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Hussey-Head v. World Savings reiterates the importance to lenders in maintaining accurate credit reporting mechanisms. It also highlights the importance of investigating and verifying the legitimacy of a borrower's claim that the lender has disseminated erroneous credit information. Improper credit reporting can open a creditor up to significant liability under the CCRAA, including injunctive relief, actual damages, punitive damages, emotional distress damages, and attorneys' fees.

This case also clarifies that federal preemption is not a defense in cases involving statutory violations for conduct that is voluntarily undertaken by a lender. Instead, the doctrine is limited to conduct arising from ordinary and necessary lending activities, such as the origination, servicing or maintenance of the loan.

Although not argued in this case, World Savings could have argued that the CCRAA was preempted by the Federal Fair Credit Reporting Act ("FCRA").7 Although not applicable in every case, the FCRA may preempt certain aspects of the CCRAA. For example, the FCRA imposes a procedural hurdle that is not found in the State statutory scheme. Specifically, in order to maintain a private cause of action, a plaintiff/consumer must first show that he notified the credit-reporting agency first, who then notified the furnisher of the allegedly erroneous credit information, which then had an opportunity to investigate and correct the offending information, if necessary.8

Using the federal standard, we have successfully argued that a CCRAA claim is barred unless the plaintiff followed the additional procedural hurdle required by the FCRA, i.e., notifying the credit-reporting agency of the error first. Since plaintiff's seldom notify the credit-reporting agency first, this is a successful weapon in defeating both the federal and state claim.

Jonathan M. Zak is a partner at Wright, Finlay & Zak, specializing in lender representation in mortgage-related litigation. Stefan S. Lawrence is an associate at Wright, Finlay & Zak, specializing in retail bank representation. ________________________________________________________

1 Cal. Civ. Code §1785.1 et seq.
2 Cal. Civ. Code §1785.25(a).
3 Cal. Civ. Code §1785.26(b).
4 Cal. Civ. Code §1785.31 et seq.
5 Equifax, Experian, and Trans Union.
6 12 C.F.R. §560.2.
7 15 U.S.C. §1681s et seq.
8 15 U.S.C. §1681s-2(d); see also Young v. Equifax Credit Info Servs., Inc., 294 F.3d 631 2002 WL 1277584 at fn. 7 (5th Cir. 2002) .

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