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11th Circuit revives FCRA claims against credit-reporting agency
On April 28, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court’s judgment, holding that it was unclear whether a credit reporting agency (CRA) took “reasonable procedures to assure maximum possible accuracy of the information” as required under the FCRA after a consumer claimed his credit report contained inaccuracies. The consumer contacted the CRA after noticing his credit report showed he was delinquent on a mortgage that was discharged in bankruptcy. The CRA sent an automated consumer data verification to the mortgage servicer who confirmed the debt. The consumer claimed that the CRA did not take further steps to investigate the situation and failed to correct the credit report until after the consumer commenced the litigation against the CRA for willfully violating the FCRA. The district court disagreed with the consumer, concluding that under both § 1681e and § 1681i, the CRA’s actions were reasonable as a matter of law. Among other things, the consumer failed to provide the CRA “with specific information from which it could have discovered that he no longer owed money” on the mortgage, the district court found, determining also that the consumer’s “theory of liability was a ‘bridge too far’ because it would require [CRAs] to examine court orders and other documents to determine their legal effect.”
On appeal, the Eleventh Circuit disagreed that the measures taken by the CRA after it was notified of the inaccuracy in the consumer’s report were “‘reasonable’ as a matter of law.” The CRA did “nothing, although it easily could have done something with the information” provided by the consumer, the appellate court wrote. However, the court emphasized that its decision was a narrow one. “Just as we cannot hold that [the CRA’s] procedures were per se reasonable, we do not hold that they were per se unreasonable,” the appellate court wrote, noting that it also could not “hold that in every circumstance where a plaintiff informs a [CRA] of an inaccuracy, the agency must examine court records to independently discern the status of a debt.” Additionally, the appellate court determined that although a bankruptcy discharge does not expunge a debt, the consumer’s credit report was still factually inaccurate because he “was no longer liable for the balance nor was he ‘past due’ on any amount for more than 180 days.”
2nd Circuit: Credit report showing “satisfied” judgment was not misleading
On April 9, the U.S. Court of Appeals for the Second Circuit held that a credit reporting agency’s (CRA) report that a judgment was “satisfied” was accurate and not misleading under the FCRA. According to the opinion, a debt collection action was brought and default judgment entered against the plaintiff. The parties ultimately filed a joint stipulation to resolve the action and discontinue all claims with prejudice. Afterwards, the CRA’s report showed the default judgment, but was later amended to read “judgment satisfied”—a statement that the plaintiff allegedly repeatedly disputed. The plaintiff ultimately filed a lawsuit against the CRA, alleging the agency “willfully and/or negligently violated various FCRA provisions by persisting in publishing [the] report and failing to follow certain of the FCRA’s procedural notice requirements.” Among other things, the plaintiff claimed that the CRA also violated the FCRA’s source-disclosure and reinvestigation provisions and should have disclosed that the information about the judgment came from a contractor-intermediary working for the CRA. The district court dismissed one of the FCRA claims and granted summary judgment to the CRA on the remaining FCRA claims.
On appeal, the 2nd Circuit agreed with the district court, concluding first that there was no FCRA reporting violation because the description of the judgment as “satisfied” was accurate. Moreover, the appellate court wrote, even if the CRA should have disclosed that the contractor was the source, the plaintiff “failed to present any evidentiary basis for concluding that he suffered actual damages” resulting from the CRA’s failure to not disclose or treat the contractor as a source or furnisher of the information about the judgment. The 2nd Circuit further rejected the plaintiff’s claims against the CRA for willful violations of sections 1681g and 1681i, concluding that the sections “can be reasonably interpreted not to require such a disclosure and no more need be shown.”
9th Circuit affirms arbitration in putative class action against CRA
On October 21, the U.S. Court of Appeals for the Ninth Circuit affirmed arbitration in a FCRA action against a national credit reporting agency (CRA), concluding that the consumer “expressly agreed” to the 2014 terms of use, which included an enforceable arbitration provision. According to the opinion, a consumer purchased a credit score program from the CRA in June 2014 and assented to the terms and conditions, including an arbitration provision and change-of-terms provision, which stated that each time the consumer accessed the website, “she would be manifesting assent to ‘the then current’ terms of the agreement.” The consumer canceled her credit score subscription in July 2014. The consumer accessed the CRA website against in 2018 and at the time of access, the arbitration provision included a carve out for certain disputes relating to the FCRA. The consumer subsequently filed a putative class action against the CRA, alleging, among other things, a violation of the FCRA’s requirement to assist the consumer in understanding the credit scoring assessment. The district court granted the CRA’s motion to compel arbitration.
On appeal, the 9th Circuit concluded that the consumer was not bound to the new arbitration terms based on her 2018 visit to the website. The appellate court noted that the consumer did not allege she received notice of the new terms in effect, and therefore, she was bound to the 2014 terms to which she had previously assented. Moreover, the appellate court rejected the consumer’s argument that the arbitration agreement was unenforceable under the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable). The appellate court held that the 2014 arbitration provision did not “flatly prohibit a plaintiff seeking public injunctive relief in court,” because it subjects disputes to arbitration “to the fullest extent of the law,” which presumably would “exclude claims for public injunctive relief in California.” Thus, the appellate court affirmed arbitration.
District court: Credit reporting restrictions preempted by FCRA
On October 8, the U.S. District Court for the District of Maine granted a trade association’s motion for declaratory judgment against the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) after it sued the state for enacting amendments to the Maine Fair Credit Reporting Act. The trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—filed the lawsuit concerning the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the federal Fair Credit Reporting Act (FCRA). The parties’ main contention was over how broadly the language under FCRA Section 1681t(b)(1)(E) concerning “subject matter regulated under . . . [15 U.S. C. § 1681c] relating to information contained in consumer reports” should be understood. Plaintiffs argued that the language should be read to encompass all claims relating to information contained in consumer reports. The defendants, on the other hand, claimed that § 1681c should be read “as an itemized list of narrowly delineated subject matters, some of which relate to information contained in consumer reports, and only find preemption where a state imposes a requirement or prohibition that spills into one of those limited domains,” which in this case, the defendants countered, the amendments do not.
The court disagreed, concluding that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.”
5th Circuit: Omitting a favorable credit item does not render a credit report misleading
On September 9, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a plaintiff’s FCRA claims against two consumer reporting agencies (CRAs), holding that omitting a favorable credit item does not render a credit report misleading. The plaintiff filed a lawsuit after the CRAs stopped reporting a favorable item—a timely paid credit card account—and refused to restore it, alleging that the refusal to include the item on his consumer report violated section 1681e(b), which requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. As a result, the plaintiff claimed his creditworthiness was harmed, which caused him to be denied a credit card and rejected for a mortgage. The district court dismissed the suit.
In affirming the dismissal, the 5th Circuit found that the omission of a single credit item does not render a report ”inaccurate” or “misleading.” According to the appellate court, a “credit report does not become inaccurate whenever there is an omission, but only when an omission renders the report misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” As such, “[b]usinesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.” The 5th Circuit further held, among other things, that the plaintiff failed to state a claim for violations of section 1681i(a), which requires agencies to conduct an investigation if consumers dispute “the completeness or accuracy of any item of information contained in a consumer’s file.” The court held that because the plaintiff “disputed the completeness of his credit report, not of an item in that report,” the statute did not require an investigation.
11th Circuit sides with satellite cable provider in FCRA action
On September 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of a cable satellite company, concluding that the company had a “legitimate business purpose” under the FCRA to obtain a consumer’s credit report. According to the opinion, in 2016, following an identity theft, the consumer entered into a settlement agreement with the cable satellite company after the consumer’s personal information was used to fraudulently open two accounts for television services. As part of the agreement, the company put the consumer’s personal information into an internal mechanism designed to flag and prevent unauthorized accounts. In 2017, an unknown individual applied for an account online using some of the consumer’s information. The company’s automated systems sent the information to a consumer reporting agency (CRA), which matched the information to the consumer and resulted in the cable satellite company blocking the account from being opened. Upon request by the company, the CRA deleted the inquiry from the consumer’s credit file. The consumer filed an action alleging that the company breached the settlement agreement and “negligently and willfully obtained the January 2017 consumer report without a ‘permissible purpose’” in violation of the FCRA. While the action was pending, two more attempts were made to use the consumer’s information to open accounts and the satellite company blocked both. The district court granted summary judgment in favor of the satellite company.
On appeal, the 11th Circuit agreed with the district court, concluding that the satellite company had a “legitimate business purpose” to access the credit report. Specifically, the appellate court noted that the “FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report.” Moreover, the satellite company was dependent on the credit report to access the consumer’s full social security number and “cross-check that information via its internal mechanisms.” Additionally, the appellate court rejected a claim for breach of the settlement agreement, noting that the company satisfied the terms of the agreement by flagging the social security number in its internal systems and using that system to block the fraudulent application for an account.
9th Circuit: FCRA claim cannot prevail without first providing notice of disputed information
On July 14, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a group of defendants, including a credit reporting agency (CRA) and furnisher, after determining that a consumer plaintiff failed to adequately notify the CRA of an error on her credit report. According to the opinion, the plaintiff questioned the accuracy of certain information on her credit report and requested that these inaccuracies be investigated. Defendants investigated and corrected the inaccuracies and informed the plaintiff that if she further disputed the accuracy of the reported information, she could submit additional documentation to support her claim. Plaintiff continued to believe her credit report contained inaccuracies; specifically, she contended that the CRA was misreporting the date on which her bankruptcy was discharged. But rather than notify the CRA, she instead filed suit in federal district court alleging violations under the FCRA. The defendants filed for summary judgment which the district court granted, concluding that while “the date of the bankruptcy may have continued to be misreported after the conclusion of the reinvestigation,’ there was no genuine dispute of material fact on whether [the plaintiff] notified [the CRA] of that specific reporting error.” The 9th Circuit agreed, starting that because the plaintiff failed “to provide adequate notice of this reporting error” the scope of the defendants’ duties were limited. Moreover, the 9th Circuit held that a consumer cannot prevail on a “FCRA claim without first putting the [CRA] on notice of the information that is disputed.”
District court allows data breach claim to proceed against national credit reporting agency
On July 8, the U.S. District Court for the Eastern District of New York allowed a consumer’s claim under New York’s consumer protection law (N.Y. G.B.L. § 349) to proceed against a national credit reporting agency (CRA) for grievances stemming from a 2017 data breach that compromised the consumer’s personal information. According to the opinion, the consumer alleged that the CRA, among other things, failed to “implement security and privacy measures to safeguard plaintiff’s sensitive information and misrepresented to him that his personal data would be protected from outside threats.” The CRA had previously entered into a class action settlement concerning the data breach and resolved hundreds of data breach cases brought against the company; however, the consumer opted out of that nationwide class action. The CRA moved to dismiss the consumer’s action, arguing, among other things, that data breach claims are not actionable under N.Y. G.B.L. § 349. While the court granted the CRA’s motion as to the consumer’s FCRA claim, the court denied the CRA’s request to dismiss the consumer’s claim under N.Y. G.B.L. § 349. Specifically, the court concluded that the consumer plausibly alleged the CRA misrepresented its ability to protect the consumer’s personal information, which “resulted in actual and pecuniary harm after [the consumer]’s identity was stolen and numerous unauthorized accounts were opened under his name.” The court distinguished this claim from the consumer’s FCRA claim, which asserted the CRA failed to “shield” the consumer’s information from the hackers, whereas the N.Y. G.B.L. § 349 claim rests on the CRA’s representations of protection.
CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
New York regulator issues guidance for state consumer credit reporting agencies
On June 17, the New York State Department of Financial Services issued guidance to state-regulated consumer credit reporting agencies regarding support for New York consumers impacted by Covid-19. The guidance indicates that all state-regulated consumer credit reporting agencies have agreed to take a number of steps to mitigate consumer harm, including permitting consumers at least one free credit report per month for six months, reminding furnishers of information of the appropriate manner to report accommodations reached pursuant to the CARES Act, and posting on their website a link to a page dedicated to Covid-19 information and updates.