Opinion
Case No.19-cv-01082-JSC
2019-05-06
Jeffrey CHEN, Plaintiff, v. CHASE BANK USA, N.A., Defendant.
Dominic R. Valerian, Ray Edwin Gallo, Gallo LLP, Albany, CA, Alexander Darr, Darr Law LLC, Columbus, OH, for Plaintiff. Andrew J. Soukup, Pro Hac Vice, Covington and Burling LLP, Washington, DC, David M. Jolley, Matthew Quinn Verdin, Covington & Burling, San Francisco, CA, Eric C. Bosset, Pro Hac Vice, Covington, DC, DC, for Defendant.
Dominic R. Valerian, Ray Edwin Gallo, Gallo LLP, Albany, CA, Alexander Darr, Darr Law LLC, Columbus, OH, for Plaintiff.
Andrew J. Soukup, Pro Hac Vice, Covington and Burling LLP, Washington, DC, David M. Jolley, Matthew Quinn Verdin, Covington & Burling, San Francisco, CA, Eric C. Bosset, Pro Hac Vice, Covington, DC, DC, for Defendant.
ORDER RE: DEFENDANT'S MOTION TO DISMISS
Re: Dkt. No. 8
JACQUELINE SCOTT CORLEY, United States Magistrate Judge
In this putative class action, Jeffrey Chen alleges that when Chase Bank USA denied his credit card application, Chase failed to provide specific reasons for the adverse action as required by the Equal Credit Opportunity Act ("ECOA"). Defendant's motion to dismiss the complaint is now pending before the Court. (Dkt. No. 8.) Because Plaintiff has stated a plausible claim for violation of ECOA's notice provision, the Court DENIES Defendant's motion.
Both parties have consented to the jurisdiction of a magistrate judge pursuant to 28 U.S.C. § 636(c). (Dkt. Nos. 9 & 15.)
BACKGROUND
I. Factual Background
In 2018, Plaintiff applied for a credit card through Chase. (Dkt. No. 1 at ¶ 5. ) On September 19, 2018, Defendant sent Plaintiff a letter notifying him that his application was rejected. (Dkt. No. 1-1 at 13.) The letter cited Plaintiff's "[p]revious unsatisfactory relationship with this bank" as the only reason for denial. (Id. )
Record citations are to material in the Electronic Case File ("ECF"); pinpoint citations are to the ECF-generated page numbers at the top of the documents.
II. Procedural Background
Plaintiff filed the underlying complaint against Defendant in the Alameda County Superior Court. (Dkt. No. 1-1.) Plaintiff pleads a single cause of action under ECOA alleging that Chase's explanation for denying his application does not constitute a "specific reason" under ECOA's notice provision. (Dkt. No. 1-1 at ¶ 19). Plaintiff further alleges that the letter does not meet the Consumer Financial Protection Bureau's ("CFPB") requirement that it disclose Plaintiff's "right to a statement of specific reasons within 30 days" and that "the disclosure ... include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained." (Dkt. No. 1-1 at ¶ 22.) As to the putative class, Plaintiff alleges that Defendant "violated the ECOA in the same way against other persons similarly situated [by having received a letter with "previous unsatisfactory relationship with this bank" as the only reason for denying a credit application]." (Dkt. No. 1-1 at ¶ 23.)
Defendant removed the action to this Court based on federal question jurisdiction and filed the underlying motion to dismiss a week later. (Dkt. Nos. 1 & 8.) The motion is fully briefed, and the Court heard oral argument on April 25, 2019.
DISCUSSION
ECOA's notice provision requires creditors who deny a credit application to provide the applicant with "the specific reasons for the adverse action taken." 15 U.S.C. § 1691(d). Defendant advances two arguments for dismissal of Plaintiff's ECOA notice claim: (1) Plaintiff lacks statutory standing because he is not within the "zone of interests" protected by ECOA, and (2) Chase did not violate the ECOA notice provision as a matter of law.
I. Statutory Standing
Any creditor who fails to comply with ECOA's requirements shall be liable to an "aggrieved applicant" for actual or punitive damages, and an "aggrieved applicant" may obtain "such equitable and declaratory relief as is necessary to enforce" EOCA's requirements. 15 U.S.C. § 1691e(a) - (c). Citing Lexmark Int'l, Inc. v. Static Control Components, Inc. , 572 U.S. 118, 129, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014), Defendant argues that Plaintiff lacks statutory standing to sue under ECOA because he is not an "aggrieved applicant" given that he does not allege that Chase denied his credit application due to discrimination or that he was actually confused by Chase's statement of reason. To ascertain whether a plaintiff has statutory standing, the Court must determine whether the plaintiff's interests "fall within the zone of interests protected by the law invoked." Id. Courts determine whether a plaintiff is within the zone of interests "using traditional tools of statutory interpretation." Bank of Am. Corp. v. City of Miami, Fla. , ––– U.S. ––––, 137 S. Ct. 1296, 1303, 197 L.Ed.2d 678 (2017) (internal quotation marks and citation omitted).
A. Discrimination
Plaintiff need not allege that Defendant denied him credit due to unlawful discrimination to fall within ECOA's zone of interests. There are two different potential ECOA violations: claims for discrimination ( 15 U.S.C. § 1691(a) ) and claims for inadequate notice ( 15 U.S.C. § 1691(d) ). These are separate causes of action with their own elements. See, e.g., Green v. Central Mortgage Co. , 148 F. Supp. 3d 852, 879 (N.D. Cal. 2015) (distinguishing between discrimination claims under § 1691(a) - (c) and violations of procedure under § 1691(d) - (e) ); Davis v. U.S. Bancorp , 383 F.3d 761, 766 (8th Cir. 2004) (setting apart ECOA's procedural requirements for extending credit and communicating with applicants from "generalized prohibition of discrimination"); see also Vasquez v. Bank of Am., N.A. , 2013 WL 6001924 at *11 (N.D. Cal. Nov. 12, 2013) (noting that courts "have explicitly recognized that the ECOA's notice requirements are distinct from the prohibition against discrimination in lending").
As there is nothing in ECOA's notice provision that requires allegations of discrimination, ECOA notice claims do not require the plaintiff to plead and prove discrimination. See 15 U.S.C. § 1691(d) ; see also Jochum v. Pico Credit Corp. , 730 F.2d 1041, 1043 n.3 (5th Cir. 1984) (finding that although the plaintiffs had not alleged discrimination, they stated a "cognizable claim" if they could prove that the creditor "failed to comply with the separate and independent notification requirements of § 1691(d)"); Perryman v. JP Morgan Chase Bank, N.A. , 2016 WL 4441210 at *7 (E.D. Cal. 2016) (holding that discrimination pleading requirements are "applicable to an ECOA claim only to the extent that there is an allegation of discrimination"); Banks v. JP Morgan Chase Bank, N.A. , 2015 WL 2215220, at *5 (C.D. Cal. May 11, 2015) (holding that the elements of an ECOA notice claim do not include "borrower's membership in a protected class"); Sayers v. General Motors Acceptance Corp. , 522 F. Supp. 835, 840 (W.D. Mo. 1981) ("If a creditor fails to satisfy these [notification] requirements, he is in violation of the ECOA, regardless of whether he is engaged in any prohibited discriminatory action."); Green , 148 F. Supp. 3d at 879 (finding that "[t]he defendants' argument does not distinguish between violations of ECOA's discrimination provisions and violations of ECOA's procedural requirements" and "ECOA's procedural requirements apply regardless of whether the [discrimination elements] have been satisfied").
These separate causes of action are consistent with ECOA's twin purposes of anti-discrimination and borrower education. See Fischl v. General Motors Acceptance Corp. , 708 F.2d 143, 146 (5th Cir. 1983) (noting that ECOA has "the twin goals of consumer protection and education"); see also Brothers v. First Leasing , 724 F.2d 789, 793 (9th Cir. 1984) (Courts "must construe the literal language in light of the clear, strong purpose evidenced by the [Equal Credit Opportunity] Act and adopt an interpretation that will serve to effectuate that purpose"). ECOA was enacted in 1974, providing that "it shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction" on the basis of specific classifications. 15 U.S.C. § 1691. ECOA's notice requirement, § 1691(d), was added by amendment in 1976 along with protections based on race, color, and national origin that supplemented ECOA's existing sex and gender protections. Pub. L. No. 94-239 (1976).
ECOA's original purpose is "to require that financial institutions and other firms engaged in the extension of credit make that credit equally available to all credit-worthy customers without regard to [the protected classifications]." Pub. L. 93-295, § 502 (1974). In enacting the 1976 amendments, Congress viewed the new "requirement that creditors give reasons for adverse action" as fulfilling a separate educational or informational goal as well:
"[It is a] strong and necessary adjunct to the anti-discrimination 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 benefits. 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."
Fischl , 708 F.2d at 146 (quoting S. Rep. No. 94-589, 94th Congress) (emphasis added). Congress's intent to provide "valuable educational benefits" through ECOA's notice requirement therefore operates alongside and in conjunction with ECOA's original anti-discrimination goal. See id. Thus, a plaintiff need not allege that he was discriminated against to fall within section 1691(d)'s zone of interests and qualify as an "aggrieved person" eligible to bring an ECOA notice claim.
The district court cases on which Defendant relies— Harvey and Saterbak —are unpersuasive as they did not address the lack of any discrimination element in ECOA's notice provisions, ECOA's explicit twin purposes of discrimination and education, or the authority holding that discrimination need not be alleged to state an ECOA notice claim. Harvey v. Bank of Am. , 906 F. Supp. 2d 982, 991-92 (N.D. Cal. 2012) ; Saterbak v. Nat'l Default Servicing Corp. , 2015 WL 5794560 (S.D. Cal. Oct. 1, 2015).
Defendant's emphasis on two of ECOA's 1976 amendments to support its argument that an ECOA aggrieved person must allege discrimination is likewise unpersuasive. The first amendment grants the Attorney General authority to "bring a civil action ..." whenever "he has reason to believe that one or more creditors are engaged in a pattern or practice in violation of this subchapter." 15 U.S.C. § 1691e(h). The second modifies the statute of limitations by providing an exception to the 5-year limit for "any applicant who has been a victim of the discrimination which is the subject of such proceeding or civil action" where there is administrative or Attorney General enforcement already. 15 U.S.C. § 1691e(f). Defendant argues that the "educational goal" of ECOA is merely "incidental to the notice provision's purpose of preventing discrimination by creditors," (Dkt. No. 8 at 13), and that therefore the only inference that can be drawn from the addition of the two provisions is that Congress meant to prioritize anti-discrimination. While with regard to § 1691e(h), Congress cited the Attorney General's "experience in the enforcement of other civil rights legislation" to help "achieve maximum compliance with the anti-discrimination policies of [ECOA]," Defendant does not identify anything in the legislative history that suggests the educational goal cannot coexist with the anti-discrimination goal. Likewise, § 1691e(f) does not evince an intent to erase ECOA's educational purpose; it merely reiterates the anti-discrimination purpose.
B. Confusion
In the alternative, Defendant insists that an aggrieved person bringing an ECOA notice claim must at least allege that he was actually confused by the creditor's statement of reasons to fall within the statute's zone of interests. The Court is not so sure. Congress's purpose in ensuring that all applicants are informed of the specific reasons for the denial of their credit applications might best be promoted by allowing any applicant who receives a vague statement of reasons to sue, even if for reasons other than the creditor's written reason the applicant believes he knows why the creditor denied the application. In any event, assuming, without deciding, that the "aggrieved applicant" must have been actually confused, the complaint, as pled, supports a plausible inference that Plaintiff did not know the true reason for Defendant's denial of his credit application and was thus confused. Plaintiff's allegation that "Defendant's explanation for the adverse action taken is not specific and does not accurately describe the factor(s) defendant considered in terminating Plaintiff's account," plausibly supports an inference that the reason Defendant gave was not specific enough to educate Plaintiff as to the true reason his application was denied. (Dkt. No. 1-1 at ¶ 21.) In the absence of other complaint allegations suggesting that Plaintiff knew through other means of communication more specifically why Defendant rejected his application, Plaintiff falls within the ECOA notice provision's "zone of interests."
* * *
Defendant's motion to dismiss based on statutory standing is denied. Defendant has failed to show as a matter of law that ECOA only provides a private right of action for notice claims where discrimination has also been alleged. Further, assuming, without deciding, ECOA requires that "aggrieved applicants" allege actual confusion, Plaintiff has plausibly alleged confusion by asserting that the notice he received was not specific enough to accurately notify him of the true reason for the denial of his application.
II. Stating an ECOA Notice Claim
Next, Defendant insists that even if Plaintiff has statutory standing, he has failed to allege an ECOA notice violation. ECOA requires creditors to provide a written "statement of reasons" for any "adverse action" taken against credit applicants, and that notice must "contain[ ] the specific reasons for the adverse action taken." 15 U.S.C. 1691(d)(2)-(3). The regulations that implement ECOA provide that the notice "must be specific and indicate the principal reason(s) for the adverse action." 12 C.F.R. § 1002.9(b)(2) (Regulation B).
While Defendant does not dispute that Chase is a "creditor" who took "adverse action" that triggers ECOA's notice requirement, it contends that its notice to Plaintiff was adequate because the specificity standard is "sensible and flexible" and therefore low. (Dkt. No. 8 at 10 ("The CFPB's Official Interpretation of Regulation B confirms that creditors can use a high level of generality to explain why an application was denied."); see also 12 C.F.R. § 1002, Supp. I ("A creditor need not describe how or why a factor adversely affected an applicant.").) In particular, Defendant argues:
The statement of reasons contained in Chase's September 19 Letter to Plaintiff easily satisfies the ECOA's "sensible and flexible" notice provision. Plaintiff's application was denied after Chase closed four of his existing credit accounts due to the risk of future fraud. By informing Plaintiff that his application was denied due to his ‘[p]revious unsatisfactory relationship with this bank,’ Chase provided Plaintiff with notice that was ‘specific and indicate[d] the principal reason[ ] for the adverse action’ under the ECOA and Regulation B.
(Dkt. No. 8 at 10; see also Dkt. No. 20 at 7 ("Chase clearly informed Plaintiff that his ‘previous unsatisfactory relationship’ with the bank—which involved the closure of four previous accounts—was the reason for Chase's decision."). The fundamental problem with Chase's argument is that it relies on facts outside the complaint—Plaintiff's history with Chase—to support its contention that the reason given was sufficiently specific. See Lee v. City of Los Angeles , 250 F.3d 668, 688 (9th Cir. 2001) ("As a general rule, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion.") (internal quotation marks and citation omitted).
Defendant's insistence that its reason was adequate as a matter of law because it is similar to the approved samples in Appendix C to Regulation B also fails to persuade. Chase's explanation—"previous unsatisfactory relationship"—is more similar to prohibited examples than it is to approved ones. Regulation B provides that "statements that the adverse action was based on a creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's scoring system are insufficient." 12 C.F.R. § 1002.9(b)(2). Each of these two examples—internal standards and scoring systems—appeals to a metric of which credit applicants would have no knowledge. Each is thus insufficient because, to use Defendant's language, "it provides no guidance as to what standard or policy the creditor considered, thereby leaving the applicant clueless as to why they were denied." (Dkt. No. 8 at 10-11.) Similarly here, Chase's explanation alone gives Plaintiff no guidance as to what about his "relationship" with Chase—his credit performance, his correspondence, or the length of it, among other reasons—was so "unsatisfactory."
The approved reasons in Appendix C of Regulation B identify specific issues that a creditor could work to improve or change, for example, "poor credit performance with us," "unable to verify income," "temporary or irregular employment," or "credit application incomplete." See 12 C.F.R. § 1002, App. C ; but see id. (noting that the forms are "illustrative and may not be appropriate for all creditors"). "Previous unsatisfactory relationship" does not identify what aspect of that relationship—poor credit history, too many accounts, treatment of Chase's customer service agents, and so on—was unsatisfactory. Thus, Appendix C does not defeat Plaintiff's claim as a matter of law and Chase's motion to dismiss must be denied.
CONCLUSION
For the reasons stated above, the Court DENIES Defendant's motion to dismiss. Chase shall answer the complaint within 21 days of the date of this Order.
This Order disposes of Docket No. 8.