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On August 15, the USDA filed a brief urging the U.S. Supreme Court to overturn a U.S. Court of Appeals for the Third Circuit decision to reverse its FCRA lawsuit brought by a plaintiff who alleged that the consumer credit reporting agency reported two loans as past due even though he claimed both were closed with a $0 balance. In August 2022, the 3rd Circuit reversed a district court’s decision to grant a student loan servicer, consumer credit reporting agency, and the USDA’s (defendants) motion to dismiss a case finding that Congress unambiguously waived the government’s sovereign immunity in enacting FCRA (covered by InfoBytes here). The USDA argues that the district court was wrong in its decision, and that the FCRA does not waive the U.S.’s sovereign immunity for claims under 15 U.S.C. 1681n and 1681o because, among other things, (i) a waiver of sovereign immunity requires “unmistakably clear” statutory language; (ii) the FCRA does not create a cause of action that “‘expressly authorizes suits against sovereigns,’ and ‘recognizing immunity’ would ‘negate’ that express authorization”; (iii) the FCRA uses “persons” in a way that does not distinguish between sovereign and non-sovereign senses; (iv) “inexplicable incongruencies” with the term “person” within the context of §§ 1681n and 1681o includes a sovereign entity, which would not only expose the federal government but also individual states to potential lawsuits seeking monetary damages; and (v) interpreting the FCRA to permit lawsuits against the U.S. would significantly broaden the scope of liability for federal agencies, creating “overlap” already provided by the Privacy Act.
The Office of Information and Regulatory Affairs recently released the CFPB’s spring 2023 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. In January, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.” (Covered by InfoBytes here.)
- Insufficient funds fees. The Bureau is considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- Amendments to FIRREA concerning automated valuation models. On June 1, the Bureau issued a joint notice of proposed rulemaking (NPRM) with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations to implement quality control standards mandated by the Dodd-Frank Act concerning automated valuation models used by mortgage originators and secondary market issuers. (Covered by InfoBytes here.) Previously, the Bureau released a Small Business Regulatory Enforcement Fairness Act (SBREFA) outline and report in February and May 2022 respectively. (Covered by InfoBytes here.)
- Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the SBREFA and the issuance of a final report examining the impact of the Bureau’s proposals to address consumers’ personal financial data rights. (Covered by InfoBytes here.) Proposed rulemaking may be issued in October.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an NPRM last month to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The proposed effective date is at least one year after the final rule is published in the Federal Register (“but no earlier than the October 1 which follows by at least six months Federal Register publication”), with the possibility of a further extension to ensure compliance with a TILA timing requirement.
- Supervision of Larger Participants in Consumer Payment Markets. The Bureau is considering whether to engage in pre-rulemaking activity next month to define larger participants in consumer payment markets and further the scope of the agency’s nonbank supervision program.
- Nonbank registration. The Bureau announced its intention to identify repeat financial law offenders by establishing a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Terms and conditions registry for supervised nonbanks. At the beginning of the year, the Bureau issued an NPRM that would create a public registry of terms and conditions used in non-negotiable, “take it or leave it” nonbank form contracts that “claim to waive or limit consumer rights and protections.” Under the proposal, supervised nonbank companies would be required to report annually to the Bureau on their use of standard-form contract terms that “seek to waive consumer rights or other legal protections or limit the ability of consumers to enforce or exercise their rights” and would appear in a publicly accessible registry. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Credit card penalty fees. The Bureau issued an NPRM in February to solicit public feedback on proposed changes to credit card late fees and late payments and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. A final rule may be issued later this year.
- LIBOR transition. In April, the Bureau issued an interim final rule, amending Regulation Z, which implements TILA, to update various provisions related to the LIBOR transition. Effective May 15, the interim final rule further addresses LIBOR’s sunset on June 30, by incorporating references to the SOFR-based replacement—the Fed-selected benchmark replacement for the 12-month LIBOR index—into Regulation Z. (Covered by InfoBytes here.)
On April 26, the CFPB released a data point report estimating that nearly 23 million American consumers will have at least one medical collection removed from their credit reports when all medical collection tradelines under $500 are deleted. Additionally, the Bureau found that the removal will result in approximately 15.6 million people having all medical collections removed. The reporting change occurred as part of an undertaking by the three nationwide consumer reporting companies announced earlier in April. Examining credit reports that occurred between 2012 and 2020, the Bureau studied the impact of this change and noted that on average consumers experienced a 25-point increase in their credit scores in the first quarter following the removal of their last medical collection. The average increase, the report found, was 21 points for consumers with medical collections under $500 compared to 32 points for those with medical collections over $500. The report further discussed the association between the removal of medical collection tradelines and the amount of available credit for revolving and installment accounts, as well as increases in first-lien mortgage inquiries (attributable, the Bureau believes, to consumers working to remove these tradelines as part of applying for mortgage credit).
On November 22, the CFPB announced the annual adjustment to the maximum amount that consumer reporting agencies are permitted to charge consumers for making a file disclosure to a consumer under the FCRA. According to the rule, the ceiling on allowable charges under Section 612(f) of the FCRA will increase to $14.50, which is a $1.00 increase from the ceiling on allowable charges for 2022. The rule is effective January 1, 2023.
On November 10, the CFPB issued Circular 2022-07 to outline how federal and state consumer protection enforcers can bring claims against companies that fail to investigate and resolve consumer report disputes. According to the Bureau, consumer reporting agencies (CRAs) and some furnishers have failed to conduct reasonable investigations of consumer disputes. The Circular affirmed that CRAs and furnishers must reasonably investigate all disputes that they have not reasonably determined to be frivolous or irrelevant, and may be liable under the Fair Credit Reporting Act if they fail to do so. Additionally, the Circular noted that claims can be pursued by both state and federal consumer protection enforcers and regulators. The Circular also described that enforcers can “bring a claim if a consumer reporting agency fails to promptly provide to the furnisher ‘all relevant information’ regarding the dispute that the consumer reporting agency receives from the consumer.” On the topic of whether CRAs need to forward to furnishers consumer-provided documents attached to a dispute, the Circular noted that “[i]t depends.” The Circular then explained that even “[w]hile there is not an affirmative requirement to specifically provide original copies of documentation submitted by consumers, it would be difficult for a consumer reporting agency to prove they provided all relevant information if they fail to forward even an electronic image of documents that constitute a primary source of evidence.”
On November 9, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s summary judgment ruling in favor of defendants in an FCRA reasonable investigation suit. According to the opinion, the plaintiff obtained a credit card from one of the defendants, exceeded her credit limit, and was past due on payments. Another of the defendants (furnishing defendant) acquired her account and reported the outstanding debt to the consumer reporting agencies (CRAs). Plaintiff disputed the tradeline as inaccurate with two of the CRAs claiming several alleged inaccuracies, including that the date the account was opened and the original balance were inaccurate, and the payment history was incomplete, among other things. The CRAs notified the furnishing defendant of the disputes, and the furnishing defendant conducted an investigation in accordance with its FCRA dispute policies and procedures, which revealed that the account status, payment history, current balance, amount past due, and account number were accurate. Discrepancies in the spelling of the plaintiff’s name and street address were corrected however. It was not until after the plaintiff sued the defendants for violations of the FCRA that she asserted the furnishing defendant should have been aware she was enrolled in a credit protection program and that it was therefore liable for the original creditor’s failure to apply the program’s benefits to her credit card account. The opinion noted that the plaintiff also filed a “similarly vague dispute” against a student loan servicer for allegedly misreporting information about her account with the CRAs.
In agreeing with the district court, the 3rd Circuit concluded that summary judgment in favor of the defendants was properly granted as the plaintiff “failed to introduce any direct or circumstantial evidence” showing either of the defendants failed to “conduct reasonable investigations with respect to the disputed information.” Additionally, the plaintiff’s disputes were vague and failed to provide specifics as to the alleged errors or explain why the information was inaccurate or incomplete. “To the extent that [plaintiff] claims that the investigations were unreasonable because a reasonable investigation would have revealed the inaccuracies alleged, her conclusory assertion is insufficient to defeat summary judgment,” the appellate court wrote.
On November 3, the U.S. Court of Appeals for the Fourth Circuit reversed and remanded a district court’s summary judgment ruling that a public records website, its founder, and two affiliated entities (collectively, “defendants”) could use Section 230 liability protections under the Communications Decency Act (CDA) to shield themselves from credit reporting violations. As previously covered by InfoBytes, plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency (CRA) under the FCRA, and as such, must follow process-oriented requirements that the FCRA imposes on CRAs. However, the district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.
On appeal, the 4th Circuit reviewed whether a consumer lawsuit alleging violations of the FCRA’s procedural and disclosure requirements and seeking to hold the defendants liable as the publisher or speaker of information provided by a third party is thereby preempted by Section 230. The appellate court agreed with an amicus brief filed in 2021 by the FTC, CFPB, and the North Carolina Department of Justice, which urged the appellate court to overturn the district court ruling on the basis that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by extending immunity to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the amicus brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when preparing reports, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes.
The 4th Circuit held that Section 230(c)(1) of the CDA “extends only to bar certain claims, in specific circumstances, against particular types of parties,” and that the four claims raised in this case were not subject to those protections. “Section 230(c)(1) provides protection to interactive computer services,” the appellate court wrote, “[b]ut it does not insulate a company from liability for all conduct that happens to be transmitted through the internet.” Specifically, the appellate court said two of the counts—which allege that the defendants failed to give consumers a copy of their own report when requested and did not follow FCRA requirements when providing reports for employment purposes—do not seek to hold the defendants liable as a speaker or publisher, and therefore fall outside Section 230 protections. As for the remaining two counts related to claims that the defendant failed to ensure records for employment purposes were complete and up-to-date, or adopt procedures to assure maximum possible accuracy when preparing reports, the 4th Circuit concluded that the defendants “made substantive changes to the records’ content that materially contributed to the records’ unlawfulness. That makes [defendants] an information content provider, under the allegations, for the information relevant to Counts Two and Four, meaning that it is not entitled to § 230(c)(1) protection for those claims.”
On October 24, FHFA announced the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by Fannie Mae and Freddie Mac (GSEs). The agency also announced that the GSEs will require two credit reports from the national consumer reporting agencies, rather than three. According to the announcement, FHFA expects implementation of FICO 10T and VantageScore 4.0 to be a multiyear effort, but once in place, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the GSEs. FHFA noted that FICO 10T and VantageScore 4.0 are more accurate than the classic FICO model because they include payment history for factors like rent, utilities, and telecommunications. FHFA also released a Fact Sheet on the newly approved models, which “will improve accuracy, strengthen access to credit, and enhance safety and soundness.”
District Court rules FCRA allegation filed before expiration of 30-day investigation period is not ripe
On October 14, the U.S. District Court for the District of South Carolina adopted a magistrate judge’s report and recommendation to grant summary judgment in favor of a defendant accused of violating the FCRA. According to the plaintiff’s amended complaint, the plaintiff opened a loan with the defendant and later entered into a modified agreement that reduced his monthly payments and the future projected balance. He later noticed that his credit report showed (i) the reported balance for his account to be higher than it should have been under the terms of the modified agreement, and (ii) three months of late payments. The plaintiff filed a dispute with the credit reporting agency (CRA) arguing, among other things, that the balance was being misstated. The plaintiff filed another dispute with the CRA regarding the late payments. Plaintiff filed the instant action before the end of the 30-day investigation period for disputes regarding the late payments. The magistrate judge recommended summary judgment be granted to defendant related to claims alleging violation of Section1681s-2b for both (i) the claim predicated on the restated balance, and (ii) the claim predicted on the late payments, but for different reasons. The “late payment” claim “was not ripe when the action was filed” because the 30-day investigation period had not yet expired when the plaintiff filed his amended complaint. For the “restated balance” claim, the magistrate judge’s report found that the parties had a genuine legal dispute over their interpretations of the modified agreement—whether the balance due should be reduced at the time of the modification agreement or at the end of the modification term, which was not a factual inaccuracy: “the Report found violations of 15 U.S.C. 1681a-2(b) must be based on factual inaccuracies, not legal disputes, and as Plaintiff bases his claim on a legal dispute, he cannot prevail on his FCRA claim.” This district court agreed noting that the plaintiff did not appear to object to the legal determination that “as a matter of a law a violation of a §1681s-2(b) could not be based on a legal dispute over the terms of a contract[.]” The report also noted that the plaintiff failed to demonstrate that he is entitled to actual damages—a requirement for a negligent violation of the FCRA—nor did he show that the defendant willfully violated the FCRA in order to be entitled to statutory or punitive damages. The district court agreed with the report and recommendations and dismissed the case with prejudice.
On October 13, Chairman of the Select Subcommittee on the Coronavirus Crisis James E. Clyburn sent a letter to CFPB Director Rohit Chopra addressing reports that nationwide consumer reporting agencies (CRAs) were less responsive to consumer complaints and disputes related to credit report errors during the Covid-19 pandemic. According to Clyburn, investigative reports allegedly revealed that the CRAs, which are legally obligated to address errors contained in consumer credit reports, did not always investigate these disputes and purportedly used “broad and speculative criteria” to determine whether a dispute was submitted by an unauthorized third party. The letter also expressed concerns that the CRAs’ alleged “overreliance on data furnishers” raises questions about the sufficiency of the CRAs’ dispute investigations, and that, moreover, using different levels of automation to resolve disputes and complaints is creating variability in the quality and thoroughness of their investigations. Clyburn expressed concerns that by failing to investigate certain legitimate disputes, identify and correct erroneous information, or provide the Bureau with information on the outcomes of the complaint investigations, the CRAs may be failing to meet their obligations under the FCRA. He asked Chopra to review the CRAs for possible statutory violations and to “consider investigating whether the CRAs have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.”