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Financial Services Law Insights and Observations

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  • Ohio Court of Appeals reverses trial court because no evidence consumer agreed to interest rate

    Courts

    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.

    Courts FCRA State Issues Credit Furnishing Interest Rate

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  • District Court holds state law claims preempted by FCRA

    Courts

    On February 8, the U.S. District Court for the Western District of North Carolina dismissed a consumer’s state law claims under the North Carolina Unfair and Deceptive Trade Practices Act and civil conspiracy claims because they were preempted by the FCRA. According to the opinion, which affirmed and adopted a Magistrate Judge’s recommendation, and also allowed the consumer’s FDCPA claims to proceed, the consumer alleged the furnisher improperly filed delinquencies on his credit report, wrongfully refused to remove the delinquencies, and improperly handled the investigation of his claims. The consumer had objected to the Magistrate’s conclusions with regard to the state law claims, arguing that the FCRA preemption was not applicable because the unfair and deceptive conduct occurred after the furnisher allegedly reported inaccurate information to the credit bureaus. The district court rejected this argument, concluding that the state law claims “run [] into the teeth of the FCRA preemption provision” and are “squarely preempted” by the federal statute.

    Courts FCRA Preemption State Issues Credit Report

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  • FDIC, Federal Reserve issue Voluntary Private Education Loan Rehabilitation Programs advisory

    Agency Rule-Making & Guidance

    On February 4, the FDIC and the Federal Reserve Board issued a joint advisory on Voluntary Private Education Loan Rehabilitation Programs to alert financial institutions of an amendment to section 623 of the Fair Credit Reporting Act (FCRA) contained within section 602 of the Economic, Growth, Regulatory Relief and Consumer Protection Act. The amendment provides a safe harbor from potential claims of inaccurate reporting under the FCRA, provided the financial institutions who choose to offer private education loan rehabilitation programs satisfy section 602’s statutory requirements before removing a reported default from a qualified borrower’s credit report.

    Agency Rule-Making & Guidance FDIC Federal Reserve Student Lending FCRA EGRRCPA

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  • 9th Circuit holds inclusion of state disclosure requirements violate FCRA standalone requirement

    Courts

    On January 29, the U.S. Court of Appeals for the 9th Circuit held that the defendant employer violated the Fair Credit Reporting Act’s (FCRA) standalone document requirement when it included extraneous state disclosure requirements within a disclosure to obtain a consumer report on the plaintiff, a prospective employee. The panel also concluded that the defendant’s form failed to satisfy both the FCRA and the California Investigative Consumer Reporting Agencies Act’s (ICRAA) “‘clear and conspicuous’ requirements because, although the disclosure was conspicuous, it was not clear.” According to the opinion, the plaintiff signed a “Disclosure Regarding Background Investigation,” and was employed for several months before voluntarily terminating her employment. Following her departure from the company, the plaintiff filed a putative class action against the defendant, alleging a failure to make proper disclosure under the FCRA and the ICRAA. The plaintiff claimed that the disclosure form included not only a disclosure as required by the FCRA stating that the defendant could obtain a consumer report on her, but also additional disclosure requirements for several other states.

    The district court initially granted the defendant’s motion for summary judgment as to the FCRA and as to ICRAA’s clear and conspicuous requirement, holding that the disclosure form complied with both statutes. On appeal, the 9th Circuit first rejected the plaintiff’s assertion that the disclosure form violated the standalone document requirements because it included all the application materials she filled out during the employment process. The panel declined to extend this principle to the FCRA’s definition of a “document,” stating that the employment packet was distinct from the disclosure form. However, the 9th Circuit cited to its 2017 decision in Syed v. M-I, LLC, which held that “‘a prospective employer violates Section 1681b(b)(2)(A) when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure.’” Noting the statute’s plain language, the 9th Circuit concluded in Syed that the FCRA meant what it said—“the required disclosure must be in a document that ‘consist[s] ‘solely’ of the disclosure.’” Moreover, the panel stated that Syed considered the standalone requirement with regard to any surplusage, and that the “FCRA should not be read to have implied exceptions, especially when the exception—in that case, a liability waiver—was contrary to FCRA’s purpose.”

    The 9th Circuit also concluded that the district court erred in holding that the disclosure form was clear because the form (i) contained language a reasonable person would not understand, and (ii) the language combined federal and state disclosures, which would confuse a reasonable reader. However, the panel held that the disclosure form met the conspicuous requirement since the defendant capitalized, bolded, and underlined the headings for each section of the disclosure and labeled the form so an applicant could see what she was signing. Accordingly, the 9th Circuit affirmed in part and vacated in part the district court’s decision, and remanded the case for further proceedings.

    Courts FCRA Ninth Circuit Appellate Disclosures State Issues

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  • District Court: FCRA lawsuit passes Spokeo test, survives motion to dismiss

    Courts

    On January 8, the U.S. District Court for the Northern District of Illinois denied a bank’s motion to dismiss claims that it had obtained a credit report without a permissible purpose, ruling that the allegations rise above a mere procedural violation of the FCRA. According to the opinion, the consumer alleged that the bank accessed her credit report and obtained personal information, including current and past addresses, birth date, employment history, and telephone numbers, without having a personal business relationship, information to suggest the consumer owed the debt, or receiving consent for the release of the report. The bank argued that the consumer’s claim was only a “bare procedural violation” and not a concrete injury in fact as required under the U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Sandler Special Alert). However, the court determined that the consumer’s allegation that the invasion of privacy, which occurred when the bank accessed her credit report from a consumer reporting agency without receiving consent and with no legitimate business reason to do so, “adequately alleges a concrete injury sufficient to confer standing.”

    Courts Privacy/Cyber Risk & Data Security Spokeo Credit Report FCRA

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  • 9th Circuit: Fannie Mae is not a consumer reporting agency under the FCRA

    Courts

    On January 9, the U.S. Court of Appeals for the 9th Circuit held that Fannie Mae is not a “consumer reporting agency” under the FCRA and therefore is not liable under the law. According to the opinion, homeowners attempted to refinance their current mortgage loan two years after completing a short sale on their prior mortgage. While shopping for the refinance, lenders used Fannie Mae’s Desktop Underwriting (DU) program to determine if the loan would be eligible for purchase by the agency. Three of the eight DU findings showed the loan would be ineligible due to a foreclosure reported for the homeowners within the last seven years, which was not true. The homeowners sued Fannie Mae alleging the agency violated the FCRA for inaccurate reporting. On cross motions for summary judgment, the lower court determined that Fannie Mae was liable under the FCRA for furnishing inaccurate information because the agency “acts as a consumer reporting agency when it licenses DU to lenders.”

    On appeal, the 9th Circuit reviewed whether Fannie Mae was a consumer reporting agency under the FCRA and noted that the agency must “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, which Fannie Mae argues it does not do. Specifically, the agency asserts that it simply provides software that allows lenders to evaluate consumer information. The appeals court agreed, concluding that Fannie Mae created the tool but the person using the tool is the person engaging in the act. The court reasoned, “[t]here is nothing in the record to suggest that Fannie Mae assembles or evaluates consumer information.” Moreover, the court noted, if Fannie Mae were found to be a consumer reporting agency, it would be subject to other FCRA duties to borrowers, which “would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves.”

    Courts FCRA Fannie Mae Ninth Circuit Appellate Foreclosure Consumer Reporting Agency

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  • OCC issues statement on student loan rehabilitation programs

    Federal Issues

    On December 27, the OCC released Bulletin 2018-48, which announces an update to the “Student Lending” booklet of the Comptroller’s Handbook to include information about the rehabilitation programs for private education loans authorized under Section 602 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), signed into law in May 2018. Section 602 amends the Fair Credit Reporting Act to give student loan borrowers the option to request the removal of student loan default information from their credit report, if, among other things, (i) the lender offers a Section 602 rehabilitation program that has been approved by the bank’s appropriate federal regulator; (ii) the borrower meets the bank’s program criteria, including a demonstrated willingness and ability to repay the loan; and (iii) the borrower has not previously removed a default on the same loan. Although the Act does not require lenders to offer a Section 602 rehabilitation program, those that do are entitled to a safe harbor from claims of inaccurate reporting for removing a default.

    The Bulletin also details the process for obtaining regulatory approval for a Section 602 rehabilitation program. The Bulletin notes that banks intending to establish a Section 602 program must seek written approval from their supervisory office concerning the proposed program, and that the office will review the program to ensure it is consistent with the Act’s minimum requirements, other applicable laws and regulations, and safe and sound banking principles. The OCC will provide feedback or notify the bank of its decision within 120 days of the request.

    Federal Issues OCC Student Lending FCRA Comptroller's Handbook

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  • CFPB releases annual adjustments to HMDA, TILA, and FCRA; agencies release CRA asset-size threshold adjustments

    Federal Issues

    On December 31, the CFPB published final rules adjusting both the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z), and the maximum amount consumer reporting agencies may charge consumers for providing the consumer the consumer’s credit file under FCRA. All rules take effect on January 1, 2019.

    Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $45 million to $46 million, thereby exempting institutions with assets of $46 million or less as of December 31, 2018, from collecting and reporting HMDA data in 2019.

    TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.112 billion to $2.167 billion, thereby exempting creditors with assets of $2.167 billion or less as of December 31, 2018, from the requirement to establish escrow accounts for HPMLs in 2019.

    Lastly, the FCRA permits consumer reporting agencies to impose a reasonable charge on a consumer when disclosing the consumer’s credit file in certain circumstances. Where the annual adjustment to this maximum charge had historically been announced via regulatory notice, the Bureau is now codifying the maximum charge in Regulation V. For 2019, the Bureau increased the maximum amount consumer reporting agencies may charge for making a file disclosure to a consumer from $12.00 to $12.50.

    Separately, on December 20, the Federal Reserve Board, the OCC, and the FDIC (collectively, the “Agencies”) jointly announced the adjusted asset-size thresholds used to define “small” and “intermediate small” banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2019, a “small” bank or savings association will be defined as an institution that, as of December 31 of either of the past two calendar years, had assets of less than $1.284 billion. An “intermediate small” bank or savings association will be defined as an institution with assets of at least $321 million as of December 31 of both of the past two calendar years, but less than $1.284 billion in assets as of December 31 of either of the past two calendar years. The Agencies published the annual adjustments in the Federal Register on December 27.

    Federal Issues CFPB TILA HMDA FCRA Federal Reserve OCC FDIC CRA Consumer Reporting Agency

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  • Court orders judgement in favor of defendants in FCRA action based on limitations of Wisconsin “alternative-to-bankruptcy” statute

    Courts

    On October 26, the U.S. District Court for the Eastern District of Wisconsin denied a plaintiff’s motion for summary judgment and instead entered judgement in favor of two creditors and two consumer reporting agencies (collectively, “defendants”), holding that the debtor failed to show a factual inaccuracy in the credit reporting of a debt. According to the opinion, the debtor successfully completed an amortization plan under Section 128.21 of the Wisconsin Statues, an “alternative to bankruptcy” law that allows debtors to file an action that establishes “a personal receivership wherein, much like in a federal Chapter 13 ‘wage earners’ bankruptcy, a person may amortize problem debts through a deliberate and scheduled repayment plan.” Subsequently, the debtor submitted disputes to two consumer reporting agencies that still showed balances due on the credit lines for both creditors. In response, the creditors argued that the debtor understated the balances owed to them during the Section 128.21 proceeding and as a result, a balance still existed. The debtor filed suit against the defendants alleging multiple violations of the FCRA. In response, the defendants argued that the state court order dismissing the debtor’s Section 128.21 action only covers the amount of the debt submitted by the debtor in the Section 128.21 proceeding and does not cover the interest and late charges the debtor failed to include in the claim. The district court agreed and dismissed the action, determining that the Wisconsin statute applies only to claims included in the plan and does not dismiss debts in their entirety. The court concluded, “as a result, unless and until a proper tribunal concludes the [Section 128.21] proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, [debtor] cannot establish the reported information is factually inaccurate,” and therefore, the debtor’s FCRA claims failed as a matter of law.

    Courts FCRA Consumer Finance Bankruptcy State Issues

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  • FTC announces settlement over tenant-screening FCRA violations

    Consumer Finance

    On October 16, the FTC announced that it reached 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. The FTC alleges that the company compiled screening reports through an automated system using broad criteria that incorrectly matched applicants to criminal records. Additionally, the company allegedly lacked policies or procedures to assess the accuracy of those results, which led to some renters being turned down for housing. The settlement requires the company to pay $3 million—the largest civil penalty ever assessed by the FTC against a background screening company. In addition, the company must maintain reasonable procedures to ensure consumer reports contain the maximum possible accuracy of information and is subject to compliance, recordkeeping, and reporting requirements.

    Consumer Finance FTC Settlement FCRA Consumer Reporting

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