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On September 13, the U.S. Court of Appeals for the Sixth Circuit reversed a district court’s summary judgment ruling in favor of a defendant mortgage servicer, holding that a jury could find the defendant “willfully and negligently” violated the FCRA by incorrectly reporting a past due account status to consumer reporting agencies (CRAs) for over a year after the plaintiff’s mortgage loan was discharged in bankruptcy. The plaintiff discovered the loan was being mis-reported as past due when he checked his credit score in advance of buying a car and found it to be lower than expected. The plaintiff disputed the tradeline, and the CRAs forwarded his dispute to the mortgage servicer. In response to the dispute, the servicer changed the plaintiff’s account status from past due to “no status”—which meant the status had not changed from the prior month—and continued reporting it to the CRAs.
The plaintiff sued the servicer for violating the FCRA, claiming the defendant knew the loan had been discharged but still reported it as past due for more than a year. The defendant countered, among other things, that because the plaintiff “chose not to apply for a car loan” he could not prove that he was harmed by negligence due to the mis-reporting. The district court ultimately ruled that (i) the plaintiff did not have standing to allege a negligent violation of the FCRA, and (ii) no “reasonable jury” would find that the defendant had willfully violated the statute.
On appeal, the 6th Circuit disagreed, finding that the plaintiff had standing to assert a negligence claim under FCRA and that a reasonable jury could find a negligent and willful violation. The court pointed out that the plaintiff’s credit score increased by almost 100 points once the tradeline was removed, suggesting the servicer’s mis-reporting did harm the plaintiff and gave him standing to sue in negligence. The court also found the defendant “knew that [the plaintiff’s] loan had been discharged but for more than a year told the credit-reporting agencies that the loan was past due. A jury could therefore find that [the defendant] was either incompetent or willful in its failure to correct its reports sooner.” The 6th Circuit added that the defendant’s implementation of policies to guide its analysts through resolving credit disputes “hardly disproves as a matter of law that [the defendant] acted willfully.” The court held the defendant was not entitled to summary judgment and remanded the case for further proceedings.
On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.
After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.
On June 30, the CFPB released a report highlighting relationships and trends in commercial and consumer credit for small businesses. The report analyzes the frequency and types of commercial credit commonly found on consumer credit reports and the inconsistencies in reporting practices and strategies. The report uses a longitudinal sample of about 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies. According to the report, “over 2.8 million consumers have an active commercial credit tradeline on their consumer credit report.” The report also notes that about 1,300 entities furnished information on commercial credit products in an average quarter. In comparing the number of bank furnishers with the known number of banks with commercial credit on their balance sheet, the report finds that at least 89 percent of banks are not furnishing information on commercial loans to consumer bureaus. Further, furnishers who do report their commercial accounts may not report all of their business accounts and products to consumer bureaus. According to the CFPB, “[t]his research is among some of the first to explore the relationship between commercial and consumer credit reporting,” and can be utilized as a “base understanding” for future research on commercial credit, including alterations in reporting due to the Covid-19 pandemic.
On June 24, the U.S. District Court for the Middle District of Tennessee granted a defendant debt collector’s motion for summary judgment in an FDCPA action, holding that the plaintiff did not have enough evidence to prove her claim that the defendant violated FDCPA Section 1692e(8) by failing to communicate that her debts were disputed. According to the order, the plaintiff obtained a copy of her credit report and noticed that the defendant was reporting five debts that she allegedly owed to a healthcare provider. The plaintiff’s counsel sent the defendant a letter disputing the debts. While the defendant did not report to the credit bureaus that the debts were disputed, the defendant received instructions from the healthcare provider to remove all of its consumer debts from the national credit bureaus. The defendant subsequently instructed the credit bureaus to remove all of the accounts from their services. However, the defendant did not verify that the debts were removed, claiming that it did not recall ever having “‘an issue raised as a result of one of the credit bureaus not removing a debt as requested,’” and as such “had ‘no reason to confirm that its instructions to [the credit bureau] had been carried out.’” When the plaintiff checked her credit report nearly three months later using a credit monitoring app, she saw that the debts were still being reported and were not marked as being disputed. The app showed the information to be reported as of a date that was three weeks after the defendant asked to have the debts marked as disputed. The plaintiff alleged that the defendant failed to mark the debts as disputed and alleged that it communicated information to the credit bureaus without identifying the debts as being disputed. The defendant countered, arguing among other things, that it “‘has no control over when or how [the credit bureau] inputs data from [the defendant] or how [the credit bureau] describes the report date of the data that [the defendant] submits to it.’”
In granting the defendant’s motion for summary judgment, the court determined that simply because the app used a date to indicate how current the information was does not mean that information was communicated to the credit bureaus by the defendant on that date. The app report relied upon by the plaintiff “does not indicate that [the defendant] communicated with [the credit bureau] on that date,” the court wrote. “It is simply silent on that question. It certainly gives rise to the possibility that [the defendant] communicated with [the credit bureau] on that date, but a possibility is not the same as probability.” As a result, the court found there was insufficient evidence in the record to support the plaintiff’s claims and it granted summary judgment in the defendant’s favor.
On June 8, the U.S. District Court for the Middle District of Alabama granted a defendant auto finance company’s motion for judgment on the pleadings in an action concerning alleged violations of the FCRA. The plaintiff filed an action against the defendants (an auto finance company and a financial service company) alleging that her credit report included an inaccurate or misleading “Errant Tradeline” in violation of the FCRA because it identified a paid off loan as being “closed” with a “$0 balance,” but also indicated that the loan had a monthly payment amount of $669. The plaintiff argued that this created “the impression that she still ha[d] an outstanding loan” as well as upcoming payments and alleged that the inaccurate reporting caused her financial and emotional damages. The plaintiff also claimed that the auto finance company negligently or willfully violated the FCRA because it failed to conduct a proper investigation. Upon review, the court granted the motion by the auto finance company, finding that because the balance listed says “$0,” and the account is listed as “closed,” there is “little opportunity for confusion when the alleged Errant Tradeline is reviewed in context.” The court further noted that “the context of the report reveals that the monthly payment line is neither inaccurate nor misleading.”
On April 29, the FTC announced a civil complaint and stipulated order filed by the DOJ on its behalf against a home security and monitoring company accused of allegedly violating the FCRA by improperly obtaining consumers’ credit reports to help potential customers qualify for financing for its products and services. According to the complaint, company employees allegedly engaged in a process known as “white paging,” in which the credit history of another individual with the same or similar name as the potential customer is used to qualify the potential customer for the company’s financing program. Additionally, the FTC claimed that company sales representatives allegedly added “impermissible co-signers” to accounts for unqualified customers by unlawfully using the credit history of the “co-signers” without their permission. In the event a customer defaulted on a loan, the company referred the impermissible co-signer to its debt buyer, potentially harming the co-signer’s credit score and subjecting the individual to debt collections, the FTC stated. According to the complaint, the company was aware of the misconduct, terminated hundreds of sales representatives as a result of these practices, but later rehired some of the same sales representatives because they generated millions of dollars in revenue.
Under the terms of the stipulated order—the largest to date for an FTC FCRA action—the company is required to pay a $15 million civil money penalty, as well as $5 million to compensate harmed individuals. Additionally, the company must (i) implement an employee monitoring and training program to prevent further FCRA violations; (ii) establish and maintain an identity theft prevention program; (iii) establish a customer service task force to verify all accounts that reference more than one address or include a co-signer before referring the accounts to a debt collector and assist individuals who were improperly referred to debt collectors; and (iv) obtain biennial assessments by an independent third party to ensure compliance.
While the Commission voted 4-0 to approve the stipulated final order, Commissioner Rohit Chopra issued a separate statement noting that he believes the FTC “should have also alleged that the company violated the FTC Act’s prohibitions on deceptive practices by falsifying credit applications,” and that because the company “turned a blind eye to obvious compliance failures by its sales force” it also allegedly “violated the FTC Act’s prohibition on unfair practices.”
D.C. enacts law extending obligations for debt collection, credit reporting, mortgage servicing, and evictions
On March 17, the mayor of D.C. signed the Coronavirus Support Emergency Amendment Act of 2021. The act extends the most provisions of D.C.’s prior Covid-19 relief act (previously covered here and here) through June 15. 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 payment and late fee relief, and restrictions on evictions and foreclosures.
On February 10, the Florida Office of Financial Regulation released a set of “Compliance Tips” reminding lenders and their servicers that they may be required to report certain delinquent loans as “current” pursuant to the CARES Act. The guidance reminds lenders and loan servicers that under the federal CARES Act, those consumers who were not delinquent as of April 1, 2020 and who subsequently received an accommodation and are complying with the accommodation agreement should be reported as “current.” The tips also urged lenders to be proactive with borrowers to resolve credit reporting errors. Lastly, the tips advised lenders to seek out how reporting errors may have been made, and implement additional internal controls to ensure similar errors do not reoccur.
On November 30, the FTC announced a stipulated order entered by the U.S. District Court for the Eastern District of Missouri against a debt collection company and three of its officers (collectively, “defendants”) for allegedly engaging in passive debt collection in violation of the FTC Act, the FDCPA, and the FCRA. According to the complaint, the defendants would place debts that consumers did not owe or the defendants were not authorized to collect on consumers’ credit reports without first attempting to communicate with the consumers about the debts. The complaint alleges further that consumers often did not discover these debts until they “threatened to interfere with an important, time-sensitive transaction.” The FTC alleges that each month, after receiving and investigating complaints from consumers, the defendants would determine between 80 to 97 percent of disputed debts were inaccurate or invalid. However, the defendants continued to collect on unauthorized debts “[d]espite the persistent inaccuracies.”
The defendants neither admit nor deny the allegations in the settlement order. In addition to the $24,300,000 in monetary relief, which is partially suspended due to the inability to pay (with one officer and corporate defendant required to pay over $56,000), the order also, among other things, (i) prohibits the defendants from furnishing credit information prior to communicating with the consumer; (ii) requires the defendants to request deletion of any debts reported prior to the order; and (iii) bars the defendants from engaging in unlawful debt collection practices.
The vote authorizing the complaint and settlement was 4-1, with Commissioner Chopra voting no, arguing that the agency should work “in concert” with the CFPB for debt collection enforcement in order to “help make victims whole through access to the CFPB's Civil Penalty Fund and reduce duplicative efforts.”
On November 12, the CFPB released its latest quarterly consumer credit trends report on the prevalence of actual payment information in consumer credit reporting, concluding that actual payment furnishing for installment loan products has increased steadily between 2012 and 2020 while actual payment furnishing for credit card and retail revolving accounts has declined significantly. Specifically, the Bureau found that, between 2012 and 2020, shares of auto loan, student loan, and mortgage tradelines with actual payment amount information trended upward with over 90 percent of such tradelines reporting actual payment amount information by March 2020. In contrast, shares of revolving and credit card tradelines reporting actual payment data significantly declined over the same time period, falling from 95 percent to 71 percent and from 88 percent to 40 percent respectively. The Bureau also found that, for the nation’s largest credit card issuers, the decision to furnish actual payment information appears to be a binary one, with the issuers either furnishing actual payment information for nearly all accounts or not furnishing such information at all. As of 2020, only half of the nation’s largest credit card issuers furnished actual payment data for their accounts, down from 70 percent in 2013. The Bureau theorizes that the decline in reporting of actual payment data for both revolving and credit card accounts may reflect attempts to prevent account poaching by competitors.
- Jonice Gray Tucker to discuss “Updates on Artificial Intelligence Regulations - the U.S. and EU” at the American Bar Association Busines Law Section Meeting
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker and Kari K. Hall to discuss “Consumer Protection Priorities in the Biden Administration and Beyond" at the SWABC and TBA 2021 Legal Conference
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek