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11th Circuit affirms FCRA suit dismissal
On December 23, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court’s dismissal of an FCRA case where a furnisher (defendant) allegedly failed to conduct a reasonable investigation in response to materials that the plaintiff had sent to two credit reporting agencies (CRAs), which was then forwarded to the furnisher. According to the opinion, the plaintiff had submitted a letter to each CRA requesting they remove a dispute notation on her credit report with respect to her account with the furnisher because the account in question was no longer being disputed. The CRAs forwarded the plaintiff’s request to the furnisher, who then investigated and notified the CRAs that the account was still being disputed. The plaintiff did not otherwise directly tell the furnisher that she no longer disputed the tradeline. After discovering that the account was still reported as disputed, the plaintiff filed suit under the FCRA against the furnisher for failing to investigate the dispute and failing to direct the CRAs to remove the notation of account in dispute. The district court granted the defendant’s motion to dismiss for the plaintiff’s failure to state a claim.
On appeal, the 11th Circuit found that the letter sent by the plaintiff to the CRAs failed “to make anything clear” to the furnisher. The appellate court explained that the plaintiff “could have written a better letter: one that made clear that she was attempting to revoke her dispute for the first time or, better yet, one addressed to the bank itself. But that is not the letter on which she premised her lawsuit.” The appellate court also noted that, although the furnisher could have contacted the plaintiff directly, the FCRA does not require the furnisher to do so. In effect, “[w]hat [the plaintiff] wants [the bank] to do — either (1) to intuit that she no longer disputed the tradeline from her report to the CRAs or (2) to reach out to her directly to clarify and confirm that she no longer wished to dispute the tradeline — goes beyond what FCRA reasonableness requires,” the appellate court explained in its ruling. The appellate court therefore found that it was reasonable for the furnisher to review its official records, which indicated that the tradeline was still in dispute, and retain the dispute notation on the plaintiff’s credit report.
7th Circuit: Collector did not violate FCRA by obtaining a “propensity-to-pay score”
On December 22, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a defendant debt collector in an FCRA action alleging a plaintiff’s credit information was acquired without a permissible purpose. The plaintiff and her husband jointly filed for bankruptcy protection. The bankruptcy court ordered a discharge of their debts, which included a debt incurred by the plaintiff’s husband that was being serviced by the defendant. The defendant was notified of the discharge (which included each of the four former last names used by the plaintiff) and scanned its system for affected accounts; however, by the time it received notice of the bankruptcy, it had already closed the account it had been servicing. Later, another account bearing one of the plaintiff’s former names was placed with the defendant. The defendant sent the account to a third-party vendor to see if the individual had filed for bankruptcy protection and did not received any bankruptcy results. It then ordered a “propensity-to-pay-score” from a credit reporting agency. The plaintiff’s records were eventually updated by the third-party vendor with information about the bankruptcy, and the defendant closed the account. However, the plaintiff noted the soft inquiry on her credit report and sued, alleging the defendant did not have a permissible purpose to make such an inquiry. The district court granted summary judgment to the defendant.
On appeal, the 7th Circuit determined that the plaintiff had suffered a concrete injury, concluding that an “unauthorized inquiry into a consumer’s propensity‐to‐pay score is analogous to the unlawful inspection of one’s mail, wallet, or bank account.” However, after reviewing the merits of the case, the appellate court held that an alleged invasion of privacy was not enough for it to overturn the district court’s ruling. There was no negligent violation of the FCRA “because no reasonable juror could conclude that the inquiry into [the plaintiff’s] propensity‐to‐pay score resulted in actual damages,” the appellate court wrote. Additionally, while the 7th Circuit acknowledged that the plaintiff’s debt was discharged by the time the defendant obtained her propensity-to-pay score, there was no willful violation of the FCRA because the defendant “lacked actual knowledge of the bankruptcy” and “did not recklessly disregard the possibility that debt had been discharged.” The appellate court added that the evidence showed that the defendant “had a reasonable basis for relying on its procedures.”
Agencies file amicus brief on use of term “applicant” in ECOA
On December 16, the CFPB filed a joint amicus brief with the DOJ, Federal Reserve Board, and the FTC arguing that the term “applicant” as used in ECOA and its implementing rule, Regulation B, includes both those seeking credit as well as persons who have sought and have received credit (i.e., current borrowers). (See also a Bureau blog post discussing the brief.) The amicus brief is in support of a plaintiff in an action where the plaintiff consumer sued a national bank for closing his credit card account without providing an explanation for the adverse action as required by ECOA. The case is currently on appeal before the U.S. Court of Appeals for the Seventh Circuit after a district court determined that ECOA protections only apply “during the process of requesting credit and do not protect those with existing credit accounts.”
The central issue identified in the brief revolves around whether ECOA applies beyond persons seeking credit to persons who have already received credit. The brief focused on this issue by analyzing (i) ECOA’s text, history and purpose; (ii) the application of Regulation B; and (iii) alleged incorrect interpretations in the underlying defendant’s arguments. In looking at the text of ECOA, the brief asserted that ECOA applies to “applicants” without regard to how their credit is resolved because ECOA defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” In further analyzing the statutory text, the brief further explained that ECOA also gives consumers the right to adverse action notices, which include the “revocation of credit” as well as a “change in the terms of an existing credit arrangement”—actions, the brief stated, “that can be taken only with respect to persons who have already received credit.” The brief also stated that legislative history shows it was Congress’s intent to reach discrimination “in any aspect of a credit transaction.”
In looking at the context of Regulation B, the brief asserted, among other things, that ECOA’s protections continue to apply after an applicant receives credit, explaining that Regulation B “did so by defining ‘applicant’ to include, ‘[w]ith respect to any creditor[,] … any person to whom credit is or has been extended by that creditor.’” Moreover, the brief asserted, ECOA provides a private right of action, which allows aggrieved applicants to file suits for alleged ECOA/Regulation B violations. In this instance, the term “applicant” cannot be meant to refer only to consumers with pending credit applications because otherwise a consumer whose application was denied on a prohibited basis would have no private right of action recourse. These references, the brief emphasized, “further confirm that the term “applicant” is not limited to those currently applying for credit.”
5th Circuit says bank and mortgage servicer did not engage in “dual tracking”
On December 15, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of defendants in a mortgage foreclosure action. According to the opinion, after the plaintiff fell behind on his mortgage payments, the defendant bank’s mortgage servicer approved him for a trial loan modification plan that required timely reduced payments for a period of three months. The plaintiff stated that he complied with the trial plan but that the defendant bank nevertheless foreclosed on his property and sold the property to a third defendant. The plaintiff further claimed that he did not learn about the sale of his property until two months after it happened when the third defendant sought to evict him. The plaintiff sued the bank and mortgage servicer for violating RESPA and the Texas Debt Collection Act (TDCA), and sued the purchaser of the property “asserting claims to quiet title and for trespass to try title.” All defendants moved for summary judgment, which the district court granted based on evidence that refuted each allegation. The plaintiff appealed.
On appeal, the 5th Circuit first reviewed, among other claims, the plaintiff’s RESPA claim, which alleged the bank and mortgage servicer engaged in “dual tracking” by initiating foreclosure proceedings while the plaintiff’s trial modification plan was purportedly still active. According to the court, dual tracking occurs when “the lender actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.” The appellate court agreed with the district court’s conclusion that summary judgment was appropriate because the plaintiff did not submit his first payment by the deadline established under the trial modification plan, and thus “did not timely accept the Trial Modification Plan.” As such, the bank and mortgage servicer did not engage in “dual tracking” because there was no obligation to notify the plaintiff of any denial of a permanent loan modification or to provide an opportunity to appeal, and accordingly was not considering the plaintiff for loss mitigation options. The court also found deficiencies in the plaintiff’s Texas law and TDCA claims.
6th Circuit: OSHA required testing is allowed
On December 17, the U.S. Court of Appeals for the Sixth Circuit lifted the stay on the federal government’s rule requiring employers with 100 or more employees to ensure their employees are vaccinated against Covid-19 or be subjected to weekly Covid-19 testing. As previously covered by InfoBytes, the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) published a rule in the Federal Register requiring employers to develop, implement, and enforce a mandatory Covid-19 vaccination policy, unless they adopt a policy requiring employees to choose between vaccination or regular testing for Covid-19 and wearing a face covering at work. The U.S. Court of Appeals for the Fifth Circuit issued a nationwide stay on the emergency temporary standard (ETS), which mandates that all employers with 100 or more employees require employees to be fully vaccinated or be subject to a weekly Covid-19 test (covered by InfoBytes here). The 5th Circuit stay, which was in response to a legal challenge filed by several states along with private entities and individuals, affirmed the court’s initial stay. The 5th Circuit said OSHA’s enforcement of the ETS is illegitimate and called it “unlawful” and “likely unconstitutional.” Furthermore, the 5th Circuit ordered OSHA to “take no steps to implement or enforce the Mandate until further court order.”
On the appeal, the 6th Circuit lifted the stay in a 2-1 ruling, stating that “[b]ased on [OSHA’s] language, structure and Congressional approval, OSHA has long asserted its authority to protect workers against infectious diseases." The appellate court also noted that “OSHA relied on public health data to support its observations that workplaces have a heightened risk of exposure to the dangers of COVID-19 transmission.” However, one judge dissented, writing that “[v]accines are freely available, and unvaccinated people may choose to protect themselves at anytime. And because the [Secretary of Labor] likely lacks congressional authority to force them to protect themselves, the remaining stay factors cannot tip the balance.”
9th Circuit partially reverses unauthorized EFTs action
On December 20, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s dismissal of an action under the EFTA against a national bank related to alleged unauthorized electronic fund transfers. The plaintiff, a foreign national who resided primarily outside the U.S., held several accounts with the defendant, including the checking account at issue. According to the plaintiff, “through unknown means, unidentified individuals gained access to her [] checking account in October 2017 and began making unauthorized withdrawals without her knowledge.” A separate bank flagged a large transfer from the plaintiff’s account and reached out to the defendant’s fraud department. That bank ultimately refunded the plaintiff’s money; however, according to the opinion, the defendant allegedly did not change the plaintiff’s account number and password, freeze her account, or inform her of the unauthorized transfer. From November 2017 through March 2019, more than 100 additional unauthorized withdrawals were made. The plaintiff acknowledged that she did not report any of these unauthorized transactions until March 2019, claiming she had been overseas with “‘very limited or no’ internet access to check her bank statements.” While some of the unauthorized withdrawals were reimbursed through the defendant’s internal dispute-resolution process, the defendant allegedly “refused to reimburse her for $300,000 of the losses she suffered, citing her failure to report the initial unauthorized withdrawals within 60 days of their appearance on her bank statements, as the EFTA ordinarily requires.” The plaintiff sued, claiming that the defendant violated the EFTA or, alternatively, California’s EFTA counterpart, and asserting various other state law claims. The district court granted the defendant’s motion to dismiss, ruling that because the plaintiff “failed to report the withdrawals at issue” within the required time frame, “the EFTA bars her claim as a matter of law.”
On appeal, the 9th Circuit determined that the plaintiff plausibly alleged sufficient facts under the EFTA to suggest that “the subsequent unauthorized transfers for which she sought reimbursement would still have occurred.” While the plaintiff did not dispute that she failed to report any of the unauthorized withdrawals to the defendant within EFTA’s 60-day reporting period, she argued that her compliance was excused based on her limited access to her banking records and that the defendant “was already aware of the initial $29,000 withdrawal in November 2017[.]” The appellate court agreed with the district court that the plaintiff failed to “plausibly explain how someone with [her] financial means lacked adequate internet access to view her banking records for more than a year.” The 9th Circuit also rejected the plaintiff’s argument that she did not need to report the unauthorized withdrawals by virtue of the defendant’s communications with the other bank, agreeing that the EFTA “says nothing about a bank receiving notice from third-party sources unaffiliated with the consumer”
However, the 9th Circuit disagreed with the district court’s decision to dismiss the EFTA claim or its California counterpart, after concluding that the plaintiff satisfied her pleading burden by alleging facts “plausibly suggesting that even if she had reported an unauthorized transfer within the 60-day period, the subsequent unauthorized transfers for which she [sought] reimbursement would still have occurred.” The panel emphasized that a consumer may be held liable for unauthorized transfers occurring after the 60-day period only where the bank establishes that those transfers “‘would not have occurred but for the failure of the consumer’” to report the earlier unauthorized transfer within the 60-day period. The district court “overlooked this requirement, and the error was not harmless,” the appellate court explained.
6th Circuit affirms decision compelling arbitration in data breach case
On December 2, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s decision dismissing a nationwide putative class action against an e-commerce provider, holding that challenges raised to the validity of an agreement to arbitrate were for the arbitrator to decide, not the court. According to the opinion, the plaintiff class, including four minor individuals, filed suit after the defendant allegedly failed to protect millions of customers’ personal account information that was then obtained in a 2019 data breach. The opinion noted that the defendant’s Terms of Service contained an arbitration agreement, a delegation provision, a class action waiver, and instructions regarding how to opt-out of the arbitration agreement. The district court granted the defendant’s motion to dismiss and compel arbitration after rejecting the plaintiffs’ arguments that the arbitration clause is “invalid” and “unenforceable” as to the minor plaintiffs under the infancy doctrine.
On appeal, the plaintiffs argued that there was an issue of fact regarding whether four of the plaintiffs had agreed to the Terms of Service, and that the defenses of infancy and unconscionability rendered the Terms of Service invalid. According to the appellate court, though “a contract exists and . . . the delegation provision itself is valid, the arbitrator must decide in the first instance whether the defenses of infancy and unconscionability allow plaintiffs to avoid arbitrating the merits of their claims.” The appellate court further agreed with the district court that “[i]t’s not about the merits of the case. It’s not even about whether the parties have to arbitrate the merits. Instead, it’s about who should decide whether the parties have to arbitrate the merits.”
7th Circuit denies CFPB’s request to reconsider attorney exemption in foreclosures
On November 29, the U.S. Court of Appeals for the Seventh Circuit denied the CFPB’s petition for panel or en banc rehearing of its earlier decision in an action taken against several foreclosure relief companies and associated individuals accused of violating Regulation O. As previously covered by InfoBytes, the Bureau asked the appellate court to reconsider its determination “that practicing attorneys are categorically exempt from Regulation O,” claiming that the court’s holding strips the Bureau “of the authority given it by Congress to hold attorneys to account for violations not just of Regulation O, but of a host of other federal laws as well.” In July, the 7th Circuit vacated a 2019 district court ruling that ordered $59 million in restitution and disgorgement, civil penalties, and permanent injunctive relief against defendants accused of collecting fees before obtaining loan modifications, and inflating success rates and the likelihood of obtaining a modification, among other allegations (covered by InfoBytes here). The appellate court based its decision on the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits—a ruling that is “applicable to all categories of equitable relief, including restitution.” The appellate court also concluded that attorneys who are subject to liability for violating consumer laws “cannot escape liability simply by virtue of being an attorney.” However, the appellate court vacated the recklessness finding in the civil penalty calculation pertaining to certain defendants, writing that “[a]lthough we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.” (Covered by InfoBytes here.) In its appeal, the Bureau did not challenge the vacated restitution award, but rather argued that a rehearing was necessary to ensure that the agency can bring enforcement actions against attorneys who violate federal consumer laws, including Regulation O.
2nd Circuit reverses itself, finding no standing to sue for recording delays
On November 17, the U.S. Court of Appeals for the Second Circuit reversed its earlier determination that class members had standing to sue a national bank for allegedly violating New York’s mortgage-satisfaction-recording statutes, which require lenders to record borrowers’ repayments within 30 days. As previously covered by InfoBytes, the plaintiffs filed a class action suit alleging the bank’s recordation delay harmed their financial reputations, impaired their credit, and limited their borrowing capacity. While the bank did not dispute that the discharge was untimely filed, it argued that class members lacked Article III standing because they did not suffer actual damages and failed to plead a concrete harm under the U.S. Supreme Court’s decision in Spokeo Inc. v. Robins. At the time, the majority determined, among other things, that “state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations.” The alleged state law violations in this matter, the majority wrote, constituted “a concrete and particularized harm to the plaintiffs in the form of both reputational injury and limitations in borrowing capacity” during the recordation delay period. The majority further concluded that the bank’s alleged failure to report the plaintiffs’ mortgage discharge “posed a real risk of material harm” because the public record reflected an outstanding debt of over $50,000, which could “reasonably be inferred to have substantially restricted” the plaintiffs’ borrowing capacity.
In withdrawing its earlier opinion, the 2nd Circuit found that the Supreme Court’s June decision in TransUnion v. Ramirez (which clarified what constitutes a concrete injury for the purposes of Article III standing in order to recover statutory damages, and was covered by InfoBytes here) “bears directly on our analysis.” The parties filed supplemental briefs addressing the potential impacts of the TransUnion ruling on the 2nd Circuit’s previous decision. The bank argued that while “New York State Legislature may have implicitly recognized that delayed recording can create [certain] harms,” the plaintiffs cannot allege that they suffered these harms. Class members challenged that “the harms that the Legislature aimed to preclude need not have come to fruition for a plaintiff to have suffered a material risk of real harm sufficient to seek the statutory remedy afforded by the Legislature.” Citing the Supreme Court’s conclusion of “no concrete harm; no standing,” the appellate court concluded, among other things, that class members failed to allege that delayed recording caused a cloud on the property’s title, forced them to pay duplicate filing fees, or resulted in reputational harm. Moreover, while publishing false information can be actionable, the appellate court pointed out that the class “may have suffered a nebulous risk of future harm during the period of delayed recordation—i.e., a risk that someone (a creditor, in all likelihood) might access the record and act upon it—but that risk, which was not alleged to have materialized, cannot not form the basis of Article III standing.” The appellate court further stated that in any event class members may recover a statutory penalty in state court for reporting the bank’s delay in recording the mortgage satisfaction.
11th Circuit to rehear Hunstein v. Preferred Collection & Management Services
On November 17, the U.S. Court of Appeals for the Eleventh Circuit vacated an opinion in Hunstein v. Preferred Collection & Management Services, ordering an en banc rehearing of the case. The order vacates an 11th Circuit decision to revive claims that the defendant’s use of a third-party mail vendor to write, print, and send requests for medical debt repayment violated privacy rights established in the FDCPA. As previously covered by InfoBytes, in April, the 11th Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” According to the order issued sua sponte by the 11th Circuit, an en banc panel of appellate judges will convene at a later date to rehear the case.