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Calif. App. Court (4th Dist) Allows CCRAA Plaintiff to Inquire Into Acceptance Rates of ‘Firm Offer of Credit’ Campaigns

The Court of Appeal for the State of California, Fourth Appellate District, recently held that a trial court improperly denied a consumer’s motion to compel an answer to the consumer’s special interrogatory, as the interrogatory was relevant to create a reasonable inference which would have defeated a lender’s motion for summary judgment.

More specifically, in this action for alleged violation of the “firm offer of credit” provisions of the California Consumer Reporting Agencies Act (CCRAA), the consumer plaintiff propounded a special interrogatory asking the defendant lenders how many of the consumers who were mailed offers were actually given loans. 

A copy of the opinion in Sosa v. CashCall, Inc. is available at: Link to Opinion.

The defendant lenders, through a marketing and solicitation vendor, requested a broad list of anonymous consumers who met certain loan criteria from a credit reporting agency.  After the lenders screened the initial list, the credit reporting agency sent a second narrower list which included the consumers’ personal and credit information. The lenders used this information to mail loan offers to the targeted consumers.

One of the consumers who received a mailing filed a lawsuit alleging the lenders’ actions violated the CCRAA. (See § 1785.1 et seq.)

As you recall, the CCRAA provides procedures and prohibitions when accessing consumer information. Specifically, the CCRAA provides that, “[w]ithout a consumer’s consent, a potential lender may only access or obtain data from a consumer credit report when the expected credit transaction ‘involves a firm offer of credit to the consumer.’” (§ 1785.11, subd. (b).) A “firm offer of credit” is statutorily defined as “any offer of credit to a consumer that will be honored if, based on information in a consumer credit report on the consumer and other information bearing on the creditworthiness of the consumer, the consumer is determined to meet the criteria used to select the consumer for the offer.” (§ 1785.3, subd. (h).)

During the consumer’s lawsuit she filed a motion to compel a response to her special interrogatory asking the defendant lenders how many of the consumers who were mailed offers were actually given loans. The trial court denied the motion because it “is beyond the scope of relevant discovery (overbroad) as it does not pertain to the issue of whether a ‘firm offer of credit’ was extended to [the consumer].”

Thereafter, the defendant lenders filed a motion for summary judgment. The trial court found that “it is undisputed that [the lenders] mailed offers of credit to [the consumer] as a result of the soft inquir[ies] . . . made on [the consumer’s] credit. . . . Additionally, it is undisputed the offers of credit ‘contained a minimum loan amount, the range of potential interest rates, and an explanation of repayment terms.’ . . . The only reference to a possible denial of credit included within the offers, referred specifically to circumstances where [the consumer] no longer met the standards used to send out the offer.”

The trial court ruled “the evidence offered to dispute the instant motion for summary judgment is speculative and insufficient to support a finding” in the consumer’s favor, and granted the lenders’ motion for summary judgment.

The consumer appealed arguing the trial court erred in granting the lenders’ motion for summary judgment, in part based on its discovery ruling.

The Appellate Court first explained that in reviewing a motion for summary judgment “[t]he moving party bears the initial burden to make a prima facie showing that no triable issue of material fact exists. (Aguilar, supra, 25 Cal.4th at p. 843.) If this burden is met, the party opposing the motion bears the burden of showing the existence of disputed facts. (Ibid.) Courts “‘construe the moving party’s affidavits strictly, construe the opponent’s affidavits liberally, and resolve doubts about the propriety of granting the motion in favor of the party opposing it.’” (Seo v. All-Makes Overhead Doors (2002) 97 Cal.App.4th 1193, 1201-1202, italics added.)

The Appellate Court next examined the California Consumer Reporting Agencies Act, noting that “[t]o determine whether the offer of credit comports with the statutory definition, a court must consider the entire offer and the effect of all the material conditions that comprise the credit product in question. If, after examining the entire context, the court determines that the ‘offer’ was a guise for solicitation rather than a legitimate credit product, the communication cannot be considered a firm offer of credit.” (Cole v. U.S. Capital Inc. (7th Cir. 2004) 389 F.3d 719, 727-728 (Cole).)4 “To decide whether [a lender] has adhered to the statute, a court need only determine whether the four corners of the offer satisfy the statutory definition (as elaborated in Cole), and whether the terms are honored when consumers accept.” (Murray v. GMAC Mortg. Corp. (7th Cir. 2006) 434 F.3d 948, 956 (Murray), italics added.)

The Appellate Court identified the triable issue of material fact as the second part of the test for a “firm offer of credit” — the lenders’ intent.  The lenders’ intent involved a determination of whether the lenders would have honored the proposed loan terms had the consumer accepted them, in other words, whether the lenders’ mailings were legitimate credit products, or merely guises for solicitation.

The lenders asserted, supported by the affidavits of the lenders’ marketing vendor, that each prescreening inquiry into the consumer’s credit was done for the sole purpose of extending a firm offer of credit.

The consumer responded that the lenders “did not provide a declaration from anyone . . . who expressly stated that all qualified acceptances would have been honored. In fact, there is no declaration from anyone . . . stating whether the lenders actually did grant loans or intended to grant loans to all qualified recipients who accepted the offer.”

The consumer supported her argument by pointing out that a jury is instructed: “You may consider the ability of each party to provide evidence. If a party provided weaker evidence when it could have provided stronger evidence, you may distrust the weaker evidence.”

Furthermore, based on the hundreds of thousands of loan offers that the lenders mailed to the consumers: “Several inferences arise from these facts. Maybe [the lenders] knew the response rate would be extremely low and they would be able to fund loans to all ‘takers.’ But a contrary inference is that [the lenders] intended to use the credit pulls to identify many suitable candidates for loans while only extending loans to the ‘cream of the crop’ of the responders.” (See Veera v. Banana Republic, LLC (2016) 6 Cal.App.5th 907, 921 [“‘“bait and switch” is a form of false advertising in which advertisements may not be bona fide because what the merchant intends to sell is significantly different from that which drew the potential customer in’”].)

The lenders argued “it was incumbent on [the consumer] to offer some evidence to show that either (1) she applied for a loan from [the lenders] after receiving their offers of credit and was denied a loan despite meeting [the lenders’] credit criteria, or (2) she responded to [the lenders’] offers of credit and was diverted into some other . . . business dealing (e.g., not a personal loan).”

The Appellate Court agreed with the consumer, acknowledging that the consumer’s disputed interrogatory would have provided relevant evidence that may have tended to prove (or disprove) her cause of action.

In so ruling, the Court noted that “‘[r]elevant evidence’ means evidence, including evidence relevant to the credibility of a witness . . . , having any tendency in reason to prove or disprove any disputed fact that is of consequence to the determination of the action.” (Evid. Code, § 210.) Generally, a party’s intent is proven by circumstantial evidence. (Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 368.)

Here, the Appellate Court held that the lenders did not meet their initial burden as “it is arguably a reasonable inference that the lenders intended to honor the advertised loans if the consumers had accepted the proposed loan terms. But given the hundreds of thousands of mailed loan offers, and the complete absence of evidence regarding whether any of the loan offers were actually honored (compounded by the court’s erroneous discovery ruling), it is also a reasonable inference that the thousands of loan offers were not, in fact, firm offers of credit.”

The Appellate Court recited that when there is a reasonable inference that is contradicted by another reasonable inference, the motion for summary judgment “shall not be granted.”  Accordingly, the trial court’s judgment was reversed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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