Fischl v. General Motors Acceptance Corp.

• Decision Date: 27 June 1983
• Docket Number: No. 81-3611,81-3611
• Citation: 708 F.2d 143
• Parties: Terry S. FISCHL, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 143

708 F.2d 143

Terry S. FISCHL, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION, Defendant-Appellee.

No. 81-3611.

United States Court of Appeals, Fifth Circuit.

June 27, 1983.

Rehearing Denied Aug. 31, 1983.

Elliot G. Snellings, New Orleans, La., for plaintiff-appellant.

David L. Campbell, New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RUBIN, POLITZ and RANDALL, Circuit Judges.

POLITZ, Circuit Judge:

Terry Fischl sued General Motors Acceptance Corporation (GMAC), alleging that its failure to furnish specific reasons for denying him credit, and to disclose that this denial was predicated in whole or part on information derived from a credit reporting agency, violated the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Sec. 1691 et seq., Regulation B promulgated thereunder, 12 C.F.R. Sec. 202, and the Fair Credit Reporting Act (FCRA), 15 U.S.C. Sec. 1681 et seq. Following a bench trial, the district court entered judgment for GMAC. We reverse and remand.

Factual and Procedural Background

On September 27, 1980, Fischl applied in writing to O.E. Harring, Inc., a New Orleans automobile dealership, for credit covering $12,000 of the $15,000 purchase price of a 1980 BMW automobile. A Harring salesman referred Fischl's credit application to GMAC, communicating the information by telephone. After transcribing this information on an application form, GMAC employees contacted Credit Bureau Services, a local credit reporting service, and obtained a consumer report on Fischl.

Both the application and the consumer report reflected that Fischl, a 27 year-old single homeowner, made mortgage payments of $564.80 per month. Although he held two sales jobs and earned a total monthly income of approximately $4,000, the credit report erroneously referred to one position as past employment. Credit references listed on the application were VISA, MasterCharge, Diner's Club and General Electric Credit Corporation. The credit report disclosed that Fischl had achieved an A-1 credit rating on current accounts with two area retailers, the New Orleans Public Service, First Homestead, and VISA or MasterCharge. An account in good standing with Sears, Roebuck and Company was mistakenly described in the report as a credit inquiry.

After reviewing the application and report, Robert Bell, GMAC's credit supervisor, determined that Fischl's credit background was deficient in terms of duration and extent; specifically, there were no sustained monthly payments of an amount comparable to that required to finance the purchase of the BMW. ¹ Based on these factors, Bell decided that credit at the level requested should not be extended, a decision approved by Lester Robinson, Bell's immediate superior.

On October 3, 1980, Fischl received a form letter from GMAC advising that his application had been rejected and noting, as the reason therefor, that "credit references are insufficient." The portion of the form letter designed to disclose the creditor's use of information from outside sources was marked "disclosure inapplicable." That same day, Fischl secured a copy of his credit report from Credit Bureau Services which reflected GMAC's inquiry. In subsequent telephone conversations with Bell and Robinson, both of which he initiated, Fischl learned that GMAC had received a consumer report from a credit reporting service. During these conversations, more specific reasons for the denial of credit were advanced and the name and address of the credit bureau were given. Shortly thereafter, Fischl secured a $12,000 loan from an area bank at a lower rate of interest than that offered by GMAC.

Equal Credit Opportunity Act

The district court found that GMAC's adverse determination letter adequately informed Fischl of the basis for rejection of his credit application and, because the reason assigned therein was similar to one proposed in the Federal Reserve Board's (Board) model checklist, 12 C.F.R. Sec. 202.9(b)(2), that the creditor was insulated from liability under 15 U.S.C. Sec. 1691e(e). Fischl contends that the district court erred in holding that GMAC provided him with the specific reasons for credit denial mandated by 15 U.S.C. Secs. 1691(b)(2) and (3) and Regulation B, 12 C.F.R. Sec. 202.9. He argues that the reason cited in GMAC's adverse determination letter, "credit references are insufficient," does not afford notice of the actual grounds for the denial, to-wit, the brevity of his credit history and the excessiveness of the amount he wished to finance when measured against the size of his current credit obligations.

Originally enacted in 1974 to prohibit discrimination in credit transactions, the ECOA was amended in 1976 to require creditors to furnish written notice of the specific reasons for adverse action taken against a consumer. 15 U.S.C. Secs. 1691(d)(2) and (3). ² Verbal notice is appropriate only if the creditor processed less than 150 credit applications during the preceding calendar year. 15 U.S.C. Sec. 1691(d)(5). Perhaps the most significant of the 1976 amendments to the ECOA, these provisions were designed to fulfill the twin goals of consumer protection and education. As explained in the Senate report accompanying the 1976 amendments to the ECOA, Congress viewed the strict notice requirement as:

a strong and necessary adjunct to the antidiscrimination purpose of the legislation, for only if creditors know they must explain their decisions will they effectively be discouraged from discriminatory practices. Yet this requirement fulfills a broader need: rejected credit applicants will now be able to learn where and how their credit status is deficient and this information should have a pervasive and valuable educational benefit. Instead of being told only that they do not meet a particular creditor's standards, consumers particularly should benefit from knowing, for example, that the reason for the denial is their short residence in the area, or their recent change of employment, or their already over-extended financial situation. In those cases where the creditor may have acted on misinformation or inadequate information, the statement of reasons gives the applicant a chance to rectify the mistake.

S.Rep. No. 94-589, 94th Cong., 2d Sess., reprinted in 1976 U.S.Code Cong. & Admin.News, pp. 403, 406. ³

Exercising the implementing authority conferred by Congress, 15 U.S.C. Sec. 1691b, the Board substantially revised Regulation B to effectuate the 1976 amendments. Under Sec. 202.9(a)(2)(i) of the revised regulation, a creditor electing to provide a statement of reasons for denial or termination of credit in accordance with Sec. 1691(d)(2)(A) must apprise the applicant in writing of the specific reasons for its adverse action. Section 202.9(b)(2) reiterates the specificity requirement set forth in Sec. 1691(d)(3), dictates the inclusion of the "principal" reasons for adverse action, and advises creditors that completion of the model form contained therein assures compliance with Sec. 202.9(a)(2)(i). In its most recent interpretation of Sec. 202.9 of Regulation B, effective April 1, 1983, the Board opined that:

as a general principle the provisions of Regulation B [relating to disclosure of reasons for adverse action] apply equally to both judgmental and credit scoring systems of credit evaluation. The reasons for adverse action disclosed under Sec. 202.9(a)(2) and (b)(2) must relate to factors actually scored or considered by the creditor. The creditor must disclose the specific reason or reasons for adverse action.

12 C.F.R. Sec. 202.901(a). With respect to the proper use of the sample form outlined in Sec. 202.9(b)(2), the Board emphasized:

The sample form is illustrative and may not be appropriate for all creditors. It was designed to disclose those factors which creditors most commonly consider. Some of the reasons listed on the form could be misleading when compared to the factors actually scored. In such cases, it is improper to complete the form by simply checking the closest identifiable factor listed. For example, a creditor that considers only bank references (and disregards finance company references altogether) should disclose "insufficient bank references" (not "insufficient credit references"). Similarly, a creditor that considers bank references and other credit references as separate factors should treat the two factors separately in disclosing reasons. The creditor should either add those other factors to the form or check "other" and include the appropriate explanation. In providing reasons for adverse action, creditors need not describe how or why a factor adversely affected an applicant. For example, the notice may say "length of residence" rather than "too short a period of residence."

12 C.F.R. Sec. 202.901(f).

After considering the notice transmitted in light of the congressional language and purpose of Sec. 1691(d), together with the Board's rational interpretation thereof, see Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980); Whitfield v. Termplan, Inc., 651 F.2d 383 (5th Cir.1981), we find that GMAC's perfunctory reliance on the Board's sample checklist was manifestly inappropriate. While it resembles the category of "insufficient credit references" deemed acceptable by the Board, Sec. 202.9(b)(2), the reason for refusal of credit noted by GMAC, "credit references are insufficient," arguably communicates a different meaning. The Board's statement connotes quantitative inadequacy; that of GMAC implies some qualitative deficiency in Fischl's credit status. GMAC's statement does not signal the nature of that deficiency and, since the name and address of the credit bureau was not supplied, did not provide the mandated opportunity for the applicant to correct erroneous information.

Assuming, arguendo, that GMAC's phrase "credit references are insufficient"...