Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB reports on credit card line decreases

    Federal Issues

    On June 29, the CFPB issued a report analyzing the impact of credit card line decreases (CLD) on consumers. The report is a part of a CFPB series that examines consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. The report described how credit card companies increasingly used credit line decreases during both the Great Recession and at the start of the Covid-19 pandemic. According to the Bureau, in issuing the report it “sought to examine the importance and impact of these decisions by credit card companies” because of the “critical role credit plays in financial resiliency, especially during a downturn.” Key findings of the report include, among other things, that: (i) 67 percent of consumers who had CLDs did not show evidence of a recent delinquency on any credit card, and 83 percent had no delinquency on the card that received the CLD; (ii) the median amount of credit decreased by approximately 75 percent for consumers across different credit score tiers; (iii) the median deep subprime, subprime, near-prime, and prime account utilization reached 94 percent when the CLD was applied; and (iv) the median credit scores for consumers with a recent card delinquency on any card decreased between 33 and 87 points.

    Federal Issues CFPB Consumer Finance Credit Cards Credit Report Consumer Reporting Agency

    Share page with AddThis
  • CFPB says states may regulate credit reporting markets

    Agency Rule-Making & Guidance

    On June 28, the CFPB issued an interpretive rule addressing states’ authority to pass consumer-reporting laws. Specifically, the Bureau clarified that states “retain broad authority to protect people from harm due to credit reporting issues,” and explained that state laws are generally not preempted unless they conflict with the FCRA or “fall within narrow preemption categories enumerated within the statute.” Under the FCRA, states have flexibility to enact laws involving consumer reporting that reflect challenges and risks affecting their local economies and residents and are able to enact protections against the abuse and misuse of data to mitigate these consequences. 

    Stating that the FCRA’s express preemption provisions have a narrow and targeted scope, the Bureau’s interpretive rule provided several examples such as (i) if a state law “were to forbid consumer reporting agencies [(CRA)] from including information about medical debt, evictions, arrest records, or rental arrears in a consumer report (or from including such information for a certain period of time), such a law would generally not be preempted; (ii) a state law that prohibits furnishers from furnishing such information to a CRA would generally not be prohibited; and (iii) if a state law requires a CRA to provide information required by the FCRA at the consumer’s requests in a language other than English, such a law would generally not be preempted. The interpretive rule is effective upon publication in the Federal Register.

    The issuance of the interpretive rule arises from a notice received by the Bureau from the New Jersey attorney general concerning pending litigation that involves an argument that the FCRA preempted a state consumer protection statute. The Bureau stated that it “will continue to consider other steps to promote state enforcement of fair credit reporting along with other parts of federal consumer financial protection law,” including “consulting with states whenever interpretation of federal consumer financial protection law is relevant to a state regulatory or law enforcement matter, consistent with the State Official Notification Rule." As previously covered by InfoBytes, the Bureau issued an interpretive rule last month, clarifying states’ authority to bring enforcement actions for violations of federal consumer financial protection laws, including the CFPA.

    Agency Rule-Making & Guidance Federal Issues State Issues CFPB FCRA Consumer Finance Credit Report Consumer Reporting Agency

    Share page with AddThis
  • Fannie and Freddie release updated guidance on credit score coding glitch

    Federal Issues

    On June 24, Fannie Mae and Freddie Mac issued additional guidance related to a coding issue that impacted approximately 12 percent of credit scores earlier this year. As previously covered by InfoBytes, a consumer reporting agency informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform.

    After making a determination that the underlying credit report data errors resulting from the coding issue “are not considered to be material erroneous credit data errors under Selling Guide B3-2-09,” Fannie Mae issued LL-2022-02 to provide requirements applicable specifically to impacted loans. Specifically, lenders are not required to obtain an updated credit report and re-underwrite the impacted loan “by resubmitting the loan to Desktop Underwriter® (DU® )” nor are they required to “re-assess the underwriting decision for non-DU loans, based solely on this issue.” An inaccurate credit score used at the time of underwriting will not render the loan ineligible for purchase, Fannie Mae stated, adding that a “repurchase request will not be issued based solely on this issue.” Guidance related to obtaining corrected credit scores and making data corrections, as well as information concerning loan-level price adjustments, post-closing quality control review, and representation and warranty relief is also provided in the lender letter.

    Freddie Mac issued Bulletin 2022-14 to provide similar guidance to sellers about their credit reporting and data correction responsibilities, and stated that it will also “not issue a repurchase based solely on an inaccurate credit score used in the underwriting of a mortgage.”

    The guidance is effective immediately.

    Federal Issues Fannie Mae Freddie Mac Credit Scores Consumer Finance Consumer Reporting Agency Mortgages GSEs

    Share page with AddThis
  • CFPB revising its rulemaking approach

    Federal Issues

    On June 17, CFPB Director Rohit Chopra announced in a blog post that the agency plans to move away from overly complicated and tailored rules. “Complexity creates unintended loopholes, but it also gives companies the ability to claim there is a loophole with creative lawyering,” Chopra said. The Bureau’s plan to implement simple, durable bright-line guidance and rules will better communicate the agency’s expectations and will provide numerous other benefits, he added.

    With regards to traditional rulemaking, the Bureau outlined several priorities, which include focusing on implementing longstanding Congressional directives related to consumer access to financial records, increased transparency in the small business lending marketplace, and quality control standards for automated valuation models under Sections 1033, 1071, and 1473(q) of the Dodd-Frank Act. Additionally, the Bureau stated it will assess whether it should use Congressional authority to register certain nonbank financial companies to identify potential violators of federal consumer financial laws.

    Chopra also announced that the Bureau is reviewing a “host of rules” that it inherited from other agencies such as the FTC and the Federal Reserve. “Many of these rules have now been tested in the marketplace for many years and are in need of a fresh look,” Chopra said. Specifically, the Bureau will (i) review rules originated by the Fed under the 2009 Credit CARD Act (including areas related to “enforcement immunity and inflation provisions when imposing penalties on customers”); (ii) review rules inherited from the FTC for implementing the FCRA to identify possible enhancements and changes in business practices; and (iii) review its own Qualified Mortgage Rules to assess aspects of the “seasoning provisions” (covered by a Buckley Special Alert) and explore ways “to spur streamlined modification and refinancing in the mortgage market.”

    The Bureau noted that it also plans to increase its interpretation of existing laws through its Advisory Opinion program and will continue to issue Consumer Financial Protection Circulars to provide additional clarity and encourage consistent enforcement of consumer financial laws among government agencies (covered by InfoBytes here and here).

    Federal Issues Bank Regulatory CFPB Consumer Finance FTC Federal Reserve Agency Rule-Making & Guidance CARD Act Consumer Reporting Agency Qualified Mortgage Dodd-Frank Nonbank FCRA AVMs Mortgages Credit Cards

    Share page with AddThis
  • Coding glitch hits credit scores

    Federal Issues

    Recently, a consumer reporting agency (CRA) informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform. As a result of the issue, the CRA advised that the miscalculation impacted approximately 12 percent of credit scores, although credit reports were not affected. 

    In response, on June 1, Fannie Mae issued a notice regarding the coding error.  Fannie Mae reminded lenders “of their obligations under the Selling Guide to correct erroneous credit data, ensure the accuracy of the credit data submitted to Desktop Underwriter® (DU® ) at the time of loan sale, and to provide any corrected information to us.” Freddie Mac issued a similar notice advising lenders of their credit reporting and data correction responsibilities. Both Fannie Mae and Freddie Mac are monitoring the situation and may issue additional guidance regarding the coding issue.

    Federal Issues Consumer Finance Consumer Reporting Agency Credit Scores Fannie Mae Freddie Mac Mortgages

    Share page with AddThis
  • 9th Circuit: Revived FCRA suit questions reasonableness of furnisher’s investigation

    Courts

    On May 16, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant furnisher, stating that it is up to a jury to decide whether the defendant’s “reasonable investigation” into the plaintiff’s dispute complied with the FCRA. After the plaintiff defaulted on both his first and second mortgages, the property was foreclosed and sold. Several years later, the plaintiff tried to purchase another home but was denied a mortgage due to a tradeline on his credit report that showed one of his mortgages as past due with accruing interest and late fees due to missed payments. The plaintiff disputed the debt through the consumer reporting agency (CRA) and provided a citation to the Arizona Anti-Deficiency Statute, which abolished his liability for the reported debt. The CRA then told the defendant about the dispute and provided information about the statutory citation. The defendant originally “updated” the plaintiff’s account to show that the debt was being disputed, but continued to report current and past due balances. Yet after the plaintiff again disputed the validity of his debt, the defendant marked the account as “paid, closed” and changed the balance to $0.

    The plaintiff sued, claiming the defendant violated the FCRA by failing to reasonably investigate his dispute and for reporting inaccurate information. The district court granted the defendant’s motion for summary judgment, ruling that the reports it made were accurate as a matter of law and that the defendant had reasonably investigated the dispute. Moreover, “whether the Arizona anti-deficiency statute rendered [plaintiff’s] debt uncollectible is a legal question, not a factual one,” the district court stated, adding that “the FCRA does not impose on furnishers a duty to investigate legal disputes, only factual inaccuracies.”

    The 9th Circuit disagreed, writing that Arizona law required that the plaintiff’s balance be “abolished,” so it was “patently incorrect” for the defendant to report otherwise. In applying Arizona law, the plaintiff had “more than satisfied his burden” of showing inaccurate reporting, the appellate court wrote, explaining that the “situation was no different than a discharge under bankruptcy law, which extinguishes ‘the personal liability of the debtor.’” The 9th Circuit also held that the FCRA does not “categorically exempt legal issues from the investigations that furnishers must conduct.” Pointing out that the “distinction between ‘legal’ and ‘factual’ issues is ambiguous, potentially unworkable, and could invite furnishers to ‘evade their investigation obligation by construing the relevant dispute as a ‘legal’ one,’” the panel referred to an April 2021 amicus brief filed in support of the plaintiff by the CFPB, which argued that the FCRA does not distinguish between legal and factual disputes when it comes to furnishers’ obligations to investigate disputes referred from CRAs. The CFPB recently made a similar argument in an amicus brief filed last month in the 11th Circuit (covered by InfoBytes here). There, the CFPB argued that importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.”

    Holding that there was a “genuine factual dispute about the reasonableness” of the defendant’s investigation, the appellate court ultimately determined that it would “leave it to the jury” to decide whether the defendant’s investigation had been reasonable. “Unless ‘only one conclusion about the conduct’s reasonableness is possible,’ the question is normally inappropriate for resolution at the summary judgment stage,” the appellate court stated. “Here, as is ordinarily the case, this question is best left to the factfinder.”

    Courts Appellate Ninth Circuit FCRA Consumer Reporting Agency Credit Report State Issues Arizona Consumer Finance

    Share page with AddThis
  • CFPB, FTC weigh in on consumer reporting obligations under the FCRA

    Federal Issues

    On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”

    The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”

    In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.

    Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”

    The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” Importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.

    Federal Issues Courts CFPB FTC FCRA Credit Report Consumer Reporting Agency Appellate Second Circuit Eleventh Circuit Credit Furnishing Consumer Finance

    Share page with AddThis
  • CFPB proposal would limit negative credit reporting on human trafficking victims

    Federal Issues

    On April 7, the CFPB released a proposed rule and solicited comments on regulations implementing amendments to the FCRA intended to assist victims of trafficking. The proposed rule would establish a method for a trafficking victim to submit documentation to consumer reporting agencies (CRAs) establishing that they are a survivor of trafficking, and would require CRAs to block adverse information in consumer reports after receiving such documentation.  The proposed rules would amend Regulation V to implement changes to FCRA enacted in the National Defense Authorization Act for Fiscal Year 2022, also referred to as the “Debt Bondage Repair Act,” which was signed into law in December 2021. (Covered by InfoBytes here). Under the law, CRAs are prohibited “from providing consumer reports that contain any negative item of information about a survivor of trafficking from any period the survivor was being trafficked.” In announcing the proposal, the CFPB noted that “Congress required the CFPB to utilize its rulemaking authorities to implement the Debt Bondage Repair Act through rule changes to Regulation V, which ensures consumers’ credit information is fairly reported by CRAs.” According to the CFPB, the proposal “would protect survivors of human trafficking by preventing CRAs from including negative information resulting from abuse.” Comments are due 30 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance CFPB Federal Register Consumer Finance Consumer Reporting Agency FCRA Regulation V Consumer Reporting

    Share page with AddThis
  • CFPB handled nearly 1 million consumer complaints in 2021

    Federal Issues

    On March 31, the CFPB published its Consumer Response Annual Report for 2021, providing an overview of consumer complaints received by the agency between January 1 and December 31, 2021. According to the report, the Bureau handled approximately 994,000 consumer complaints last year. Among other trends, the agency found that complaints about credit or consumer reporting continue to increase, accounting for more than 70 percent of all complaints received last year. Debt collection complaints are also increasing, accounting for more than 10 percent of all complaints. Consumers also reported difficulties with financial institutions failing to adequately address consumer complaints, giving consumers the runaround, and described issues with reaching companies to raise concerns about digital assets, mobile wallets, and buy-now-pay-later credit. The Bureau noted that during the second year of the Covid-19 pandemic, complaint data showed that the volume of complaints from consumers struggling to pay their mortgages is increasing as borrower protections have expired. While complaints related to vehicle loans have also increased, the Bureau reported that student loan complaints remain lower than pre-Covid levels due to the implementation of temporary relief programs. The top products and services—representing approximately 94 percent of all complaints—were credit or consumer reporting, debt collection, credit cards, checking or savings accounts, and mortgages. The Bureau also received complaints related to money transfers and virtual currency; vehicle finance; prepaid cards; student, personal, and payday loans; credit repair; and title loans.

    Federal Issues CFPB Consumer Finance Consumer Complaints Covid-19 Consumer Reporting Agency Debt Collection Buy Now Pay Later Mortgages Student Lending Digital Assets

    Share page with AddThis
  • District Court: Failing to invoke the BFE defense does not entitle a plaintiff to judgment as a matter of law

    Courts

    On March 15, the U.S. District Court for the Eastern District of Washington denied a plaintiff’s motion for partial summary judgment, ruling that just because a defendant did not invoke the bona fide error (BFE) defense when accused of allegedly violating the FDCPA it does not mean the defendant has admitted to violating the statute. In 2018, the defendant debt collector attempted to collect unpaid debt in the amount of $786.68 from the plaintiff and began reporting the debt to the consumer reporting agencies (CRAs). In 2021, after the original creditor recalled the account from the defendant for an unspecified reason, the defendant submitted two requests to the CRAs to delete the item from the plaintiff’s credit report and took no further action on the account. Shortly thereafter, the plaintiff noticed a $787.00 debt on one of his credit reports. He contacted the original creditor and was told the company could not find an account in his name that was referred for collection. The plaintiff sued for violations of Section 1692e of the FDCPA and related violations of Washington state law, and later filed for a partial motion for summary judgment contending that the FDCPA “is a strict liability remedial statute that contains a single affirmative defense to liability—the bona fide error defense,” and that because the defendant did not plead the BFE defense “he is entitled to judgment as a matter of law as to Defendant’s liability under the statute.” While the defendant acknowledged that it did not plead the BFE defense, it countered that the plaintiff “cannot prove a prima facie case of liability.”

    The court concluded that “[w]hile the statute is strict liability, ‘a debt collector’s false or misleading representation must be ‘material’ in order for it to be actionable under the FDCPA.” Noting that the alleged violation appeared to be based on the grounds that the defendant reported an inflated account balance ($787.00 versus $786.68), the court stated it “has little trouble in concluding that inflating an account balance by 32 cents is not a materially false representation. To the contrary, it is a ‘mere technical falsehood that mislead[s] no one.’” Moreover, the court stated that because the defendant immediately ceased reporting the account and sent deletion requests to the CRAs after the account was recalled, and that there was no evidence to suggest that the debt collector knew or should have known that it was communicating information that was false, the plaintiff could not show, at this stage of the proceeding, that Section 1692e was violated.

    Courts FDCPA Debt Collection Bona Fide Error Consumer Reporting Agency Consumer Finance

    Share page with AddThis

Pages