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Financial Services Law Insights and Observations

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  • District court: Credit reporting restrictions preempted by FCRA

    Courts

    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.” 

    Courts FCRA Credit Report Credit Reporting Agency State Issues Preemption

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  • 5th Circuit: Omitting a favorable credit item does not render a credit report misleading

    Courts

    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.

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

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  • 11th Circuit sides with satellite cable provider in FCRA action

    Courts

    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.

    Courts FCRA Credit Reporting Agency Credit Report Appellate Eleventh Circuit

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  • D.C. enacts law extending obligations for debt collection, credit reporting, mortgage servicing, and evictions during the Covid-19 pandemic

    State Issues

    On August 19, the mayor of D.C. signed the Coronavirus Support Second Congressional Review Emergency Act of 2020. The act extends the provisions of D.C.’s prior Covid-19 relief act (previously covered here), which was set to expire after 90 days, until November 16. Among other things, the act includes consumer protection provisions, including provisions regarding debt collection and credit reporting. It also provides housing and tenant protections, including in the areas of mortgage relief, restrictions on evictions, and foreclosures.

    State Issues Covid-19 District of Columbia Debt Collection Credit Report Mortgage Servicing Evictions Mortgages Foreclosure

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  • District court allows data breach claim to proceed against national credit reporting agency

    Courts

    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.

    Courts Privacy/Cyber Risk & Data Security Credit Report Credit Reporting Agency Data Breach

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  • CFPB settles claims with debt relief executive

    Courts

    On July 7, a settlement was reached with another of the defendants in action taken by the CFPB against a mortgage lender and several related individuals and companies (collectively, “the defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. An $18 million settlement was reached with several of the defendants in May (covered by InfoBytes here).

    The settlement reached with the chief operating officer/part-owner of one of the defendant companies requires the defendant to pay $25,000 of a $7 million settlement—of which the full payment will be suspended provided several obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services and from accessing, using, or obtaining “prescreened consumer reports” for any purpose. The defendant is also prohibited from using or obtaining consumer reports for any business purposes aside from “underwriting or otherwise evaluating mortgage loans.” The defendant is further required to, among other things, (i) pay a $1 civil money penalty; (ii) comply with reporting requirements; and (iii) fully cooperate with any other investigations.

    Courts CFPB Settlement Debt Relief CFPA TSR FCRA Credit Report

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  • District of Columbia amends law relating to emergency credit alerts during Covid-19

    State Issues

    On July 7, the mayor of D.C. signed D.C. Act 23-0332, which amends the Coronavirus Support Congressional Review Emergency Amendment Act of 2020, previously covered here, and certain other laws to, among other things, add provisions relating to emergency credit alerts. Under the amendments, a user of a credit report may not consider adverse information in a consumer report that was the result of an action or inaction by the consumer that occurred during, and was the direct or indirect result of, a public health emergency declared by the mayor, if the credit report includes an emergency credit alert.

    State Issues Covid-19 District of Columbia Consumer Credit Credit Report Consumer Finance

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  • CFPB’s semi-annual report to Congress discusses Covid-19 response

    Federal Issues

    On July 7, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2019, through March 31, 2020. The report, which is required by the Dodd-Frank Act, addresses, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken by the Bureau. In her opening letter, Director Kathy Kraninger discusses the Bureau’s response to the Covid-19 pandemic, stating that the Bureau has participated in “countless joint statements, virtual co-appearances, and shared broadcasts to stakeholders with [their] prudential partners” and has “directly engage[d] consumers with the right information, at the right time.”

    Among other things, the report highlights first time homebuyers and credit scores as areas in which consumers face significant problems, citing to the Bureau’s Market Snapshot on First-time Homebuyers and the quarterly consumer credit trends report on public records. In addition to highlighting the Bureau’s previous efforts during the reporting period, the report notes upcoming initiatives and plans, including (i) the Taskforce on Federal Consumer Financial Law’s public listening sessions in the fall; (ii) the cost-benefit analysis symposium in July; and (iii) further work on their Covid-19 pandemic responses.

    Federal Issues CFPB Mortgages Credit Scores Credit Report Congress Dodd-Frank Consumer Finance Covid-19

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  • Fed releases CARES Act credit reporting, mortgage servicing examination procedures

    Federal Issues

    On July 7, the Federal Reserve Board (Fed) released CA 20-11 and related examination procedures for the credit reporting and mortgage servicing provisions of the CARES Act. The procedures apply to CARES Act provisions that created new requirements for furnishers of credit information and mortgage servicers of certain mortgage loans for consumers impacted by the Covid-19 pandemic. The CARES Act amended the FCRA and required that consumer accounts be reported by furnishers as current if the consumer was current prior to the grant of a CARES Act accommodation. For mortgage servicers, the CARES Act generally required servicers of federally backed mortgage loans to grant forbearance requests toCovid-19-impacted borrowers. Servicers of these mortgages were also prohibited from initiating foreclosures through May 17, 2020. Structured as a series of modules with similar requirements grouped together, the examination procedures are intended to provide the framework for an institution’s examination, including an evaluation of the adequacy of an institution’s compliance management system. The examination procedures’ credit reporting provisions apply to supervised institutions with total consolidated assets of $10 billion or less, whereas the mortgage servicing provisions apply to all supervised institutions, including those with total consolidated assets of $10 billion or less.

    The Fed advised that in exercising supervisory and enforcement responsibilities it intends to take into account the unique circumstances impacting borrowers and institutions resulting from the Covid-19 pandemic. As such, the Fed does not expect to initiate a public enforcement action against an institution provided the circumstances were related to Covid-19, and the institution demonstrated good faith efforts to support borrowers and comply with consumer protection laws.

    Federal Issues Federal Reserve Covid-19 CARES Act FCRA Mortgage Servicing Credit Report Consumer Finance

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  • Maryland Department of Labor issues financial relief guide for Marylanders

    State Issues

    On June 19, the Maryland Department of Labor’s Office of the Commissioner of Financial Regulation issued the Covid-19 Health Crisis: Financial Relief Guide for Marylanders. Among other things, the guide contains information and resources regarding relief programs for consumers relating to economic impact payments, mortgage payments and foreclosure, rental evictions, student loans, automobile and personal loans, collections and garnishment, credit reporting, and insurance coverage and payments.

    State Issues Covid-19 Maryland Consumer Finance Mortgages Foreclosure Evictions Student Lending Auto Finance Debt Collection Credit Report Insurance

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