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CFPB bans medical debt in credit reporting decisions
On June 11, the CFPB released a proposed rule to ban obtaining or using medical information for credit eligibility determinations. Specifically, the proposed rule would amend the FCRA to remove the medical financial information exception and limit credit reporting of medical debt.
In 2003, Congress amended the FCRA to restrict creditors’ use of medical information for purposes of making credit eligibility determinations, and it authorized the banking agencies to issue exemptions from the restriction through rulemaking. In 2005, the banking agencies issued a regulatory exception to permit creditors to obtain and use consumers’ medical financial information when making credit eligibility determinations if certain conditions were met. The CFPB’s proposed rule would roll back the 2005 exception, in addition to other changes. First, the proposed rule would remove the financial information exception that permits creditors to obtain and use medical and financial information (including regarding medical debt) in connection with credit eligibility decisions (with certain limited exceptions). Second, the proposed rule would limit consumer reporting agencies’ ability to furnish medical debt information to creditors.
CFPB Director Rohit Chopra noted in prepared remarks that the proposed rule would eliminate the “loophole” that allowed lenders to access and use medical debt information, which he argued would align regulations with congressional intent. A fact sheet from the White House, published on behalf of Vice President Kamala Harris and Director Chopra, stated that this action builds on prior efforts by the Biden-Harris administration to reduce the burden of medical debt.
As previously covered by InfoBytes, the Bureau announced this initiative in September 2023. The CFPB signaled its interest in proposing this rule when it threw its support behind Connecticut SB 395, which bans the inclusion of medical debt in consumer reports (covered by InfoBytes here). The proposed rule would go into effect 60 days following publication in the Federal Register.
CFPB sues student loan servicer over discharged student loan collections
On May 31, the CFPB announced its lawsuit against a Pennsylvania-based student loan servicer (the defendant) for allegedly collecting on discharged loans. According to the complaint, the defendant lacked policies and procedures for identifying serviced loans that were discharged by bankruptcy courts. The CFPB alleged that the defendant continued to collect on discharged non-qualified education loans by making misrepresentations to consumers through repayment schedule letters and billing statements. Furthermore, the Bureau alleged that the defendant’s failure to establish policies for private student loans that were discharged resulted in its furnishing inaccurate information to consumer reporting agencies. The Bureau added that even if consumers did not continue to pay on their discharged loans, they were not reasonably able to avoid the defendant’s collection attempts and the credit information it furnished. The CFPB also claimed that consumers were unable to protect their interests because they could not choose their loan servicer and had no control over its collection practices. The defendant’s actions were in violation of the CFPA based on several violation of Regulation V. The defendant allegedly violated the FCRA, too. The Bureau sought injunctive relief, consumer redress, a civil money penalty, and other relief.
CFPB sues online lending platform for alleged CFPA, FCRA violations
On May 17, the CFPB announced a lawsuit against an online lending platform through which consumers could obtain small-dollar, short-term loans through a brokering arrangement with lenders. The CFPB alleged the platform violated the CFPA through its deceptive advertisements to consumers on the platform’s alleged promotion of financing terms which included “no interest,” “0% APR,” or “0% interest” but instead invited consumers to provide “tips” and “donations” to lenders, which, would increase the likelihood of a loan being funded. The CFPB further alleged that while the platform marketed zero-interest loans, the platform did not provide users an option for a $0 donation fee or to skip the fee altogether. The Bureau claimed, “almost all of [the platform’s] loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.” The Bureau also claimed the platform violated the CFPA by providing misleading TILA disclosures that did not contain the cost of the additional fees and tips in the quoted total payments.
The complaint alleged further violations of the CFPA where the platform (i) obscured whether and how borrowers can select the option for no donation or tip; (ii) stated or implied through its practices that consumers were obligated to repay loan amounts although the loans violated the applicable states’ lender-licensing or usury laws that declared such loans void ab initio or limited consumers’ obligation to repay; (iii) requested to collect and collects on void loans consumers were not obligated to repay for the aforementioned reason; (iv) misleadingly implied that it will furnish negative information to the credit bureaus unless the consumer makes a payment, without actually intending to do so; and (v) violated the FCRA.
The CFPB’s complaint stated that because the platform was a consumer reporting agency under the FCRA and therefore would be required to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB will seek, among other things, injunctions against the platform to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.
11th Circuit finds plaintiffs failed to show FCRA information is “objectively” available
On April 24, the U.S. Court of Appeals for the Eleventh Circuit found a defendant, a hotel timeshare company, not liable to two former clients for inaccurately reporting their unpaid debts to a consumer reporting agency (CRA) in violation of the FCRA, as alleged.
The plaintiffs stopped making monthly payments and, citing the terms of their timeshare agreements, considered their obligations to the company canceled. The hotel timeshare company disagreed and reported the plaintiffs’ debts to a CRA, prompting the plaintiffs to sue for an alleged inaccurate furnishing of data. The hotel timeshare company moved for summary judgment and the district court granted it after finding the alleged inaccuracies related to legal, not factual, disputes and therefore not actionable under Section 1692s-2 of the FCRA. The district court reasoned that “a plaintiff asserting a claim against a furnisher for failure to conduct a reasonable investigation cannot prevail… without demonstrating that had the furnisher conducted a reasonable investigation, the result would have been different.”
On appeal, the 11th Circuit held that furnishers were not required to resolve “contractual dispute[s] without a straightforward answer” when furnishing information, even if they could be required “to accurately report information derived from the readily verifiable and straightforward application of law to facts.” Because the underlying contract dispute in this case was subject to reasonable dispute, the court found that the information was not “inaccurate” and thus the plaintiffs did not have actionable claims against the defendant under the FCRA. The court pointed out that the consumers could sue for a declaratory judgment that they did not owe the debt and, if successful, use that as a “cudgel” to persuade a furnisher to stop reporting a debt. But the plaintiffs here had not done that yet. For these reasons the 11th Circuit affirmed the lower court’s judgment. As previously covered by InfoBytes, the CFPB and FTC filed an amicus brief while the case had been appealed in favor of the plaintiffs arguing that a furnisher’s duty under the FCRA would apply not only to factual disputes but also to disputes that are legal in nature.
CFPB’s Frotman speaks on medical debt collections and rental financial products
On April 11, the General Counsel of the CFPB, Seth Frotman, delivered a speech at the National Consumer Law Center/National Association of Consumer Advocates Spring Training, highlighting how the FDCPA and the FCRA cover often-overlooked sectors of consumer finance, including medical collections and landlord-tenant debts. As to medical billing, collections, and credit reporting, Frotman noted that the CFPB has received more than 15,000 complaints in the past two years, as explained previously in the CFPB’s most recent FDCPA annual report (covered by InfoBytes here). These complaints led to the CFPB initiating a rulemaking process to “remove medical bills from credit reports.” Frotman highlighted that many states have taken similar initiatives: Colorado and New York both enacted laws prohibiting the reporting of medical debt, and the CFPB encouraged more states to follow their lead; Connecticut recently introduced legislation banning medical debt in SB 395. Of interest, Frotman noted that when the CFPB contacted debt collectors about suspected bills, they often closed the account – suggesting that these collectors “do not have confidence that this money [was] actually owed,” indicating that collectors could be seeking to collect an invalid medical debt from consumers.
On rental collections and credit reporting, Frotman noted an increase in the “financialization” of the landlord and tenant relationship, such as products to finance security deposits or rent and offering rent-specific credit cards. Frotman also noted that corporate landlords, who have increased their share of the rental housing market, have increased the demand for “tenant screening” products that score prospective tenants. Frotman expressed concern that the algorithms relied on by these tenant screening products have been opaque and even discriminatory. The speech highlighted the CFPB’s focus on tenant screening as part of the Bureau’s increased attention toward debt collection and credit reporting companies generally in the rental industry. For instance, the CFPB noted that law firms that operate as “eviction mills” (i.e., firms that “rubber stamp” eviction actions without performing a meaningful review) could be held liable under the FDCPA.
CFPB reports on consumer reporting companies' compliance violations
On April 8, the CFPB released its Supervisory Highlights on consumer reporting companies (CRC) and furnishers from April to December 2023. With respect to CRCs, the CFPB found deficiencies related to (i) placing identity theft blocks on consumer reports, (ii) blocking adverse items identified by a consumer as the result of human trafficking, and (iii) the accuracy of information in consumer reports.
For identity theft, the CFPB noted that some CRCs automatically declined to implement identity theft blocks based on overly broad, disqualifying criteria that did not support a reasonable determination, in violation of the FCRA. CRCs also failed to properly notify these customers that they declined these identity blocks.
Regulation V required CRCs to block adverse items of information identified by a consumer from human trafficking. While CRCs must block these items within four business days of such request, the CFPB found CRCs either failed to timely block these items or that CRCs blocked some, but not all such items.
In failing to ensure the maximum possible accuracy of consumer reports, the CFPB found that CRCs (i) inadequately monitored dispute metrics that may suggest a furnisher would not a reliable source of information about consumers, and (ii) failed to implement procedures to ensure the accuracy of information provided by unreliable furnishers and continued to include such information in reports.
With respect to furnishers, the CFPB similarly found deficiencies in accuracy, dispute investigation, and identity theft requirements. Specifically, CFPB examiners found that furnishers reported incomplete or inaccurate information for several months or even years after determining the information was incomplete or inaccurate. Additionally, furnishers that received direct disputes both continued to report such information and failed to notify CRCs of the disputed information. The report also noted that furnishers who received proper identity theft reports continued to furnish information regarding the consumer before confirming the accuracy of the information with the consumer.
District Court severs NJFCRA requirement that agencies must provide credit disclosures in 10 languages
On March 27, the U.S. District Court for the District of New Jersey granted in part and denied in part both the Attorney General for the State of New Jersey’s (AG) motion for summary judgment and a plaintiff international trade association’s motion for summary judgment. In particular, the court held that the New Jersey Fair Credit Reporting Act’s (NJFCRA) 2019 amendment requiring national consumer reporting agencies (NCRAs) to provide consumer reports in a language other than English (if requested) was not preempted by the federal Fair Credit Reporting Act. However, the court stopped short of requiring NCRAs to provide the disclosures in “at least ten languages” in addition to Spanish on First Amendment grounds, explaining that the requirement imposed under the NJFCRA only required a rational basis and while a rational basis existed for Spanish (due to, among other things, the high percentage of Spanish speaking constituents in New Jersey), it did not exist for the additional languages given the relatively lower prevalence of those other languages. Accordingly, the court severed the provision that mandated that credit file disclosures be provided in at least 10 languages.
District Court grants MSJ in FCRA case in favor of defendant
Recently, a plaintiff sued under the FCRA, alleging that the defendant debt collector failed to conduct a reasonable investigation into a disputed credit report item. The plaintiff claimed to be a victim of identity theft and contended that an outstanding telephone debt should not have been listed on his credit report. The defendant maintained that it had performed its duties reasonably, relying on information from the phone company for which it acted as a debt collector. The defendant moved for summary judgment on the grounds that the plaintiff had not provided any evidence to support the claim of an unreasonable investigation by defendant. The U.S. District Court for the Southern District of Florida granted the motion for summary judgment, agreeing with the defendant that the plaintiff had failed to provide any substantial evidence regarding how the defendant’s investigation was conducted or why it was unreasonable.
U.S. SDNY grants partial summary judgment in favor of bank’s FCRA case
Recently, the U.S. District Court for the Southern District of New York opined on a bank’s motion for partial summary judgment, granting the motion as to whether the bank “knowingly” violated the FCRA but denying whether the bank acted “recklessly.” The complaint originated when the individual plaintiff opened a credit card and the plaintiff, along with other cardholders, was enrolled in a disaster relief program (DRP) that provided short-term relief for customers negatively impacted by the Covid-19 pandemic. The plaintiff alleged that the bank reported an outstanding account balance to the credit bureaus as delinquent despite promising that the balance would not be reported due to the protections of the DRP. Upon discovering this, the plaintiff disputed the reporting with the bank. The bank then investigated the plaintiff’s payment history, concluding that there had been no error because there was in fact an outstanding delinquent balance. The plaintiff eventually filed complaints with the CFPB in 2022 and proceeded to file suit later that year.
The plaintiff alleged that the Bank failed to conduct a reasonable investigation by limiting the investigation to the plaintiff’s payment history, and by failing to consider whether the delinquent balance should have been reported due to the protections of the DRP. The court found that a reasonable jury could determine the bank recklessly reported the outstanding account balance to the credit bureaus without performing a reasonable investigation, and thus denied summary judgment. The court noted that the bank’s investigation relied on automated computer programs as to some items, and a manual review that was limited to the account history as to other items.
The bank argued it did not “knowingly” violate the FCRA. The court agreed and found the bank could not be “consciously aware” that a violation would come about as a result of its investigation, concluding the bank is entitled to summary judgment on whether it “knowingly” violated § 1681s-2(b) of FCRA.
Supreme Court agrees with Third Circuit that consumers may sue “any” government entity under FCRA
On February 8, the Supreme Court of the United States unanimously decided that a consumer can sue any government agency—in this case the U.S. Department of Agriculture (USDA)—for damages for violating the Fair Credit Reporting Act of 1970, as amended by the Consumer Credit Reporting Reform Act of 1996 (the Act). The court found that government agencies are expressly included in the definition of any “person” who violates the statute. On appeal from the 3rd Circuit, the case involved an individual who sued the USDA for monetary damages under FCRA, alleging that the USDA furnished incorrect information to a credit reporting company stating that his account was past due, damaging his credit score and impairing his ability to access affordable credit.
In affirming the 3rd Circuit’s reversal of the lower court’s dismissal of the case, the Supreme Court noted that, while the U.S. is “generally immune” from monetary judgment suits as a sovereign body, Congress can waive this immunity. Applying a “clear statement” rule, the Supreme Court interpreted the Act’s statutory language that authorizes consumer suits for money damages against “[a]ny person” who willfully or negligently fails to comply with [the law]” to constitute a clear waiver of federal government sovereign immunity. As the Court explained, “the Act defines the term ‘person’ to include “any . . . governmental . . . agency,” therefore “FCRA clearly waives sovereign immunity in cases like this one.”