standard one is not an adverse action because it entails neither the
increase in the premium nor the change in the insurance terms
specified in Section 1681la(k) (1) (B) (i). See Rausch v. Hartford Fin.
Servs. Group, Inc., 2003 WL 22722061, at *2 (D. Or. 2003); Mark v.
Valley Ins. Co., 275 F. Supp. 2d 1307, 1315-17 (D. Or. 2003). The
reasoning of these cases is essentially that “an insurer cannot
‘increase’ a charge for insurance unless the insurer makes an initial
demand for payment to the insured and subsequently increases the
amount of the demand.” Id. Furthermore, “an insurer cannot

‘unfavorably or adversely change’ the terms of insurance unless such
terms previously existed and the insurer subsequently alters those
terms in an unfavorable manner.” Rausch, 2003 WL 22722061, at *2;
accord Mark, 275 F. Supp. 2d at 1315-17. Rausch and Mark, of
course, are not controlling authority here, although there is some
persuasive force to the reasoning in these opinions. The Seventh
Circuit, however, has not yet addressed the meaning of the term
“increase” under these particular facts. As an initial matter, the
Court notes that the plain language meaning of “increase,” in the
context of Section 1681a(k) (1) (B) (i), does not necessarily imply that
an “increase” must be solely in comparison to an initial premium paid
by the consumer, rather than in comparison to the “normal” or
“customary” premium that a similarly-situated consumer ~ without an
adverse credit report - would pay. In other words, can it fairly be
said that a consumer who is offered a higher-than-usual initial PMI

premium because of his reported credit history has not suffered an

-4-


An entity takes an adverse action when the entity does or performs
the action, Razilov v. Nationwide Mut. Ins. Co., 242 F. Supp. 2d
977, 988 (D. Or. 2003). Thus, by contracting with Karwo for the cost
of mortgage insurance and charging him for an initial insurance
premium for PMI that was purportedly higher than the customary
charge, CitiMortgage may have taken an adverse action.

As a final matter, the Court again notes the procedural posture
of this case: to survive a motion to dismiss Karwo merely needs to
have outlined rudimentary facts that would potentially allow
CitiMortgage’s acts to fall under the FCRA. This Karwo has done.

Iv. CONCLUSION
For the reasons given above, CitiMort s motion to dismiss is

DENIED.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge

f, United States District Court
Dated: Ss pleabacd oe/



did not apply in the insurance context. See Mark, 275 F. Supp. 2d at
1315. The court there reasoned that application of the catch-all
provision in the insurance context would create the unreasonable
outcome of an insurance-specific provision being effectively
swallowed by a general “catch-all” provision. See id.

Unfortunately for CitiMortgage, the Seventh Circuit views the
“catch-all” provision differently. See Treadway v. Gateway Chevrolet
Oldsmobile, Inc., 362 F.3d 971, 982 (7th Cir. 2004). In Treadway,
the Seventh Circuit applied the “catch-all” provision to credit
transactions, even though such transactions are explicitly ~- and
separately - defined in the Equal Credit Opportunity Act. See id;
see also Payne v. Ken Diepholz Ford Lincoln Mercury, Inc., 2004 U.S.
Dist. LEXIS 19, at *18 (N.D. Ill. 2004). The same concern that the
Mark court expressed regarding the “catch-all” provision rendering a
specific provision “superflous” was present in Treadway, yet the
Seventh Circuit did not express concern over this. Indeed, there is
nothing in the language of the “catch~all” provision that excludes
insurance transactions from its purview. Conceptually, there is no
reason why insurance-specific provisions should escape the “catch-
all” provision, while credit-specific provisions should not. See
Scharpf v. AIG Marketing, Inc., 242 F. Supp. 2d 455, 466,68 (W.D.
Ken. 2003) (applying the catch-all definition of adverse action to the
initial setting of insurance premiums). Accordingly, the Court
concludes that the catch-all provision in § 168la(k) (1) (B) (iv)
applies in the insurance context.

-6-


“increase in any charge for” insurance? 15 U.S.C.
§ 1681a(k) (1) (B) (i). The Sixth Circuit, at least, thinks not; it
has referred to a situation where a credit customer is charged more
for an automobile than a cash customer as “an increase in
price.” Cornist v. B.J.T. Auto Sales, Inc., 272 F.3d 322, 327 (6th
Cir. 2001). (Although CitiMortgage contends that the meaning of
“increase” in Cornist does not apply here because Cornist did not
involve the FCRA, nothing in the FCRA suggests that a different
definition of “increase” applies to it.)

In any event, the Court does not need to engage in a full-scale
analysis of the meaning of “increase” within the statutory scheme
here because there is another provision for “adverse action” that
allows Karow’s complaint to survive CitiMortgage’s motion. See
Section 1681a(k) (1) (B) (iv). (For this same reason, the Court does not
need to address the impact, if any, of the legislative history or the
FTC's interpretations of the FCRA for the purpose of resolving this
motion to dismiss.)

1. Adverse Action Under Section 1681a(k) (1) (B) (iv)

Although neither party addressed this provision,
Section 1681a(k) (1) (B) (iv) contains a catch-all provision that
defines an adverse action as any action or determination that is made
in connection with an application that was made by, or a transaction
that was initiated by any consumer and is adverse to the interests of
such consumer. See 15 U.S.C. § 1681a(k) (1) (B) (iv). In Mark,

however, the Oregon district court held that the catch-all provision

- 5



see also Thele v. Sunrise Chevrolet, Inc., 2004 U.S. Dist. LEXIS
9670, at *25 (N.D. Ill. 2004).

The mortgage insurance context at issue here is somewhat
different than the typical credit or personal insurance transaction
in that the consumer does not contract directly with the provider of
PMI. Instead, Karwo has direct contractual privity only with
CitiMortgage and not General Electric, the provider of PMI. The
Court finds no controlling case law directly addressing which parties
are capable of taking an adverse action in the mortgage insurance
context. Under the facts alleged in the complaint, CitiMortgage
plays a significantly greater role in the transaction than an entity
that merely arranges an insurance contract between a customer and an
insurer. Cf. Rausch, 2003 WL 22722061; Ashby, Inc., 261 F. Supp. 2d
1213. Unlike the defendants in Rausch and Ashby, CitiMortgage
contracted with the consumer here. Under the theory implied in the
complaint, CitiMortgage, not the insurer, directly controls the
mortgage insurance fee that the consumer is charged. Karwo also
alleges that CitiMortgage required Karwo to pay for mortgage
insurance obtained by CitiMortgage as part of his monthly loan
payments to CitiMortgage. If General Electric had raised the premium
it charged CitiMortgage during the coverage, CitiMortgage, not
General Electric, had the option of raising Karwo’s monthly payment.

The present situation therefore stands in contrast to those
where a seller simply arranges credit for a buyer with a third party

lender and does not control the lender’s action on the application.


‘Minute Onder Form (06/97)

United States District Court, Northern District of Winois

Name of Assigned Judge i Sitting Judge if Other
or Magistrate Judge Harry D. Leinenweber than Assigned Judge
}-
CASE NUMBER 04 C 1944 DATE | 9/2/2004
CASE David Karwo vs. Citimortgage Inc., et al
TITLE
Un the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
QQ) Qo Filed motion of [ use listing in “Motion” box above.)
(2) 0 Brief in support of motion due
(3) Qa Answer brief to motion due . Reply to answer brief due.
(4) 0 Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] (set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] (set for/re-set for] on set for at .
(1) a Trial{set for/re-set for]on___—at_
(8) a [Bench/Jury trial] [Hearing] held/continued to at
(9) im] This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) Local Rule 41.1 GERCP41(a)(1) CFRCP41(a)(2).
(10) (Other docket entry) ENTER MEMORANDUM OPINION AND ORDER: CitiMortgage’s motion
to dismiss is DENIED.
al (For further detail see order attached to the original minute order.}
No notices required, advised in open court.
No notices required, umber of notices
Notices mailed by judge’s staff. SEP 3 . nnn '
Notified counsel by telephone, “ote suena” VC
| Docketing to maif notices.
Mail AO 450 form, to vitals 2 O
Copy to judge/magistrate judge.
S date mailed notice
courtroom
WAP deputy’s -
initials at :
Dateftime in”
central Clerk’s Office suing deputy intials



Thus, under the FCRA, the allegations of Karwo’s complaint fall
under the “catch-all” phrase. Specifically, the outcome that Karwo
complains of resulted from an application or transaction initiated by
Karwo and caused an outcome purportedly adverse to the interests of
Karwo. This is sufficient to survive the minimal requirements of
Rule 12(b) (6).

B. CitiMortgage’s Ability to Take Adverse Action

CitiMortgage also argues that, as a matter of law, it could not
take adverse action against Karwo under the FCRA because it is not an
insurer. The FCRA imposes notice requirements only upon entities
“taking adverse actions,” but does not contain any provision that
explicitly limits adverse actions in the insurance context solely to
insurers. 15 U.S.C. § 1681m(a). Some courts have held that the
entity contracting with the insured is the only one that can take
adverse action under the FCRA, and have rejected FCRA claims against
other non~contracting entities involved in the transaction. See,
e.g., Rausch, 2003 WL 22722061, at *1; Ashby v. Farmers Group, Inc.,
261 F. Supp. 2d 1213, 1226 (D. Or. 2003); Spano v. Safeco Ins. Co.
of Am., 215 F.R.D. 601, 606 (D. Or. 2003). For instance, the Seventh
Circuit indicated that an automobile dealership that merely attempted
to arrange credit for a customer with a lender (who ultimately
refused to provide credit) did not commit an adverse action. See
Treadway, 362 F.3d at 983 (citing Najieb v. William Chrysler-~

Plymouth, 2002 U.S. Dist. LEXIS 24927, at *6 n.14 (N.D. Ill. 2002);


adverse action under the FCRA, 15 U.S.C. § 168im(a), which required
Defendants to provide the statutorily-required notice.
III. DISCUSSION

The FCRA requires that those taking adverse actions based on
information contained in a consumer credit report notify the consumer
affected of the following: (1) the adverse action taken, (2) contact
information for the consumer reporting agency, and (3) consumer
rights under the FCRA to obtain a free copy of the credit report and
dispute the accuracy or completeness of the information contained in
the report. See 15 U.S.C. § 1681im(a).

A. Definition of “Adverse Action”

Under the FCRA, the term “adverse action” includes “an increase
in any charge for, or a reduction or other adverse or unfavorable
change in the terms of coverage or amount of, any insurance.” 15
U.S.C. § 1681a(k) (1) (B) (i). CitiMortgage contends that Karwo’s claim
fails because setting an initial charge for insurance at a rate
greater than the lowest available does not constitute an adverse
action under the FCRA. Specifically, CitiMortgage argues that “an
increase in any charge for” insurance necessarily requires that there
first be an initial premium set and then there must be a subsequent
increase in premium to constitute an “adverse action” under Section
1681a(k) (1) (B) (i).

CitiMortgage’s position finds support in two District Court
cases from Oregon, decided by the same judge, holding that the

initial setting of insurance premiums at a rate higher than the

-3-


§ 1681p. Karwo also brings suit against CitiMortgage on behalf of a
class of persons to whom CitiMortgage charged private mortgage
insurance premiums.

CitiMortgage has moved to dismiss Karwo’s claim against it for
failure to state a claim pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure. CitiMortgage argues that Karwo fails to
state a claim because (1) quoting a premium that is higher than the
absolute lowest available premium cannot be an adverse action, and
(2) CitiMortgage is not an insurer, and thus does not fall under the
purview of the statute. For the following reasons, the Court denies
CitiMortgage’s motion to dismiss.

II. FACTUAL BACKGROUND

In 2003, Karwo sought a home mortgage loan from CitiMortgage.
On or about December 18, 2003, Karwo received a mortgage commitment
letter from CitiMortgage outlining the terms of the loan contract.
This letter stated that CitiMortgage required and would obtain
private mortgage insurance (“PMI”) to protect CitiMortgage in case
Karwo defaulted on the loan. On January 15, 2004, CitiMortgage
obtained PMI from General Electric and notified Karwo that he would
be responsible for the monthly premiums totaling $243.73. Karwo
closed the loan on the following day.

The crux of Karwo’s complaint is that he (and other similarly
situated individuals) did not receive the lowest premium available
for PMI as a result of information contained in consumer credit

reports. According to Karwo, this higher premium constituted an

~2-


IN THE UNITED STATES DISTRICT COURT &
FOR THE NORTHERN DISTRICT OF ILLINOIS /t &

EASTERN DIVISION
ne Sp 8
iii ua 2
West U 78 by 20p,
DAVID KARWO, — “8. Og7h ih, 6 g
SEP 3 2004 Moro Leg
Plaintiff, Up Tsp
Case No. 04 ¢ 1944 ors

v.
Hon. Harry D. Leinenweber
CITIMORTGAGE, INC., and GENERAL
ELECTRIC MORTGAGE INSURANCE
CORPORATION ,

‘ie
Defendants. Sip 3

"2004

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Plaintiff David Karwo (hereinafter, “Karwo”) filed suit against
Defendants CitiMortgage, Inc. (hereinafter, “CitiMortgage”) and
General Electric Mortgage Insurance Corp. (hereinafter, “General
Electric”), claiming that they violated the Fair Credit Reporting
Act (the “FCRA”), 15 U.S.C. §§ 1681-1681x (2000). Specifically,
Karwo claims that CitiMortgage failed to provide him with the
requisite “adverse action notice” when he was charged a premium for
mortgage insurance that purportedly was higher than the lowest rate
available. The FRCA provides for civil liability for willful and
negligent noncompliance. See 15 U.S.C. §§ 1681n~16810. In addition,
Karwo brings suit against General Electric on behalf of a class of
persons in the United States with respect to whom General Electric
made underwriting decisions for private mortgage insurance within the

two-year statute of limitations set forth in the FRCA. See 15 U.S.C.

20