting an initial charge for insurance at a rate greater than the lowest available does not constitute an adverse action under the FCRA. Specifically, CitiMortgage argues that "an increase in any charge for" insurance necessarily requires that there first be an initial premium set and then there must be a subsequent increase in premium to constitute an "adverse action" under Section 1681a(k)(1)(B)(i).

  CitiMortgage's position finds support in two District Court cases from Oregon, decided by the same judge, holding that the initial setting of insurance premiums at a rate higher than the standard one is not an adverse action because it entails neither the increase in the premium nor the change in the insurance terms specified in Section 1681a(k)(1)(B)(i). See Rausch v. Hartford Fin. Servs. Group, Inc., 2003 WL 22722061, at *2 (D. Or. 2003); Mark v. Valley Ins. Co., 275 F. Supp.2d 1307, 1315-17 (D. Or. 2003). The reasoning of these cases is essentially that "an insurer cannot `increase' a charge for insurance unless the insurer makes an initial demand for payment to the insured and subsequently increases the amount of the demand" Id. Furthermore, "an insurer cannot . . . `unfavorably or adversely change' the terms of insurance unless such terms previously existed and the insurer subsequently alters those terms in an unfavorable manner." Rausch, 2003 WL 22722061, at *2; accord Mark, 275 F. Supp.2d at 1315-17. Rausch and Mark, of course, are not controlling authority here, although there is some persuasive force to the reasoning in these opinions. The Seventh Circuit, however, has not yet addressed the meaning of the term "increase" under these particular facts. As an initial matter, the Court notes that the plain language meaning of "increase," in the context of Section 1681a(k)(1)(B)(i), does not necessarily imply that an "increase" must be solely in comparison to an initial premium paid by the consumer, rather than in comparison to the "normal" or "customary" premium that a similarly-situated consumer — without an adverse credit report — would pay. In other words, can it fairly be said that a consumer who is offered a higher-than-usual initial PMI premium because of his reported credit history has not suffered an "increase in any charge for" insurance? 15 U.S.C. § 1681a(k)(1)(B)(i). The Sixth Circuit, at least, thinks not; it has referred to a situation where a credit customer is charged more for an automobile than a cash customer as "an increase in . . . price." Cornist v. B.J.T. Auto Sales, Inc., 272 F.3d 322, 327 (6th Cir. 2001). (Although CitiMortgage contends that the meaning of "increase" in Cornist does not apply here because Cornist did not involve the FCRA, nothing in the FCRA suggests that a different definition of "increase" applies to it.)

  In any event, the Court does not need to engage in a full-scale analysis of the meaning of "increase" within the statutory scheme here because there is another provision for "adverse action" that allows Karow's complaint to survive CitiMortgage's motion. See Section 1681a (k) (1) (B) (iv). (For this same reason, the Court does not need to address the impact, if any, of the ...


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