Banking Law

The security breach at LendingTree that allowed former employees to help other mortgage lenders gain access to mortgage application information, which we discussed last month, has given rise to what may become a class action lawsuit against LendingTree.

One month after suing three lending firms, LendingTree has now been sued by a Bronx man who claims a security breach with the mortgage site has harmed his credit score, led to higher credit card interest rates, and resulted in him getting rejected for at least one loan.

The lawsuit against LendingTree, filed late last week in U.S. District Court in Manhattan, seeks class action status. Filed on behalf of Marvin Garcia, it alleges that LendingTree was negligent in failing to keep customer personal information secure and failing to notify customers of the security breach in a timely manner.

The breaches--which involved names and Social Security numbers among other personal information--are believed to have begun in October 2006, but LendingTree did not notify customers until last month.

The plaintiff, taking to heart LendingTree's suggestion that he obtain a copy of his credit report, did so. Unfortunately for LendingTree, he didn't like what he found: "that nearly a dozen lenders had pulled his personal information for review without his permission, which affected his credit score, interest rates, and mortgage loan application, according to the lawsuit, which was filed by lawyers at the firm of Meiselman, Denlea, Packman, Carton & Eberz." Inasmuch as the unauthorized access to the loan applications was motivated by a desire of the perpetrators to steal LendingTree's mortgage customers, it's no surprise that they also ordered credit reports without the applicants' authorization.

  LendingTree sued the mortgage lenders involved last month. I'm sure it will try to pass along to those  defendants any liability to people like Mr. Garcia, although the odds are good that those mortgage companies won't be loaded with assets to satisfy any judgments. I think that it's safe to assume that LendingTree will assert coverage under its fidelity bond and it may have other insurance coverage that covers security breaches of its network (insurance companies have been touting such coverage for a number of years). Nevertheless, Mr. Garcia (and a class of his fellow loan applicants, if one is certified) very well may be able to support claims that LendingTree was negligent in failing to cut off network access to the former employees, so someone may eventually pay the plaintiffs. In the interim, defense counsel will stay gainfully employed.

These rogue employees, every lender's nightmare and the ultimate bad actors in this particular play, however negligent LendingTree might be proved to have been, certainly opened up a can of worms when they opened up access to LendingTree's network. Here's hoping they get smacked right along with the mortgage companies they assisted. We'll be watching Luke Wilson's "The Collar" to see if criminal charges are pursued against any of the miscreants.