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On March 11, the U.S. District Court for the Central District of California approved a stipulation for prospective relief, settling a consumer FCRA action against a purported credit reporting agency (defendant) for alleged procedural violations. In 2016, the case went to the U.S. Supreme Court (covered by a Buckley Special Alert), which remanded the case so the 9th Circuit could fully consider whether the plaintiff had standing under Article III of the Constitution. The approved stipulation lasts three years and, among other things, requires the defendant to (i) post a “clear and appropriately-titled” link to its opt-out privacy form; (ii) create a step requiring that its customers affirmatively agree not to use its information to determine eligibility for a FCRA-related purpose; and (iii) state on all of its webpages that it is not a consumer reporting agency. The order also prohibits the defendant from publishing “any numerical estimates or predictions of consumer credit scores” unless its terms and conditions specify that the information may not be used for FCRA purposes.
On March 25, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of five plaintiffs’ allegations against two credit reporting agencies, concluding the plaintiffs failed to show they suffered or will suffer concrete injury from alleged information inaccuracies. According to the opinion, the court reviewed five related cases of individual plaintiffs who alleged that the credit reporting agencies violated the FCRA and the California Consumer Credit Report Agencies Act (CCRAA), by not properly reflecting their Chapter 13 bankruptcy plans across their affected accounts after they requested that the information be updated. The lower court dismissed the action, holding that the information in their credit reports was not inaccurate under the FCRA. On appeal, the 9th Circuit, citing to U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert), concluded that the plaintiffs failed to show how the alleged misstatements in their credit reports would affect any current or future financial transaction, stating “it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements.” Because the plaintiffs failed to allege a concrete injury, the court affirmed the dismissal for lack of standing, but vacated the lower court’s dismissal with prejudice, noting that the information may indeed have been inaccurate and leaving the door open for the plaintiffs to refile the action.
On March 21, the U.S. District Court for the Northern District of Alabama reduced a consumer’s punitive damages award from $3 million to $490,000 in an action against a credit reporting agency for the alleged misreporting of credit information. According to the opinion, after the consumer had a debt dismissed by small claims court, he requested that the credit reporting agencies remove the trade line from his credit report. When one credit reporting agency refused to initiate a dispute investigation because it suspected fraud, the consumer filed a complaint alleging violations of the FCRA. In May 2018, a jury awarded the consumer $5,000 in compensatory damages and $3 million in punitive damages. The credit reporting agency moved to have the court enter judgment as a matter of law and/or have the judgment amended or altered. The court reviewed the award, noting that the punitive to compensatory damages ratio of 600 to 1 “suspiciously cocked” the “court’s eyebrows.” The court emphasized that a single-digit multiplier would not be sufficient to deter the credit reporting agency from future wrongdoing and instead, applied the 98 to 1 ratio used by the U.S. Court of Appeals for the 4th Circuit, bringing the punitive damages down to $490,000. In addition, the court applied the “one satisfaction” rule, concluding the credit reporting agency did not have to pay the compensatory damages, as the consumer already received settlement proceeds that exceed the jury award from other defendants, and “the injuries the [consumer] described are indivisible between [the credit reporting agency] and the settling defendants.”
On March 15, the FTC released its annual report highlighting the agency’s privacy and data security work in 2018. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- an expanded settlement with a global ride-sharing company over allegations that the company violated the FTC Act by deceiving consumers regarding the company’s privacy and data practices (covered by InfoBytes here).
- a settlement with a global online payments system company to resolve allegations that its payment and social networking service failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction (covered by InfoBytes here).
- a settlement with a Texas-based company over allegations that it violated the FCRA by failing to take reasonable steps to ensure the accuracy of tenant-screening information furnished to landlords and property managers (covered by InfoBytes here).
The report also highlighted the FTC’s hearings on big data, privacy, and competition conducted through its Hearings on Competition and Consumer Protection in the 21st Century initiative. (Covered by InfoBytes here and here.)
On March 6, the U.S. Court of Appeals for the 4th Circuit held that Congress did not waive sovereign immunity for lawsuits under the FCRA, affirming the lower court’s dismissal of a consumer action. According to the opinion, a consumer filed a lawsuit against the U.S. Department of Education (the Department), a student loan company, and the three major credit reporting agencies, alleging numerous claims, including violations of the FCRA for failing to properly investigate disputes that federal student loans were fraudulently opened in his name. The Department filed a motion to dismiss to the FCRA claims against it arguing the court lacked subject matter jurisdiction based upon a claim of sovereign immunity. The lower court agreed, holding Congress had not affirmatively waived sovereign immunity for suits under the FCRA.
On appeal, the 4th Circuit agreed with the lower court. The appellate court noted that, although the FCRA includes a “government or governmental subdivision or agency” as part of the definition of “person” in the statute, there is a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” and that waivers of sovereign immunity need to be “unambiguous and unequivocal.” The appellate court noted that Congress waived immunity in other sections of the FCRA, which were not at issue in this case and, had Congress waived immunity for enforcement purposes under the FCRA, it would raise a new host of “befuddling” and “bizarre” issues, such as the prospect of the government bringing criminal charges against itself. Therefore, the appellate court concluded that the federal government may be a “person” under the substantive provisions, but that without a clear waiver from Congress, the federal government is still immune from lawsuits under the FCRA’s enforcement provisions.
On March 1, the Superior Court of New Jersey Appellate Division affirmed a lower court’s order granting summary judgment to an auto finance company and dismissing with prejudice a plaintiff’s New Jersey Consumer Fraud Act (CFA) and Fair Credit Reporting Act (FCRA) claims. According to the opinion, the plaintiff entered into a lease agreement for a vehicle serviced by the defendant. The plaintiff, who incurred late charges on 35 of her 39 monthly payments of $300, returned the vehicle before the end of the lease and was required to pay a $495 vehicle return fee, along with wear and tear fees and late charges. The plaintiff subsequently entered into a new lease transaction, in which the dealership agreed to pay the defendant the outstanding payments on her old lease, but did not, according to the court, waive the vehicle return fee. The dealership paid the full balance to the defendant after the plaintiff received notification about an overdue lease payment, and the day after the dealership’s payment was applied, the plaintiff paid an additional $300—which was mistakenly applied to a $395 disposition fee, as opposed to the larger vehicle return fee. The plaintiff made a final payment of $655 to settle the balance of the disposition fee as well as wear and tear fees and late charges. A complaint was filed later by the plaintiff against the defendant alleging that it fraudulently procured an additional $300 lease payment and falsely reported that she was delinquent on payments.
Affirming the lower court, the appeals court concluded that the defendant’s representations regarding the outstanding $300 payment were accurate and, under the lease terms, the plaintiff remained responsible for the vehicle return and wear and tear fees. In addition, the appeals court held that the plaintiff’s FCRA claim failed because the record confirmed that within 30 days of being notified of a dispute with the plaintiff’s credit score, the defendant conducted an investigation and requested that the credit reporting agencies remove the “late marks.”
On February 26, the U.S. District Court for the Northern District of California granted summary judgment in favor of Fannie Mae in an action brought by a consumer alleging that Fannie Mae violated the California Consumer Credit Reporting Agencies Act (CCCRA) and the Fair Credit Reporting Act (FCRA) by prohibiting lenders from providing consumers a copy of Fannie Mae’s Desktop Underwriter (DU) report. According to the opinion, two years after completing a short sale on his previous home, a consumer sought a mortgage with three lenders. One lender used Fannie Mae’s DU program to determine if the loan would be eligible for purchase by the agency, but the DU report listed his prior mortgage loan as a foreclosure rather than a short sale. The lender ultimately denied the application, rather than manually underwrite it. Upon reviewing Fannie Mae’s motion for summary judgment, the court noted that in order for the consumer to succeed on his CCRA and FCRA claims, he must establish Fannie Mae is a credit reporting agency. The court rejected the consumer’s attempts to distinguish his case from the recent 9th Circuit decision in Zabriskie v. Fed. Nat’l Mortg. Ass’n, which held that Fannie Mae was not a credit reporting agency under the FCRA. (Covered by InfoBytes here.) The court acknowledged that even though Fannie Mae may have problems with its foreclosure recommendations in the DU system, it does not undercut the conclusion that Fannie Mae operates the DU system to assist lenders in making purchasing decisions, does not “regularly engage in . . . the practice of assembling or evaluating” consumer information, and therefore, is not a credit reporting agency.
On February 21, Maxine Waters released a discussion draft version of the “Comprehensive Consumer Credit Reporting Reform Act of 2019,” which would significantly amend the FCRA. The draft legislative proposal was released as supporting material for the February 26 House Financial Services Committee hearing titled, “Who's Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System.” The CEOs of the three major credit reporting agencies and a panel of officials from major consumer groups testified at the hearing.
The draft bill— versions of which Waters has also introduced in previous Congressional sessions—includes (i) significant changes to the dispute process, such as allowing consumers to appeal determinations; (ii) banning the use of credit information for certain employment decisions; (iii) removing adverse information for certain private education loan borrowers who demonstrate positive payment history; (iv) shortening the time period that most adverse credit information stays on a credit report from seven to four years; and (v) establishing federal oversight over the development of credit scoring models.
On February 19, the U.S. District Court for the District of Maryland denied a bank’s renewed motion to dismiss FCRA claims by a consumer alleging the bank accessed his credit report without a permissible purpose. Specifically, the consumer alleged his credit report included two credit inquires by the bank for “promotional” purposes but that he never received any offers of credit from the bank. According to the consumer, a bank representative told him to dispute the “illegitimate” credit inquiry with the credit reporting agency, and so he filed suit. The bank moved to dismiss, arguing the facts allegedly failed to establish the bank obtained the credit report without a permissible purpose. The court, however, held that the consumer’s allegations that he did not receive an offer of credit and that a representative advised him the inquiry was illegitimate were sufficient to establish—at the motion to dismiss stage—that no firm offer of credit was extended. In response to the bank’s argument that the consumer’s alleged emotional distress damages based on “invasion of privacy” were implausible—because they would have occurred whether or not there was a permissible purpose for the credit pull—the court noted that unauthorized credit disclosures have been “long seen as injurious,” and that the bank cannot attack the harm experienced by the consumer simply because the “harm would still have existed if [the bank] had acted lawfully.”
On February 7, the Ohio Court of Appeals reversed a state trial court’s decision in favor of a national bank, holding that the bank failed to prove it had the right to charge interest exceeding the statutory limit on a credit card account. At trial, the bank sought payment of the consumer’s store credit card debt it acquired in a merger. The consumer argued that the bank had no standing to sue because it failed to prove ownership of the store credit card account. The trial court denied the consumer’s motion to dismiss and granted the bank’s motion for a directed verdict after trial.
The appeals court agreed that, even though the bank was unable to establish that it acquired the consumer’s account, it had standing to bring its collection action by virtue of its own credit card agreement with the consumer and the consumer’s continued use of the card. But because the bank could only produce periodic statements that included the claimed interest rate, it failed to establish that the consumer “assented to any explicitly set forth interest rate over the statutory limit.” Thus, the trial court “erred in granting [the bank’s] motion for a directed verdict as to the precise amount of damages awarded,” and the appeals court remanded with instructions to determine whether Ohio law, as argued by the consumer, or South Dakota law, as argued by the bank, should be applied to verify the applicable statutory interest rates.
- Buckley Webcast: Maintaining privilege in cross-border internal investigations
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program