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Minnesota bill to address negative credit reports and student loans
On February 19, the Minnesota House Health and Human Services Finance and Policy Committee introduced a bill that would require the Commissioner of Commerce to negotiate with credit reporting bureaus to waive negative credit reports, and to negotiate a federal waiver for federally guaranteed student loans for persons under isolation or quarantine.
On March 9, the Minnesota Senate Health and Human Services Finance and Policy Committee introduced a bill that would accomplish the same objectives.
Virginia eliminates fee for credit report security freezes
On March 10, the Virginia governor signed HB 509, which amends certain statutory provisions related to fees for security freezes on credit reports. Currently, a credit reporting agency (CRA) may charge a fee of not more than $5 when a consumer or his representative requests a security freeze on his credit report, though victims of identity theft are exempt from this fee. HB 509 prohibits CRAs from charging a fee for credit report freezes, regardless of whether the request comes from a victim of identity theft. The amendments take effect on July 1.
Credit reporting agency FCRA suit may go forward
On March 9, the U.S. District Court for the Eastern District of Pennsylvania denied the motion to dismiss and motion to strike a claim of a credit reporting agency (CRA) and its subsidiary (defendants) in a putative class action that alleged the defendants: (i) knowingly used inaccurate eviction information in their tenant screening reports, and (ii) inaccurately represented that they obtained eviction information from public sources, each in violation of the FCRA. Specifically, the plaintiff alleged that the CRA failed to disclose that the eviction information was maintained and sold through the subsidiary, and when the plaintiff requested her credit report from the CRA, the CRA omitted information maintained by the subsidiary and therefore the credit report did not contain “all information in the consumer’s file at the time of the request” as required by the FCRA. She argued that the FCRA prohibits the CRA defendant from skirting the requirement of full and accurate disclosure of consumer information by assigning that duty to a third party—in this case, the subsidiary defendant.
According to its memorandum, the court rejected the CRA’s argument that it could not be held liable for faulty reports issued by its subsidiary. The court answered the question of whether plaintiff “sufficiently alleged that defendant evaded its obligation to make full and accurate disclosure of plaintiff's consumer file. . .through the use of corporate organization, reorganization, structure or restructuring,” concluding that she did so. The court dismissed the defendants’ motion to strike without prejudice, indicating the defendants can raise their argument again in an opposition to class certification.
9th Circuit reduces punitive damages in FCRA class action
On February 27, the U.S. Court of Appeals for the Ninth Circuit reduced punitive damages in a class action against a credit reporting agency (CRA) for allegedly violating the Fair Credit Reporting Act (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). At trial, the jury found that the CRA violated the FCRA by willfully failing to (i) “follow reasonable procedures to assure accuracy of the terrorist alerts”; (ii) “disclose to the class members their entire credit reports by excluding the alerts from the reports”; and (iii) “provide a summary of rights” to class members with each disclosure. Subsequently, the jury awarded $8 million in statutory damages and $52 million in punitive damages to the class.
Upon appeal, the 9th Circuit affirmed the lower court’s determinations that all class members—not just the class representative—must have “standing at the final stage of a money damages suit when class members are to be awarded individual monetary damages.” But the appellate court found that all class members did have standing due to, among other things, the CRA’s “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm,” and because “the violation of a statutory right constituted a concrete injury.” In addition, the appellate court rejected the CRA’s request for judgment as a matter of law or a new trial on the basis that the class had failed to provide sufficient evidence of injuries or to support the damages award. Moreover, the appellate court held that the district court did not abuse its discretion in finding that the class representative’s claims were typical of the class’s claims, nor in certifying the class or denying the CRA’s motion to decertify the class. The appellate court also agreed with the lower court on statutory damages, but it held that the $52 million punitive damages award was “unconstitutionally excessive.” The appellate court explained that although the CRA’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.” Accordingly, the appellate court vacated the jury’s award of punitive damages and remanded, directing that the punitive damages be reduced to four times the statutory damages award.
7th Circuit holds both parties lack standing in FCRA suit
On January 28, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of claims and counterclaims in a privacy lawsuit, holding that neither party had standing under the Fair Credit Reporting Act (FCRA). In 2016, the consumer filed a lawsuit against the credit reporting agency claiming privacy violations and emotional distress after the agency released his credit information without authorization. According to the consumer, his credit information appeared on a “prescreen list” given to a prospective lender that was no longer under contract with the agency to make loan offers to pre-screened consumers. The agency filed an FCRA counterclaim arguing that the plaintiff violated the FCRA when he obtained a copy of the prescreen list without authorization in order to file the lawsuit. The district court dismissed both claims, ruling that neither party had standing to sue because they had not suffered a concrete injury.
On appeal, the 7th Circuit agreed with the decision, concluding the plaintiff failed to meet the injury-in-fact requirements under Article III and that any harm he may have suffered when the prescreen list was shared was “exceedingly remote and speculative.” According to the appellate court, “[i]dentifying a violation of a statutory right does not automatically equate to showing injury-in-fact for standing purposes.” Moreover, the plaintiff “had to come forward with something showing that he did not receive a firm offer, that [the prospective lender] would not have honored a firm offer, that he was affected by the lack of a firm offer, or that he suffered any actual emotional damages,” the 7th Circuit wrote, which he failed to do. The 7th Circuit also agreed with the district court that the company’s alleged reputational harm was insufficient to confer standing. The appellate court further rejected the agency’s second argument that defending the suit counted as a concrete injury, holding that the agency was attempting to “shoehorn itself into another cause of action,” and that the FCRA does not create an independent cause of action for which the agency can recover its costs.
Michigan establishes provisions for credit services organizations
On January 27, the Michigan governor signed HB 4411, which establishes provisions for credit service organizations. Among other things, HB 4411 prohibits persons engaged in credit service activities from (i) charging or receiving money from a buyer seeking a loan, extension of credit, or other valuable consideration before closing; (ii) charging a buyer or receiving from a buyer money or other valuable consideration before completing all agreed upon services, or “for referral to a retail seller that will or may extend credit to the buyer if the credit that is or may be extended to the buyer is substantially the same as that available to the general public”; (iii) making or using false or misleading representations, or engaging in a fraudulent or deceptive act or practice connected with the offer or sale of a credit services organization, stating that the organization has the ability to delete adverse credit history, or guaranteeing that the organization can obtain an extension of credit regardless of the buyer’s credit history; (iv) failing to perform the agreed upon services within 90 days after the contract is signed by the buyer; (v) advising a buyer to make untrue or misleading statements to certain entities, including a consumer credit reporting agency; (vi) assisting in the removal of adverse credit information that is accurate and not obsolete, or assisting a buyer in creating a new credit record using alternative personal information; and (vii) submitting buyer disputes to consumer credit reporting agencies without a buyer’s knowledge. The act is effective immediately.
6th Circuit affirms dismissal of FDCPA action for lack of standing
On January 3, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal for lack of standing of an FDCPA suit brought by a consumer who claimed that because collection letters sent to him by a law firm caused him anxiety, the firm had violated the FDCPA. According to the opinion, the consumer had two delinquent accounts with a bank, which the law firm attempted to recover by sending collection letters to the consumer. The consumer asserted that the letters the law firm sent caused him “an undue sense of anxiety” that he would be sued by the firm, and he subsequently filed a lawsuit against the firm for violating the FDCPA. The court held that the consumer did not have standing to sue under Article III of the U.S. Constitution, for three main reasons: (i) the debtor’s anxiety about a potential lawsuit amounted to a fear of future harm that was not “certainly impending” because the consumer had not alleged that the law firm had threatened to sue him or that he refused to pay, and, therefore, his anxiety did not satisfy the injury-in-fact element for Article III standing; (ii) the consumer was “anxious about the consequences of his decision to not pay the debts that he does not dispute he owes,” and such a “self-inflicted injury” is not a basis for standing because it was not “fairly traceable” to the law firm’s conduct, but instead reflected the consumer’s own behavior; and (iii) “even assuming [the law firm” violated the statute by misrepresenting that an attorney had reviewed [the consumer’s] debts,” that violation did not cause any injury to the consumer because the consumer gave the court “no reason to believe he did not owe the debts,” and, therefore, he could not show that the law firm’s alleged procedural violation of the FDCPA, by itself, was an “injury in fact.” Because the court held that the consumer did not have standing, it affirmed the lower court’s dismissal of the action.
$24 million settlement proposed in FCRA class action against credit reporting agency
On December 31, a credit reporting agency (agency) and a class of consumers whose payday loan servicer collapsed jointly filed a proposed $24 million settlement agreement for approval by the U.S. District Court for the Central District of California (also, see the memorandum in support here). The proposed agreement would resolve a class action suit alleging that the agency provided incorrect and potentially harmful information on the class members’ credit reports in violation of the FCRA.
In 2016, the class representative (the consumer) sued the agency claiming it was reporting disputed debts from a payday loan servicer that had previously requested that the agency stop reporting the servicer’s pool of payday loan accounts. Because the servicer had also discontinued its servicing operations, the debts could no longer be verified. The consumer alleged that although the agency claimed to have deleted the payday loan servicer’s accounts in January of 2015, it continued to report as delinquent more than 100,000 loans until the accounts were actually deleted more than a year later. After the district court granted a motion for summary judgment filed by the agency, the consumer appealed to the U.S. Court of Appeals for the Ninth Circuit.
As previously covered in InfoBytes, upon appeal in 2019, the appellate court vacated the lower court’s grant of summary judgment on the ground that the consumer’s allegations regarding the inaccuracy of the agency’s information and the willfulness of its actions “raised genuine issues of material fact.” On remand, the district court granted class certification in October. The proposed settlement agreement, if approved, would automatically award each class member approximately $270, and provide up to $15,000 to the consumer who originally filed the lawsuit as the class representative. A hearing date is set for January 27.CFPB reexamines the effect of NCAP on credit scores and credit performance
On December 10, the CFPB released the latest quarterly consumer credit trends report, which evaluated the extent to which removal of public records from credit reports affects consumer credit scores and credit performance. As previously covered by InfoBytes, the three major U.S. credit reporting agencies began using stricter guidelines when considering consumer public records, such as tax liens and civil judgments, to be included in consumer credit reports as a result of the National Consumer Assistance Plan (NCAP). The NCAP, among other things, imposed restrictions on medical debt reporting and civil public records such as tax liens, civil judgments, and bankruptcies. Observing that the “NCAP public records provision resulted in the removal of all civil judgments and almost half of tax liens from credit reports by the end of July 2017,” this report compared consumer credit scores and credit performance for consumers that had public records removed from their credit report and consumers who did not. According to the report, “there was only a slight increase in credit scores following the NCAP,” and “the NCAP did not seem to have a large effect on the relationship between credit scores and consumers’ credit performance for consumers whose credit report included a lien or judgment compared with consumers whose credit report did not.”
11th Circuit reinstates FCRA suit, addresses “false pretenses”
On November 12, the U.S. Court of Appeals for the Eleventh Circuit issued an order reversing in part and affirming in part a district court’s dismissal of claims brought by a consumer who claimed a bank violated the Fair Credit Reporting Act (FCRA) and the FDCPA when it allegedly provided debt information using a “false name” to a credit reporting agency and requested the consumer’s credit report without a proper purpose. In 2016, the consumer filed a lawsuit asserting the bank (i) violated the FDCPA by using a name other than its true name in connection with the collection of debt; and (ii) violated the FCRA when it failed to investigate the accuracy of the information provide to the credit reporting agency, and requested his credit report without a permissible purpose. The district court dismissed the complaint for failure to state a claim.
On appeal, the 11th Circuit affirmed the dismissal of the FDCPA claim, concluding that, while the false-name exception stipulates that the FDCPA applies to a creditor that uses any name other than its own when collecting its own debts (which may indicate a third party was collecting or attempting to collect the debt), the exception does not apply in this instance because “even the least sophisticated consumer” would understand that the bank and the entity named in the consumer report were related. However, the appellate court held that the district court erred in dismissing the FCRA claims. According to the opinion, the consumer stated three plausible claims for relief, including that the bank failed to investigate the accuracy of the information it sent, as required when a dispute arises, and that it unlawfully obtained his credit report. The 11th Circuit noted that while it has never addressed the meaning of “false pretenses” under the FCRA, it now joins other courts in holding that “intentionally obtaining a credit report under the guise of a permissible purpose while intending to use the report for an impermissible purpose can constitute false pretenses.” Moreover, the appellate court noted that while the bank may have obtained the consumer’s credit report for proper purposes, or that it may have disclosed the true purpose to the credit reporting agency, “this fact question cannot be resolved on a motion to dismiss.”