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  • 8th Circuit affirms rulings for defendant in FCRA suits

    Courts

    On August 16, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection. The bankruptcy court entered a discharge, and when the plaintiff obtained the credit reports, among other things, one debt was still being reported as “Current; Paid or Paying as Agreed” with an outstanding balance. The plaintiff filed suit, alleging the defendants violated the FCRA because they “do not maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.” The plaintiff claimed to suffer emotional distress and obtained credit at less favorable rates. The defendants jointly moved to dismiss the complaint, contending that the plaintiff failed to plausibly allege the reporting. The district court granted the motion and dismissed the case with prejudice.

    According to the 8th Circuit, the plaintiff’s complaint was “too thin to raise a plausible entitlement to relief.” The appellate court noted that, “[i]t is not the credit reporting agencies’ job to “wade into individual bankruptcy dockets to discern whether a debt survived discharge.” The appellate court ultimately agreed with the district court that “’there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’”

    The same day, in a separate suit, the 8th Circuit affirmed another district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection, and after the debts were discharged, the plaintiff’s credit report still listed a debt with an outstanding balance that was noted as “open” and “past due.” The plaintiff filed suit, alleging the defendants violated the FCRA “by neglecting to ‘maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.’” The plaintiff sought damages resulting from emotional distress and financial harm, but the district court granted summary judgment in favor of defendants, agreeing that plaintiff failed to show proof of actual damages.

    On the appeal, the 8th Circuit noted that it was the bankruptcy, not the information in plaintiff’s credit report, that led to her applications for credit cards being denied. Regarding her allegation about emotional distress, the appeals court reasoned that plaintiff “‘suffered no physical injury, she was not medically treated for any psychological or emotional injury, and no other witness corroborated any outward manifestation of emotional distress.’” Accordingly, the court concluded that defendants were entitled to judgment as a matter of law.

    Courts Appellate Eighth Circuit FCRA Credit Report Consumer Finance Credit Reporting Agency

  • CFPB receives rulemaking petition seeking validation of credit score models for credit unions

    Federal Issues

    Recently, the CFPB received a rulemaking petition seeking validation of credit score models for credit unions. The petition, which seeks “a rule governing the requirement to periodically validate credit scores for all lending or financing entities,” argues that validation is necessary to measure the effectiveness of credit scores being used to measure credit risk. Claiming that general letters of compliance from credit reporting agencies are inadequate, the petitioner explains that these letters do not “address the misapplication of credit scores by banks, credit card issuers, auto financing groups or individual credit unions that are the primary cause of errors and financial exclusion.” According to the petitioner, “[o]nly a statistically valid empirically derived study based on funded and declined loans will resolve many of the issues in consumer lending today.” The petitioner points out that validation reports “provide the information necessary to measure the efficiency of the credit score being used to measure credit risk,” and that “[d]emographic comparisons of funded and declined applicants can also be used to identify if the underwriting guidelines used in the application of credit scores result in acceptable percentages of financial inclusion for minorities or protected consumer groups.”

    Federal Issues CFPB Credit Scores Credit Union Consumer Finance Credit Reporting Agency

  • CFPB reports on potential impacts of medical debt

    Federal Issues

    On July 27, the CFPB issued a report analyzing how actions announced by three national consumer reporting companies affect people who have allegedly unpaid medical debt on their credit reports. 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. According to the report, in March, the credit reporting companies announced voluntarily that they would no longer report certain medical collections. Specifically, starting July 1, 2022, the time before unpaid medical collections can appear on a consumer’s report will increase from 180 days to one year and paid medical collections will no longer appear at all.  In addition, sometime in 2023, medical collections with balances below a threshold of “at least” $500 will not appear on a consumer’s report. The Bureau’s report stated that “[t]hese changes have the potential to reduce the amount of medical debt reported on consumer credit reports and to benefit some consumers.” The report describes the characteristics of consumers with reported medical collections currently and provides a state-by-state breakout of how the credit reporting changes will impact consumers’ credit reports. Highlights of the report include: (i) consumers in Northern and Eastern states have higher concentrations of medical debt that are likely to be removed; (ii) consumers with medical debt are significantly more likely to reside in neighborhoods that majority Black or Hispanic and have lower median income, but consumers likely to have all their medical debt removed by the change are slightly more likely to live in neighborhoods that are majority white and higher income; and (iii) eliminating paid collections is less likely to have a substantial effect, as very few medical collection tradelines are ever marked paid.  The CFPB also noted that, due to the nature of the data, the report does not examine the impact of the extension of the time between referral of the medical bill for collections and the reporting of the bill from 180 days to one year.”

    Federal Issues CFPB Medical Debt Consumer Finance Credit Reporting Agency

  • District Court grants final approval in a FCRA case remanded by the 9th Circuit

    Courts

    On December 15, the U.S. District Court for the Northern District of California granted final approval of a plaintiff’s motion for preliminary approval in a class action settlement in a FCRA case. In a class action against a credit reporting agency (CRA) for allegedly violating FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the district court ruled that all class members had standing to assert their FCRA claims. The jury returned a verdict for the plaintiffs and awarded punitive damages. As previously covered by InfoBytes, in February 2020, the 9th Circuit reduced the punitive damages award and affirmed the district court’s ruling that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm.” As previously covered by InfoBytes, in April 2020, the 9th Circuit granted a joint motion to stay the mandate pending the CRA’s filing of a petition for writ of certiorari with the U.S. Supreme Court. The Supreme Court granted the CRA’s petition for certiorari and reversed the 9th Circuit’s finding on standing, holding that the class members whose credit reports were not provided to third-party businesses did not suffer a concrete harm and thus did not have standing to assert their “reasonable procedures” claims under the FCRA. The Court also held that none of the class members had standing to pursue the disclosure claims under the FCRA because they had not “suffered a concrete harm.” The Ninth Circuit remanded to the district court for further proceedings consistent with the Supreme Court’s ruling.

    The parties participated in a mediation and reached a class-wide settlement. The plaintiff moved for preliminary approval, which the district court granted on July 19. The settlement class is composed of two categories of individuals: (1) the 1,853 class members that the defendant CRA identified in its pre-trial stipulation as individuals for whom the defendant had delivered a credit report containing OFAC data to a third-party, and (2) class members from the remaining group of 6,332 individuals not identified in the stipulation who submit a claim demonstrating publication of OFAC data to a third-party during the class period. The Settlement agreement, among other things, requires the defendant to establish a settlement fund of $9 million, which includes attorney fees and costs.

    Courts FCRA Credit Reporting Agency Class Action OFAC Department of Treasury

  • CFPB issues final rule re: credit reporting on human trafficking victims

    Agency Rule-Making & Guidance

    On June 23, the CFPB issued a final rule implementing amendments to the FCRA intended to assist victims of human trafficking. According to the Bureau’s announcement, the final rule prohibits credit reporting agencies (CRAs) from providing reports containing any adverse items of information resulting from human trafficking. The final rule amends Regulation V to implement changes to the FCRA enacted in December 2021 in the “Debt Bondage Repair Act,” which was included within the National Defense Authorization Act for Fiscal Year 2022. (Covered by InfoBytes here.)

    Among other things, the final rule establishes methods available for trafficking victims to submit documentation to CRAs establishing that they are a survivor of trafficking (including “determinations made by a wide range of entities, self-attestations signed or certified by certain government entities or their delegates, and documents filed in a court where a central issue is whether the person is a victim of trafficking”). The final rule also requires CRAs to block adverse information in consumer reports after receiving such documentation and ensure survivors’ credit information is reported fairly. CRAs will have four business days to block adverse information once it is reported and 25 business days to make a final determination as to the completeness of the documentation. All CRAs, regardless of reach or scope, must comply with the final rule, including both nationwide credit reporting companies and specialty credit reporting companies.

    The final rule takes July 25.

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

  • CFPB says BNPL needs standardized credit reporting

    Federal Issues

    On June 15, the CFPB published a blog post calling on the Buy Now Pay Later (BNPL) industry to establish standardized codes and formats for furnishing information to credit reporting agencies that take into account the unique characteristics of these short-term, no-interest consumer credit products. Citing to the rapid growth within the BNPL industry, the Bureau stressed the need for standardization in how BNPL debts are reported on consumers’ credit reports. According to the Bureau, the three major credit reporting agencies have different policies for handing positive and negative reports on BNPL transactions in consumers’ core credit files. Moving to a more standardized approach would “facilitate the consistent and accurate furnishing of BNPL payment information” the Bureau said, noting that the agency “believes that when BNPL payments are furnished it is important that lenders furnish both positive and negative data.” Consumers who pay on time and may be seeking to build credit should receive the benefits of making timely payments on their BNPL debts, the Bureau said, explaining that this may also impact lenders seeking to understand how much debt a consumer is carrying.

    The Bureau stressed it will continue to monitor the progress of BNPL lenders, credit reporting agencies, and credit scoring companies, and said it plans to “revisit this issue as part of a broader report on the industry stemming from our market monitoring order and responses to a public request for comments.” The Bureau is currently conducting an industry review, which includes a series of orders sent last December to five companies seeking information on the risks and benefits of the BNPL credit model (covered by InfoBytes here).

    Federal Issues CFPB Consumer Finance Buy Now Pay Later Credit Reporting Agency Credit Scores

  • CFPB sues credit reporter and one of its executives

    Federal Issues

    On April 12, the CFPB sued a credit reporting agency (CRA), two of its subsidiaries (collectively, “corporate defendants"), and a former senior executive for allegedly violating a 2017 enforcement order in connection with alleged deceptive practices related to their marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The 2017 consent order required the corporate defendants to pay a $3 million civil penalty and more than $13.9 million in restitution to affected consumers as well as abide by certain conduct provisions (covered by InfoBytes here). The Bureau’s announcement called the corporate defendants “repeat offender[s]” who continued to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges. According to the Bureau’s complaint, the corporate defendants, under the individual defendant’s direction, allegedly violated the 2017 consent order from the day it went into effect instead of implementing agreed-upon policy changes intended to stop consumers from unknowingly signing up for credit monitoring services that charge monthly payments. The Bureau claimed that the corporate defendants’ practices continued even after examiners raised concerns several times. With respect to the individual defendant, the Bureau contended that he had both the “authority and obligation” to ensure compliance with the 2017 consent order but did not do so. Instead, he allowed the corporate defendants to “defy the law and continue engaging in misleading marketing, even in the face of thousands of consumer complaints and refund requests.” The complaint alleges violations of the CFPA, EFTA/ Regulation E, and the FCRA/Regulation V, and seeks a permanent injunction, damages, civil penalties, consumer refunds, restitution, disgorgement and the CFPB’s costs.

    CFPB Director Rohit Chopra issued a statement the same day warning the Bureau will continue to bring cases against repeat offenders. Dedicated units within the Bureau’s enforcement and supervision teams will focus on repeat offenders, Chopra stated, adding that the Bureau will also work with other federal and state law enforcement agencies when repeat violations occur. “Agency and court orders are not suggestions, and we are taking steps to ensure that firms under our jurisdiction do not engage in repeat offenses,” Chopra stressed. He also explained that the charges against the individual defendant are appropriate, as he allegedly, among other things, impeded measures to prevent unintended subscription enrollments and failed to comply with the 2017 consent order, which bound company executives and board members to its terms.

    The CRA issued a press release following the announcement, stating that it considers the Bureau’s claims to be “meritless” and that as required by the consent order, the CRA “submitted to the CFPB for approval a plan detailing how it would comply with the order. The CFPB ignored the compliance plan, despite being obligated to respond and trigger deadlines for implementation. In the absence of any sort of guidance from the CFPB, [the CRA] took affirmative actions to implement the consent order.” Moreover, the CRA noted that “[r]ather than providing any supervisory guidance on this matter and advising [the CRA] of its concerns – like a responsible regulator would – the CFPB stayed silent and saved their claims for inclusion in a lawsuit, including naming a former executive in the complaint,” and that “CFPB’s current leadership refused to meet with us and were determined to litigate and seek headlines through press releases and tweets.” 

    Federal Issues CFPB Enforcement Credit Reporting Agency Deceptive UDAAP Regulation E CFPA FCRA Regulation V Consumer Finance Repeat Offender

  • 3rd Circuit confirms adversary proceeding required to discharge student debt in bankruptcy

    Courts

    On March 25, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s dismissal of an FDCPA and FCRA case against a student loan servicer and three credit reporting companies for attempting to collect a loan debt after it had been discharged in bankruptcy. After the discharge and completion of his bankruptcy case, the plaintiff filed suit, alleging the defendants violated the FDCPA and the FCRA by attempting to collect student loan debt that had been discharged. The district court granted the defendants’ motion to dismiss, ruling that the plaintiff failed to state a claim because under Section 523(a)(8) of the Bankruptcy Code, student loan debt is presumptively non-dischargeable and the plaintiff had not filed an adversary proceeding to determine otherwise.

    On appeal, the plaintiff “argued that he was not required to file an adversary proceeding in Bankruptcy Court to determine the dischargeability of his student loan debt,” and that the Bankruptcy Court’s determination that the plaintiff was indigent rebuts “the presumption that his debt was nondischargeable by satisfying the exception in §523(a)(8) for undue hardship.” However, the appellate court held that “a finding of indigence is not the same as an undue hardship determination under §538(a)(8)” and that while the Bankruptcy Code does not require an adversary proceeding to discharge student loan debt, the procedures established in the Bankruptcy Rules do include such a requirement by providing that adversary proceedings include “a proceeding to determine the dischargeability of a debt” and are commenced by serving a summons and complaint on affected creditors. Accordingly, the appellate court affirmed dismissal.

    Courts Appellate Third Circuit Bankruptcy Consumer Finance Student Lending FDCPA FCRA Credit Reporting Agency

  • District Court: Consumer must notify furnisher directly to remove dispute notification from credit report

    Courts

    On March 21, the U.S. District Court for the Western District of Tennessee granted a Pennsylvania-based student loan servicer’s (defendant) motion for judgment on the pleadings, ruling that the servicer did not violate the FCRA when furnishing information to a credit reporting agency (CRA) that contained a notation of an “account in dispute” because the plaintiff submitted the removal request only to the CRA and not to the defendant itself. The plaintiff contended that his account was still being reported as in dispute even though he sent a letter to the CRAs indicating that he no longer disputed the tradelines and requesting that the dispute notification be removed. The CRAs forwarded the plaintiff’s dispute to the defendant. Several months later the plaintiff noticed the account was still being reported as in dispute on his credit report. The plaintiff sued, alleging the defendant violated Sections 1681s-2(b) and 1692s-2(b)(1) of the FCRA by, among other things, willfully failing to conduct a reasonable investigation after it received notice from the CRAs of the dispute. The court disagreed, pointing to caselaw which states that if a consumer wants to remove a dispute notification from his or her credit report, the consumer must alert the furnisher—not just the CRA. The court also referenced FTC guidance, which informs consumers that in order to correct mistakes on their credit reports they need to contact both the credit bureau and the furnisher that reported the inaccurate information. Additionally, the court wrote that “a defendant cannot, as a matter of law, fail to conduct a reasonable investigation under § 1681s-2(b) where the plaintiff never terminates the dispute directly with the furnisher, regardless of to whom the plaintiff initially disputed the account.”

    Courts FCRA Consumer Finance Student Lending Student Loan Servicer Credit Reporting Agency Credit Report

  • Credit bureaus to eliminate 70% of medical debt tradelines

    Federal Issues

    On March 18, three major credit bureaus released a statement announcing that they are eliminating nearly 70 percent of medical collection debt tradelines from consumer credit reports. According to the statement, beginning July 1, “paid medical collection debt will no longer be included on consumer credit reports. In addition, the time period before unpaid medical collection debt would appear on a consumer’s report will be increased from 6 months to one year, giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.” Finally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by the three credit bureaus.  The statement noted that the decision to remove medical tradelines from credit reports was taken “after months of industry research.”

    The same day Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, issued a statement supporting the credit bureaus’ announcement regarding medical debt. Brown noted the changes followed a CFPB announcement that it would hold consumer reporting agencies accountable for inaccurate reports (covered by InfoBytes here). Brown expressed his view that the CFPB is taking “real action for consumers” and noted he intends to collaborate with the CFPB to “address the growing burden of medical debt, protect working families, and hold bad actors accountable.”

    Earlier on March 16, the CFPB a released a data spotlight regarding senior adults (those age 65 and older) and medical debt. The survey used information from the 2018 “FINRA Foundation National Financial Capability Study,” which was administered online to a sample of 27,091 adults ages 18 and older. In total, there were 5,166 respondents ages 65 and older. The study found that 8.5 percent of adults over 65 carried medical debt. The Bureau suggested this outcome “is likely the result of older Americans having the highest health insurance coverage rates of all age groups due to their eligibility for coverage through Medicare,” but referenced Medicare coverage as “limited.” The data spotlight also pointed out that, “[m]edical debt is more common among older people of color, older adults with incomes near the poverty line, people who are uninsured, who are currently unmarried, and who don’t own a home,” specifically noting that “[n]on-White older adults and older adults who are not married more often report medical debt than their counterpart.” The Bureau observed that 76 percent of seniors with medical debt are retired, while 17 percent are still employed and nearly 7 percent are disabled, sick, or unable to work. The Bureau noted that a recent job loss, declining health, or the onset of a disability may explain this data. The survey also found that older adults who had medical debt were significantly more likely to report significant cost-related health care challenges and hardships than others in the same age group without medical debt. More than 33.8 percent of older adults with medical debt have skipped medical treatment or a doctor’s visit due to cost, but just 6 percent of seniors without medical debt skipped medical treatment or a doctor’s visit due to cost, according to the survey data.

    Federal Issues CFPB Medical Debt Consumer Finance Credit Report Credit Reporting Agency

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