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District court denies dismissal and stay of CFPB action
On November 30, the U.S. District Court of the District of Maryland denied a motion to dismiss an action brought by the CFPB against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”), rejecting the defendants’ argument that the Bureau lacked standing to bring the action. As previously covered by InfoBytes, in September 2019, the Bureau alleged the defendants violated the FCRA, FDCPA, and the CFPA by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The defendants moved to dismiss the action arguing, among other things, that (i) the Bureau lacks standing to bring the action; and (ii) Director Kraninger’s ratification of the litigation was invalid. In the alternative, the defendants moved to stay the lawsuit until the U.S. Supreme Court issued a ruling in Collins v. Mnuchin (covered by InfoBytes here).
The court denied the motion to stay, concluding that the issues pending before the Supreme Court in Mnuchin may not necessarily apply to the Bureau, as they are different agencies and further, there is no issue of ratification in Mnuchin. Thus, given the “uncertainty surrounding the effect a decision in Collins v. Mnuchin will have on the present case,” the court denied the motion to stay. The court also denied the motion to dismiss, concluding, among other things, that the Supreme Court’s finding in Seila Law LLC v. CFPB (covered by a Buckley Special Alert) that the Bureau had a constitutional defect in its leadership structure under Article II does not diminish the agency’s Article III standing. Moreover, the court concluded that the decision in Seila Law does not mean that the Bureau “lacked authority during the time in which it was led by an improperly removable Director,” and therefore the Bureau had the authority to initiate the September 2019 lawsuit against the defendants. Further, the court held that the July 2020 ratification of the enforcement action was proper.
CFPB settles with debt collector over credit reporting violations
On November 12, the CFPB announced a settlement with an Illinois-based non-bank debt collector, resolving allegations that the company violated the Fair Credit Reporting Act (FCRA), Regulation V, and the Consumer Financial Protection Act when providing information to consumer reporting agencies (CRAs). According to the Bureau, the company allegedly (i) “furnished information to CRAs that it knew or had reasonable cause to believe was inaccurate and failed to report to CRAs an appropriate first date of delinquency on certain accounts”; (ii) failed to conduct reasonable investigations into disputes reported to the company and to the CRAs; (iii) failed to send required notices about the results of investigations; and (iv) “failed to establish, implement, and update its policies and procedures regarding its furnishing of consumer information to CRAs.” According to the consent order, the company, among other things, allegedly furnished actual payment amounts as $0.00 on roughly 165,000 accounts even though consumers had made payments. For about 72,000 accounts, the company allegedly furnished current balances and amounts past due in amounts other than $0.00 even though the accounts were settled in full.
The consent order requires the company to pay a $500,000 civil money penalty and to (i) regularly review samples of furnished account information for accuracy and integrity; (ii) review samples of consumer disputes to ensure they are handled in compliance with the FCRA; (iii) update its policies and procedures to ensure compliance and continued effectiveness; and (iv) secure at least one independent consultant who specializes in FCRA and Regulation V compliance to conduct a review of the company’s activities, policies, and procedures related to furnishing and credit reporting.
CFPB will not alter credit reporting guidance deadline relief
On November 9, CFPB Director Kathy Kraninger sent a letter to the National Consumer Law Center (NCLC) stating that the Bureau is not planning to make any changes to the guidance it issued in April (covered by InfoBytes here), which informed furnishers that the Bureau will refrain from taking enforcement actions and citing during exams in certain situations as long as furnishers make “good faith efforts” to investigate consumer disputes as quickly as possible. The letter was sent in response to a request made by the NCLC and several other consumer advocacy groups in September, which urged the Bureau to revoke the policy based on an alleged rise in consumer complaints received by the Bureau about dispute investigation delays. The advocacy groups claimed that the significant increase was “likely as a result of the CFPB guidance,” and requested that—at a minimum—the Bureau “limit the extra time provided to the CRAs and furnishers to 15 days, or at most 30 days beyond the FCRA-mandated 30-day deadline for investigation disputes.”
“I want to make clear that all companies continue to remain responsible for FCRA compliance with dispute resolutions in a timely fashion,” Kraninger responded. “However, during the extraordinary times in which we find ourselves, the Bureau does not intend to cite in an examination or bring an enforcement action against firms who exceed the deadlines to investigate such disputes—but only as long as efforts are made in good faith to do so as quickly as possible.” (Emphasis in the original.)
9th Circuit affirms arbitration in putative class action against CRA
On October 21, the U.S. Court of Appeals for the Ninth Circuit affirmed arbitration in a FCRA action against a national credit reporting agency (CRA), concluding that the consumer “expressly agreed” to the 2014 terms of use, which included an enforceable arbitration provision. According to the opinion, a consumer purchased a credit score program from the CRA in June 2014 and assented to the terms and conditions, including an arbitration provision and change-of-terms provision, which stated that each time the consumer accessed the website, “she would be manifesting assent to ‘the then current’ terms of the agreement.” The consumer canceled her credit score subscription in July 2014. The consumer accessed the CRA website against in 2018 and at the time of access, the arbitration provision included a carve out for certain disputes relating to the FCRA. The consumer subsequently filed a putative class action against the CRA, alleging, among other things, a violation of the FCRA’s requirement to assist the consumer in understanding the credit scoring assessment. The district court granted the CRA’s motion to compel arbitration.
On appeal, the 9th Circuit concluded that the consumer was not bound to the new arbitration terms based on her 2018 visit to the website. The appellate court noted that the consumer did not allege she received notice of the new terms in effect, and therefore, she was bound to the 2014 terms to which she had previously assented. Moreover, the appellate court rejected the consumer’s argument that the arbitration agreement was unenforceable under the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable). The appellate court held that the 2014 arbitration provision did not “flatly prohibit a plaintiff seeking public injunctive relief in court,” because it subjects disputes to arbitration “to the fullest extent of the law,” which presumably would “exclude claims for public injunctive relief in California.” Thus, the appellate court affirmed arbitration.
District court: Credit reporting restrictions preempted by FCRA
On October 8, the U.S. District Court for the District of Maine granted a trade association’s motion for declaratory judgment against the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) after it sued the state for enacting amendments to the Maine Fair Credit Reporting Act. The trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—filed the lawsuit concerning the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the federal Fair Credit Reporting Act (FCRA). The parties’ main contention was over how broadly the language under FCRA Section 1681t(b)(1)(E) concerning “subject matter regulated under . . . [15 U.S. C. § 1681c] relating to information contained in consumer reports” should be understood. Plaintiffs argued that the language should be read to encompass all claims relating to information contained in consumer reports. The defendants, on the other hand, claimed that § 1681c should be read “as an itemized list of narrowly delineated subject matters, some of which relate to information contained in consumer reports, and only find preemption where a state imposes a requirement or prohibition that spills into one of those limited domains,” which in this case, the defendants countered, the amendments do not.
The court disagreed, concluding that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.”
CFPB denies petition to set aside CID; cites authority to seek “reasonably relevant” information
On August 27, the CFPB denied a petition by an auto financing company to set aside a civil investigative demand (CID) issued by the Bureau in June. The CID requested information from the company to determine, among other things, “whether auto lenders or associated persons, in connection with originating auto loans (including marketing and selling products ancillary to such loans), servicing loans, collecting debts (including through repossessing vehicles), or consumer reporting” may have violated the Consumer Financial Protection Act’s UDAAP provisions, as well as the FCRA and TILA. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that because certain aspects of the CID do not fall within a “reasonable construction of the CID’s notification of purpose,” and thus failed to provide fair notice as to what the Bureau is investigating, the CID should be “modified to strike each of these requests or clearly confine them to the enumerated topics.”
The Bureau rejected the company’s request to set aside or modify the CID, countering that (i) the particular requests that the company objects to are “all reasonably relevant to the Bureau’s inquiry as described in the notification of purpose,” and that the company cannot rewrite the CID’s notification of purpose to describe only four specific topics and then argue that the Bureau is asking for irrelevant information; and (ii) the Bureau has broad authority to seek information that may be “reasonably relevant” to an investigation, and that the Bureau’s “own appraisal of relevancy must be accepted so long as it is not obviously wrong.” According to the Bureau, the company failed to overcome this “high hurdle established in the judicial precedent.” However, the Bureau granted the company’s request for confidential treatment of its petition and attached exhibits by agreeing to redact certain proprietary business information and confidential supervisory information.
5th Circuit: Omitting a favorable credit item does not render a credit report misleading
On September 9, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a plaintiff’s FCRA claims against two consumer reporting agencies (CRAs), holding that omitting a favorable credit item does not render a credit report misleading. The plaintiff filed a lawsuit after the CRAs stopped reporting a favorable item—a timely paid credit card account—and refused to restore it, alleging that the refusal to include the item on his consumer report violated section 1681e(b), which requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. As a result, the plaintiff claimed his creditworthiness was harmed, which caused him to be denied a credit card and rejected for a mortgage. The district court dismissed the suit.
In affirming the dismissal, the 5th Circuit found that the omission of a single credit item does not render a report ”inaccurate” or “misleading.” According to the appellate court, a “credit report does not become inaccurate whenever there is an omission, but only when an omission renders the report misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” As such, “[b]usinesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.” The 5th Circuit further held, among other things, that the plaintiff failed to state a claim for violations of section 1681i(a), which requires agencies to conduct an investigation if consumers dispute “the completeness or accuracy of any item of information contained in a consumer’s file.” The court held that because the plaintiff “disputed the completeness of his credit report, not of an item in that report,” the statute did not require an investigation.
11th Circuit sides with satellite cable provider in FCRA action
On September 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of a cable satellite company, concluding that the company had a “legitimate business purpose” under the FCRA to obtain a consumer’s credit report. According to the opinion, in 2016, following an identity theft, the consumer entered into a settlement agreement with the cable satellite company after the consumer’s personal information was used to fraudulently open two accounts for television services. As part of the agreement, the company put the consumer’s personal information into an internal mechanism designed to flag and prevent unauthorized accounts. In 2017, an unknown individual applied for an account online using some of the consumer’s information. The company’s automated systems sent the information to a consumer reporting agency (CRA), which matched the information to the consumer and resulted in the cable satellite company blocking the account from being opened. Upon request by the company, the CRA deleted the inquiry from the consumer’s credit file. The consumer filed an action alleging that the company breached the settlement agreement and “negligently and willfully obtained the January 2017 consumer report without a ‘permissible purpose’” in violation of the FCRA. While the action was pending, two more attempts were made to use the consumer’s information to open accounts and the satellite company blocked both. The district court granted summary judgment in favor of the satellite company.
On appeal, the 11th Circuit agreed with the district court, concluding that the satellite company had a “legitimate business purpose” to access the credit report. Specifically, the appellate court noted that the “FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report.” Moreover, the satellite company was dependent on the credit report to access the consumer’s full social security number and “cross-check that information via its internal mechanisms.” Additionally, the appellate court rejected a claim for breach of the settlement agreement, noting that the company satisfied the terms of the agreement by flagging the social security number in its internal systems and using that system to block the fraudulent application for an account.
FTC proposes to amend five FCRA rules to apply only to auto dealers
On August 24, the FTC announced several Notices of Proposed Rulemaking (NPRM) intended to clarify that five Fair Credit Reporting Act (FCRA) rules promulgated by the FTC will now apply only to motor vehicle dealers. The NPRMs also propose non-substantive amendments to correspond to changes made to the FCRA by the Dodd-Frank Act, and will apply to the following rules:
- Address Discrepancy Rule. This rule requires users of consumer reports to implement policies and procedures for, among other things, handling notices of address discrepancy received from a nationwide consumer reporting agency (CRA) and furnishing an address for a consumer that a “user has reasonably confirmed as accurate to the CRA from whom it received the notice.” The proposed amendments narrow the scope of the rule to motor vehicle dealers excluded from CFPB jurisdiction.
- Affiliate Marketing Rule. This rule provides consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer. While the proposed amendments narrow the scope of the rule to “motor vehicle dealers” excluded from CFPB jurisdiction, they retain the substantive provisions of the rule because they “addresses the relationship between covered motor vehicle dealers and their affiliates, which may not be motor vehicle dealers.”
- Furnisher Rule. Under this rule, furnishers are required to implement policies and procedures regarding the accuracy and integrity of the consumer information they provide to a CRA. The amendments propose changes including narrowing the rule’s scope to entities set forth in Dodd-Frank “that are predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.”
- Prescreen Opt-Out Notice Rule. This rule outlines requirements for those who use consumer reports to make unsolicited credit or insurance offers to consumers. The proposed amendments will narrow the scope of the rule to cover only motor vehicle dealers. The model form is unchanged from the previous model notice and is identical to the model notice used by the CFPB.
- Risk-Based Pricing Rule. Under this rule persons that use information from a consumer report to offer less favorable terms are required to provide a risk-based pricing notice to consumers about the use of such data. Under the proposed amendments, only motor vehicle dealers will be required to comply.
The FTC seeks feedback on the effectiveness of the five rules, including (i) whether there exists a continuing need for each rule’s specific provisions; (ii) what benefits have been provided to consumers under each rule; and (iii) should modifications be made to each rule in order to benefit consumers and businesses or to account for changes in relevant technology or economic conditions.
Comments are due 75 days after the NPRMs are published in the Federal Register.
CFPB reaches $122 million settlement with national bank to resolve overdraft violations
On August 20, the CFPB announced a settlement with a national bank, resolving allegations that the bank violated the EFTA, CFPA, and FCRA through the marketing and sale of its optional overdraft service. According to the consent order, the bank violated the EFTA and Regulation E by enrolling customers who orally consented to the bank’s optional overdraft program without first providing the customers with written notice, and subsequently charged those customers overdraft fees. The bank also allegedly engaged in abusive practices by, among other things, (i) requiring new customers to sign its optional overdraft notice with the “enrolled” option pre-checked without first providing written notice or, in certain instances, without mentioning the optional overdraft service to the customer at all; (ii) enrolling new customers in the optional overdraft service without requesting their oral enrollment decision; and (iii) deliberately obscuring, or attempting to obscure, the overdraft notice “to prevent a new customer’s review of their pre-marked ‘enrolled’ status” in the optional overdraft service. The CFPB also asserted the bank engaged in deceptive practices by marketing the optional overdraft service as a “free” service or benefit, downplaying the associated fees and disclosures, and by suggesting that the overdraft service was a “‘feature’ or ‘package’ that ‘comes with’ all new consumer-checking accounts, rather than as an option that new customers must opt in to.” However, the bank actually charged customers $35 for each overdraft transaction paid through the service, the CFPB alleged.
With respect to the alleged FCRA and Regulation V furnishing violations, the CFPB claimed the bank failed to establish and implement policies and procedures concerning the accuracy and integrity of the consumer-account information it furnished to two nationwide specialty consumer reporting agencies (NSCRAs). The bank also allegedly failed to implement policies or procedures for investigating customer disputes related to the furnished information, failed to timely investigate certain indirect customer disputes concerning its furnishing to one of the NSCRAs, and instructed customers who called to dispute furnished information to contact the NSCRA instead of submitting a direct dispute to the bank.
Under the terms of the consent order, the bank is required to provide approximately $97 million in restitution to roughly 1.42 million consumers and pay a $25 million civil money penalty. The bank has also agreed to (i) correct its optional overdraft service enrollment practices; (ii) stop using pre-marked overdraft notices to obtain affirmative consent from customers; (iii) provide current customers who have remained enrolled in the optional overdraft service with enrollment status details and instructions on how to unenroll from the service; and (iv) establish policies and procedures designed to ensure its furnishing practices comply with the FCRA.