Group of professionals discuss finance

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Banking and Finance Law Daily, October 25, 2016

HERA’s ‘Penalty Bar’ applies to FHFA, not Fannie Mae; FCRA claims survive

By Thomas G. Wolfe, J.D.

The "Penalty Bar" provision of the Housing and Economic Recovery Act (HERA) applies to the Federal Housing Finance Agency as the conservator of Fannie Mae but does not apply to Fannie Mae itself, the U.S. District Court for the Eastern District of Virginia has decided. Determining that Fannie Mae could not invoke HERA’s Penalty Bar provision, the court refused to dismiss a proposed class action against Fannie Mae claiming that the government-sponsored enterprise violated the Fair Credit Reporting Act (Burke v. Federal National Mortgage Association, Oct. 20, 2016, Hudson, H.).

According to the court’s opinion, the consumer’s class-action complaint alleged that Fannie Mae infringed upon her rights under the FCRA by "unlawfully obtaining her credit report under the false pretense of an ‘account review,’ even though no account existed." The consumer sought actual, statutory, and punitive damages as well as attorney’s fees and costs on behalf of herself and those similarly situated for Fannie Mae’s alleged FCRA violations.

Penalty Bar. After the FHFA unsuccessfully attempted to intervene in the case, Fannie Mae sought a judgment on the pleadings to extinguish the consumer’s action. Notably, Fannie Mae raised the defense that the FCRA’s punitive damages, statutory damages, and attorney’s fees and costs were all "in the nature of penalties or fines." Therefore, HERA’s Penalty Bar prevented these damages, fees, and costs from being imposed on Fannie Mae "as a matter of law" and required dismissal of the consumer’s FCRA claims "to the extent that they seek such amounts," Fannie Mae contended.

The Penalty Bar provision of HERA (12 U.S.C. §4617(j)) provides that it applies "with respect to the Agency in any case in which the Agency is acting as a conservator or a receiver." The Penalty Bar further provides that the "Agency shall not be liable for any amounts in the nature of penalties or fines …."

Court’s analysis. Fannie Mae argued that because the FHFA, in its capacity as conservator, succeeded to Fannie Mae’s assets and rights and essentially "stepped into the shoes" of Fannie Mae, the Penalty Bar should protect Fannie Mae to the same extent it protects the FHFA. While the court acknowledged that Fannie Mae’s argument "is not without merit," the court ultimately rejected it, focusing instead on the statutory language of an "Agency" under HERA.

Among other things, the court emphasized that Congress clearly designated the FHFA as the "Agency" and Fannie Mae as the "regulated entity" in HERA’s definitional clause (12 U.S.C. §4502) and that HERA distinguishes those terms numerous times throughout the law.

Fannie Mae also argued that it did not make sense for Congress to give the FHFA "all-encompassing authority" as conservator to operate in Fannie Mae’s name and "yet create a Penalty Bar that plaintiffs can avoid simply by naming Fannie Mae rather than the Conservator as a defendant." Addressing this argument, the court asserted that it was up to Congress, not the judiciary, to amend any legislation to make better sense.

Final disposition. Ultimately, the court narrowly ruled that HERA’s Penalty Bar did not apply to Fannie Mae "either explicitly by its own clear and unambiguous language or implicitly through [Fannie Mae’s] conservatorship under the FHFA." In denying Fannie Mae’s request for a judgment on the pleadings and allowing the consumer’s FCRA lawsuit to proceed, the court stressed that it was not ruling on a host of other related issues implicated by the parties’ briefs.

The case is No. 3:16cv153_HEH

Attorneys: Andrew J. Guzzo (Kelly & Crandall, PLC) and James A. Francis (Francis & Mailman, PC) for Ashley Burke. Joshua A. Hartman (Morrison & Foerster LLP) and Brian C. Riopelle (McGuireWoods LLP) for Federal National Mortgage Association.

Companies: Fannie Mae

MainStory: TopStory FairCreditReporting GovernmentSponsoredEnterprises Mortgages

Back to Top

Banking and Finance Law Daily

Introducing Wolters Kluwer Banking and Finance Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.

A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.