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USDC : CRED - preliminary injunction regarding mortgage-trigger law; likely preempted by Fair Credit Reporting Act

LORI SWANSON in her official capacity as
Attorney General of the State of Minnesota,
Case No. 07-CV-3376 (PJS/JJG)
A. James Chareq, HUDSON COOK, LLP; Lewis A. Remele, Jr., and Christopher R.
Morris, BASSFORD REMELE, PA, for plaintiff.
This matter is before the Court on the motion of plaintiff Consumer Data Industry
Association (CDIA) for a temporary restraining order. The Court heard argument on July 30,
2007, after CDIA filed both an opening and a reply brief and Swanson filed an opposition brief.
For the reasons that follow, the Court treats CDIAs motion as a motion for a preliminary
injunction and grants the motion.
Credit reporting is big business. Credit bureaus (also known as credit reporting
agencies and consumer reporting agencies) such as Equifax, Experian, and TransUnion
collect information about consumers credit experience and resell that information for various
purposes. Congress enacted the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681-1681x,
to govern the resale by credit bureaus of credit-related information about consumers.
As anyone with a mailbox knows, lenders are always looking for new customers. To
identify prospective customers, lenders sometimes purchase from credit bureaus lists of
prescreened consumers. For example, a lender may ask a credit bureau to generate a list of all
consumers who have a credit score exceeding a certain number and who live in a certain ZIP
code. See Finneran Decl. 3 [Docket No. 7]; Goerss Decl. 3 [Docket No. 8]; McCawley Decl.
3 [Docket No. 9]. Under the FCRA, a lender is permitted to buy and a credit bureau is
permitted to sell such a prescreened list under certain circumstances. See 15 U.S.C. 1681b.
In the past several years, mortgage lenders have become more active in using prescreened lists to
market their services to consumers. See Vasaly Decl. Exs. A-B [Docket No. 17].
This case involves the use by lenders of so-called mortgage-trigger lists. When a
consumer applies for a mortgage with a particular lender, that lender requests the consumers
credit report from one or more credit bureaus. The lenders request shows up in the consumers
credit report as an inquiry made by that lender. Competing mortgage lenders are naturally
interested in marketing their services to consumers who are actively shopping for a mortgage.
Credit bureaus have thus begun to sell lists of consumers whose credit reports reflect a recent
inquiry from a mortgage lender. In effect, the inquiry by the mortgage lender with whom the
consumer has applied for a mortgage triggers the placement of that consumers name on a list
(a mortgage-trigger list) that is then sold to competing mortgage lenders. See Finneran Decl.
4; Goerss Decl. 4; McCawley Decl. 4.
In May 2007, the Minnesota legislature passed a bill to amend Minnesota Statutes
13C.01 by adding subdivision 3, which forbids the sale of mortgage-trigger lists. See 2007
Minn. Sess. Law Serv. Ch. 105 (West). Subdivision 3 of Minnesota Statutes 13C.01 is
scheduled to take effect on August 1, 2007. CDIA moves for a temporary restraining order
forbidding the Minnesota Attorney General, defendant Lori Swanson, to enforce subdivision 3 of
13C.01. CDIA argues that the Minnesota law is preempted by the FCRA. Pl. Mem. Supp.
App. TRO at 15-17 (Pl. TRO Mem.) [Docket No. 4]. CDIA also argues that the Minnesota
law is unconstitutional because it violates the rights of CDIA members to free speech under the
First Amendment. Id. at 17-19.
In deciding whether to grant preliminary equitable relief, such as a temporary restraining
order or a preliminary injunction, this Court must consider four things:
1. The threat of irreparable harm to the movant if relief is denied;
2. The relative harm that the movant will suffer if relief is denied versus the harm
that the non-moving party will suffer if relief is granted.
3. The movants likelihood of success on the merits. And
4. The public interest.
See Dataphase Sys., Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981). Temporary
restraining orders are governed by Rule 65(b) of the Federal Rules of Civil Procedure, while
preliminary injunctions are governed by Rule 65(a).
CDIA argues that because it seeks only a temporary restraining order, the Court need not
apply the four Dataphase factors with the same degree of scrutiny that would be called for if
CDIA were moving for a preliminary injunction. Pl. TRO Mem. at 8. Both CDIA and Swanson,
however, have fully briefed the applicability of all four factors. Moreover, as a leading treatise
notes, a temporary restraining order that is granted after notice and a hearing . . . typically will
be treated as a preliminary injunction and will be appealable. 11A Charles Alan Wright et al.,
Federal Practice and Procedure 2962 (2d ed. 1995).
Although the briefing and hearing schedule in this case has been accelerated, the relevant
issues have been very well briefed and argued by each sides able counsel. Swanson concedes
that the key issue in this case is the likelihood that CDIA will succeed on the merits. Def. Mem.
Opp. Mot. TRO at 4 (Def. TRO Opp.) [Docket No. 16]. The Court needs no further facts and
no additional briefing to determine whether CDIA is, in fact, likely to succeed on the merits. For
that reason, and with the consent of the parties, the Court will treat CDIAs motion for a
temporary restraining order as a motion for a preliminary injunction.
The challenged Minnesota statute, subdivision 3 of 13C.01, provides in relevant part:
A consumer reporting agency . . . may not sell to, or exchange
with, a third party, unless the third party holds an existing
mortgage loan on the property, the existence of a credit inquiry
arising from a consumer mortgage loan application when the sale
or exchange is triggered by an inquiry made in response to an
application for credit.
2007 Minn. Sess. Law Serv. Ch. 105 (West). While the language, taken literally, is puzzling
how does someone sell . . . the existence of a credit inquiry? the statutes meaning is clear
enough. Subdivision 3 of 13C.01 is intended to prohibit credit bureaus from generating a list
of consumers who have applied for mortgages a mortgage-trigger list and then marketing
that list to third parties. In the statutes terms, the sale of such a list would be triggered by an
inquiry made in response to [a consumers] application for credit, and the list would reveal the
existence of a credit inquiry arising from a consumer mortgage loan application. Minn. Stat.
13C.01 subd. 3.
1Because this case involves express preemption under the FCRA, the Court need not
consider field or conflict preemption, both of which are types of implied preemption. See
generally N. Natural Gas Co. v. Iowa Utils. Bd., 377 F.3d 817, 820-21 (8th Cir. 2004)
(discussing different types of federal preemption).
CDIA argues that the FCRAs preemption provision renders void Minnesotas attempt, in
subdivision 3 of 13C.01, to prohibit the sale by credit bureaus of mortgage-trigger lists. Pl.
TRO Mem. at 15-17. The FCRAs preemption provision, 15 U.S.C. 1681t, establishes a
background rule that state laws are not preempted unless they are inconsistent with the FCRA.
This background rule is subject to important exceptions, however. Of particular importance to
this case is 1681t(b), which expressly preempts certain state laws by providing that:
No requirement or prohibition may be imposed under the laws of
any State
(1) with respect to any subject matter regulated under
(A) subsection (c) . . . of section 1681b of this title,
relating to the prescreening of consumer reports[.]
15 U.S.C. 1681t(b). Accordingly, if the challenged Minnesota statute imposes a requirement
or prohibition . . . with respect to any subject matter regulated under [ 1681b(c)], then the
FCRA expressly preempts it.1 We turn, then, to 1681b(c).
Section 1681b(c) governs [f]urnishing reports in connection with credit or insurance
transactions that are not initiated by [a] consumer. Both parties agree that this is a reference to
prescreened reports. Under 1681b(c)(1), a credit bureau may furnish a consumer report
relating to any consumer . . . in connection with any credit or insurance transaction that is not
initiated by the consumer that is, furnish a prescreened list on which a consumers name
appears without the consumers authorization only if three conditions are met: (1) the
transaction consists of a firm offer of credit or insurance, 1681b(c)(1)(B)(i); (2) the credit
2Section 1681b(c)(2) also limits the permissible content of consumer reports provided
under 1681b(c)(1).
bureau has complied with the FCRAs provisions governing the ability of consumers to opt out
of receiving unsolicited firm offers of credit or insurance, 1681b(c)(1)(B)(ii); and (3) the
consumer has not, in fact, opted out of receiving such unsolicited firm offers,
1681b(c)(1)(B)(iii). In sum, 1681b(c)(1) gives credit bureaus the right to provide a
prescreened list of consumers (i.e., consumer report[s]) to lenders (and insurers) that commit
to make firm offers to consumers on the list.2
CDIA argues that mortgage-trigger lists provided by credit bureaus to mortgage lenders
are consumer reports within the meaning of 1681b(c). Pl. Reply. Mem. at 2 [Docket No. 23]
(The so-called trigger leads are a type of prescreened consumer report.). In other words, in
CDIAs view, mortgage-trigger lists are simply one example of the prescreened reports that are
explicitly authorized by 1681b(c)(1). Just as 1681b(c)(1) permits a credit bureau to sell lists
of consumers screened by credit score or location of residence, so, too, does 1681b(c)(1)
permit a credit bureau to sell lists of consumers who have recently applied for mortgages. If
CDIA is correct, then 1681t(b)(1)(A) clearly preempts subdivision 3 of Minnesota Statutes
13C.01, which purports to prohibit credit bureaus from selling mortgage-trigger lists, i.e., from
selling a type of consumer report.
In response, Swanson argues that Minnesota can regulate mortgage-trigger lists because
they are removed from the category of credit reports that may be sold under 1681b(c)(1) by
another subsection of 1681b 1681b(c)(3). That subsection provides: [A] consumer
reporting agency shall not furnish to any person a record of inquiries in connection with a credit
3Swanson also argues that at least some of the lenders who purchase mortgage-trigger
lists do not then make firm offers of credit to consumers. Def. TRO Opp. at 9 ([A]
telemarketer cannot meaningfully make a firm offer to a consumer to enter into a transaction as
complex as a mortgage loan . . . over the telephone.). Swanson may be right but that would
not give Minnesota the right under the FCRA to regulate mortgage-trigger lists. It would simply
mean that those lenders and perhaps the credit bureaus that sell mortgage-trigger lists to them
could be held liable under federal law for violating the FCRA. See 15 U.S.C. 1681n-1681o
(governing civil liability for noncompliance with the FCRA).
or insurance transaction that is not initiated by a consumer. According to Swanson, when a
credit bureau furnishes a mortgage-trigger list to a lender, the credit bureau violates
1681b(c)(3) by furnish[ing] that lender a record of inquiries in connection with a credit or
insurance transaction that is not initiated by a consumer. Swanson concludes that the
Minnesota statute is not preempted because it forbids something selling mortgage-trigger lists
that is already forbidden under the FCRA. Def. TRO Opp. at 9 (Since a trigger lead is
unauthorized, it should not be deemed a prescreened report that is completely insulated from
state legislation by FCRAs specific preemption language. If a trigger lead is not a prescreened
report, it is not protected by FCRAs specific preemption language.).3
Swansons argument is self-defeating. Even if mortgage-trigger lists are indeed
forbidden by the FCRA because they reflect a record of inquiries a question on which this
Court expresses no opinion Minnesota still may not regulate them for the very reason that
they are forbidden by 1681b(c)(3). The preemptive reach of the FCRA is both broad and
explicit: Section 1681t(b)(1)(A) preempts any state law that imposes a prohibition or
requirement with respect to any subject matter regulated by 1681b(c). Whether selling
mortgage-trigger lists is explicitly authorized by 1681b(c)(1) (as CDIA argues) or explicitly
forbidden by 1681b(c)(3) (as Swanson argues), the subject matter of mortage-trigger lists is
unquestionably regulated by 1681b(c), and thus, under 1681t(b)(1)(A), neither Minnesota nor
any other state may prohibit or regulate their sale.
The Court therefore finds that CDIA has a very strong likelihood of prevailing on the
merits of its argument that subdivision 3 of 13C.01 is preempted by the FCRA. In light of
Swansons concession that CDIAs likelihood of success on the merits is the key issue at this
stage in the case, the Court addresses only briefly the other three preliminary-injunction factors.
The Court finds that CDIA members are likely to suffer irreparable harm, in the form of
non-compensable monetary losses, unless the court enjoins enforcement of subdivision 3 of
13C.01. If the statute took effect, CDIA members would lose considerable sales and incur
considerable administrative costs, and CDIA members would be unable to recover damages from
the State of Minnesota because of the Eleventh Amendment. As to the balance of harms
between the parties, the Court finds that this factor favors neither party. CDIA members will
likely lose money if the Court denies its motion and Swanson enforces subdivision 3 of
13C.01. But the Minnesota legislature enacted subdivision 3 of 13C.01 because it believed
that the public needed to be protected from aggressive marketing tactics of mortgage lenders
using mortgage-trigger lists. If the public would indeed benefit from the protections of
subdivision 3 of 13C.01, then Swanson, in her role as Attorney General, will be harmed
because she will not be able to protect Minnesotans under the statute.
The public interest is also neutral. On the one hand, perhaps Minnesotans would benefit
from enforcement of subdivision 3 of 13C.01. On the other hand, Minnesotans have an
interest, as citizens of the United States, in seeing federal statutes enforced. And while the state
legislature apparently thought that forbidding the sale of mortgage-trigger lists would be in the
public interest, Congress thought that the public interest would be better served by preventing
states from regulating in this area, thereby ensuring uniform national regulation of the sale and
use of credit reports. It appears that Congress and the Minnesota legislature have different views
about how best to regulate the activity of credit bureaus. By virtue of the Supremacy Clause of
the United States Constitution, U.S. Const. Art. IV, cl. 2, and the FCRAs express-preemption
provision, 15 U.S.C. 1681t, Congresss views on the subject must prevail.
In light of the Courts analysis of preemption under the FCRA, the Court declines to
reach CDIAs First Amendment argument. See, e.g., United States v. Turechek, 138 F.3d 1226,
1229 (8th Cir. 1998) (While federal courts are obliged to decide constitutional questions when
necessary to resolution of the dispute before them, they have an equally strong duty to avoid
constitutional issues that need not be resolved in order to determine the rights of parties to case
under consideration.) (quoting County Ct. v. Allen, 442 U.S. 140, 154 (1979)). Also, as both
parties have conceded that a bond is not necessary, the Court declines to order CDIA to give
security under Fed. R. Civ. P. 65(c).
Based on the foregoing and on all of the files, records, and proceedings herein, plaintiffs
motion for a temporary restraining order [Docket No. 2] is construed as a motion for a
preliminary injunction and is GRANTED. Accordingly, IT IS HEREBY ORDERED THAT
defendant Lori Swanson, in her capacity as the Attorney General of the State of Minnesota, is
PRELIMINARILY ENJOINED from enforcing, directly or indirectly, subdivision 3 of
Minnesota Statutes 13C.01. This injunction will remain in force until this case has been fully
and finally adjudicated on the merits.
Dated: July 30, 2007 s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge


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