FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

JOHN SCHLEGEL, on behalf of
himself and all others similarly
situated; CAROL ROBIN SCHLEGEL,
on behalf of herself and all others
similarly situated,
Plaintiffs-Appellants,

v.

WELLS FARGO BANK, NA,
Defendant-Appellee.

EXCERPTS:

SUMMARY**

Foreclosure

The panel affirmed in part and reversed in part the
dismissal of an action seeking relief under the Fair Debt
Collection Practices Act and under the Equal Credit
Opportunity Act, which makes it illegal for a creditor to
discriminate against a credit applicant on the basis of race,
color, religion, national origin, sex or marital status, or age.

The panel held that appellants’ complaint did not
plausibly allege that a bank that sent mortgage default notices
despite the existence of a loan modification agreement was a
“debt collector” under the FDCPA because the complaint did
not allege that the principal purpose of the bank’s business
was debt collection, or that the bank was in the business of
collecting the debts of others. The panel rejected a per se rule
that a creditor cannot meet the definition of a debt collector.

The panel held that the complaint stated a claim under
ECOA’s notice requirement, which provides: “Each
applicant against whom adverse action is taken shall be
entitled to a statement of reasons for such action from the
creditor.” The panel held that the bank’s alleged acceleration
of appellants’ debt constituted a revocation of credit and thus
met the definition of adverse action.

[…]

B
The Schlegels’ complaint also raises a claim under
ECOA, which makes it illegal “for any creditor to
discriminate against any applicant, with respect to any aspect
of a credit transaction . . . on the basis of race, color, religion,
national origin, sex or marital status, or age.” 15 U.S.C.
§ 1691(a)(1). One way that ECOA effectuates this goal is
through its notice requirement, which states: “Each applicant
against whom adverse action is taken shall be entitled to a
statement of reasons for such action from the creditor.” Id.
§ 1691(d)(2). ECOA defines an “adverse action” as a:

denial or revocation of credit, a change in the
terms of an existing credit arrangement, or a
refusal to grant credit in substantially the
amount or on substantially the terms
requested. Such term does not include a
refusal to extend additional credit under an
existing credit arrangement where the
applicant is delinquent or otherwise in default,
or where such additional credit would exceed
a previously established credit limit.
Id. § 1691(d)(6).

When a creditor takes an adverse action against an
applicant without giving the required notice, the applicant
may sue for a violation of ECOA. Id. § 1691e (“Any creditor
who fails to comply with any requirement imposed under this
subchapter shall be liable to the aggrieved applicant for any
actual damages sustained by such applicant”); see also
Thompson v. Galles Chevrolet Co., 807 F.2d 163, 166 (10th
Cir. 1986) (quoting Sayers v. Gen. Motors Acceptance Corp.,
522 F. Supp. 835, 840 (W.D. Mo. 1981)).

The Schlegels contend that Wells Fargo’s acceleration of
their debt constituted a “revocation of credit” for purposes of
the definition of “adverse action.” ECOA defines “credit” to
mean “the right granted by a creditor to a debtor to defer
payment of debt or to incur debts and defer its payment or to
purchase property or services and defer payment therefor.”
15 U.S.C. § 1691a(d). ECOA does not define “revocation,”
and so we read it as having its plain meaning: “The action of
revoking, rescinding, or annulling; withdrawal.” Oxford
English Dictionary 838 (2d ed. 1989); see also id. (defining
“revoke” as “[t]o annul, repeal, rescind, cancel”); Merriam-
Webster’s Collegiate Dictionary 1068 (11th ed. 2005)
(defining “revoke” to mean: “to annul by recalling or taking
back”). Thus, a lender revokes credit when it annuls, repeals,
rescinds or cancels a right to defer payment of a debt.

Here, the Schlegels’ complaint plausibly alleges that
Wells Fargo annulled, repealed, rescinded, or canceled their
right to defer repayment of their loan. Paragraph 25 of their
complaint alleges that, on December 20, 2010, the Schlegels
received a notice from the bank informing them that, “due to
the default under the terms of the mortgage or deed of trust,
the entire balance is due and payable.” The complaint’s
allegations establish that the Schlegels made diligent efforts
to determine whether Wells Fargo’s default notices were
mere clerical errors or represented Wells Fargo’s termination
of the loan modification agreement. Based on Wells Fargo’s
prolonged non-responsiveness, and its affirmative statements
regarding loan acceleration and default, the facts alleged
plausibly give rise to the claim that Wells Fargo terminated
the loan modification agreement and thereby revoked the
Schlegels’ credit for purposes of § 1691(d)(6).

Wells Fargo argues that its default notices to the
Schlegels did not constitute adverse actions because the
default notices had no binding effect and did not modify the
terms of the Schlegels’ loan or the loan modification
agreement. We disagree. In essence, Wells Fargo is arguing
that because its default notices violated the loan modification
agreement, they could not constitute a revocation of credit.

But neither the text of § 1691 nor its implementing
regulations suggest that a “revocation of credit” must be valid
and enforceable in order to constitute an adverse action.

When Wells Fargo informed the Schlegels that it had
accelerated their loan and was commencing foreclosure
proceedings, its statements communicated the bank’s refusal
to abide by the terms of the loan modification agreement,
which had given the Schlegels a longer period to repay the
loan. On its face, this communication revoked the prior credit
arrangement.

While sending a mistaken default notice would not
necessarily constitute an adverse action, the Schlegels’
complaint describes egregious conduct that goes far beyond
clerical error. In fact, despite the Schlegels’ repeated
inquiries, Wells Fargo did not inform the Schlegels that its
acceleration of their loan was a mistake until after the
Schlegels filed a complaint. While Wells Fargo now claims
that its acceleration of the loan was an unintentional error,
and that the prior loan modification agreement remains in
effect, such assertions do not erase its prior revocation of
credit for purposes of ECOA.

Because the parties agree that Wells Fargo did not send
the Schlegels an adverse action notice, the complaint’s
allegations that Wells Fargo took an adverse action without
complying with ECOA’s notice requirements are enough for
the ECOA claim to survive a motion to dismiss.

Accordingly, we reverse the district court’s dismissal of their
ECOA claim and remand for proceedings consistent with this
opinion. Each party will bear its own costs on appeal.

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