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District Court preliminarily approves $2.7 million FCRA settlement
On June 1, the U.S. District Court for the Eastern District of California preliminarily approved a class action settlement, which would require a corporate defendant to pay $2.7 million to resolve allegations that it provided false information on credit reports to auto dealers. The defendant sells credit reports to auto dealers to help dealers manage their regulatory compliance obligations, the order explained, noting that one of these obligations prohibits dealers from engaging in business with anyone designated on the U.S. Treasury Department’s Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) list. The SDN list is comprised of persons and entities owned or controlled by (or acting for or on behalf of) a targeted company, or non-country specific persons, who are prohibited from conducting business in the U.S. The defendant would flag a consumer as an “OFAC Hit” if it matched a name on the SDN list.
The order explained that when using a “similar name” algorithm script to run the consumer’s name against the SDN list to check for a match, the defendant only ran first and last names and did not input other available information such as birth dates and addresses. The lead plaintiff filed a putative class action pleading claims under the FCRA and California’s Consumer Credit Reporting Agencies Act, alleging his name inaccurately came up as an OFAC hit on a credit report sold to an auto dealer. In turn, the plaintiff was denied credit and suffered emotionally, later learning that the defendant incorrectly matched him with an SDN. According to class members, the defendant failed to follow reasonable procedures to assure maximum possible accuracy when matching consumer information and failed to provide, upon request, all information listed in a consumer’s file. Moreover, the lead plaintiff claimed the defendant failed to investigate the disputed OFAC-related information sold to the dealer. The defendant moved for summary judgment on the premise that it was not acting as a consumer reporting agency and that OFAC check documents were not consumer reports, but the court denied the motion and later certified the class. If finalized, the settlement would provide $1,000 to each of the class members, attorneys fees and costs, and a service award to the lead plaintiff.
CFPB examines removal of medical collections from credit reports
On April 26, the CFPB released a data point report estimating that nearly 23 million American consumers will have at least one medical collection removed from their credit reports when all medical collection tradelines under $500 are deleted. Additionally, the Bureau found that the removal will result in approximately 15.6 million people having all medical collections removed. The reporting change occurred as part of an undertaking by the three nationwide consumer reporting companies announced earlier in April. Examining credit reports that occurred between 2012 and 2020, the Bureau studied the impact of this change and noted that on average consumers experienced a 25-point increase in their credit scores in the first quarter following the removal of their last medical collection. The average increase, the report found, was 21 points for consumers with medical collections under $500 compared to 32 points for those with medical collections over $500. The report further discussed the association between the removal of medical collection tradelines and the amount of available credit for revolving and installment accounts, as well as increases in first-lien mortgage inquiries (attributable, the Bureau believes, to consumers working to remove these tradelines as part of applying for mortgage credit).
Washington enacts credit repair regulation
On April 20, the Washington governor signed HB 1311 to enact provisions relating to credit repair services performed by a credit services organization. Among other things, the Act outlines new requirements, including that a credit services organization must provide consumers with a monthly statement that details the services performed, as well as “an accounting of any funds paid by a consumer and held or disbursed on the consumer’s behalf and copies of any letters sent by the credit services organization on the consumer’s behalf,” if applicable. Additionally, a credit services organization is prohibited from sending any communications to a consumer reporting agency, creditor, collection agency, or regulatory entity unless the consumer has provided prior written authorization. Credit services organizations must also comply with specified written communication requirements and provide disclosures addressing consumers’ rights to review their files. Modifications to certain provisions relating to notices of cancellation have also been made. The Act is effective July 23.
CFPB says furnishers’ investigative duties include legal disputes
On April 20, the CFPB filed an amicus brief in a case before the U.S. Court of Appeals for the Eleventh Circuit arguing that the duty to investigate a consumer’s credit dispute applies not only to factual disputes but also to disputes that can be labeled as legal in nature. The plaintiffs entered into a timeshare agreement with the defendant hotel chain and made monthly payments for nearly two years but then stopped. The plaintiffs disputed the validity of, and attempted to rescind, the agreement. The defendant did not agree to the rescission and continued to record the deed under the plaintiffs’ names. The plaintiffs later obtained copies of their credit reports, which showed past-due balances with the defendant, and subsequently submitted letters to a credit reporting agency (CRA) disputing the credit reporting. After the defendant certified the information was accurate, the plaintiffs sued the defendant and the CRA alleging that the defendant violated the FCRA by failing to conduct a proper investigation. The defendant moved for summary judgment, arguing that the issue of whether the debt is owed—the basis of the plaintiffs’ FCRA claim—constitutes a legal dispute and is not a factual inaccuracy. The defendant further maintained that there was no legal error because the plaintiffs owed the money as a matter of law. Last December, the U.S. District Court for the Middle District of Florida granted partial summary judgment in favor the defendant after concluding, among other things, that because the plaintiffs’ dispute centered on the legal validity of their debt, rather than a factual inaccuracy, the investigation requirement was not triggered and the claim was “not actionable under the FCRA.”
The Bureau argued in favor of the plaintiffs-appellants. According to the Bureau, the district court “unduly narrow[ed] the scope of a furnisher’s obligations by holding that furnishers categorically need not investigate indirect disputes involving ‘legal’ inaccuracies.” This position, the Bureau maintained, contradicts the purpose of the FCRA’s requirement to conduct a reasonable investigation of consumer disputes and “could reduce the incentive of furnishers to resolve ‘legal’ disputes, and, in turn, could increase the volume of consumer complaints about credit reporting issues that the Bureau receives and devotes resources to address.”
Explaining that the FCRA does not distinguish between legal and factual disputes, the Bureau stated that the district court’s conclusion “is not supported by the statute, risks exposing consumers to more inaccurate credit reporting, conflicts with the decision of another circuit, and undercuts the remedial purpose of the FCRA.” The Bureau presented several arguments to support its position, including that a reasonable investigation is required under the FCRA, and that while the reasonableness of an investigation is case specific, it “can be evaluated by how thoroughly the furnisher investigated the dispute (e.g., how well its conclusion is supported by the information it considered or reasonably could have considered).”
The Bureau also claimed that the Congress did not intend to exclude disputes that involve legal questions. “[M]any inaccurate representations pertaining to an individual’s debt obligations arguably could be characterized as legal inaccuracies, given that determining the truth or falsity of the representation could require the reading of a contract,” the Bureau wrote. Moreover, an “atextual exception for legal inaccuracies will create a loophole that could swallow the reasonable investigation rule,” the Bureau stressed. The agency urged the court to “reject a formal distinction between factual and legal investigations because it will likely prove unworkable in practice” and said that allowing such a distinction would “curtail the reach of the FCRA’s investigation requirement in a way that runs counter to the purpose of the provision to require meaningful investigation to ensure accuracy on credit reports.”
As previously covered by InfoBytes, the CFPB and the FTC filed an amicus brief presenting the same arguments last December in a different FCRA case on appeal to the 11th Circuit involving the same defendant.
Credit reporter must face FCRA suit on hard-inquiry reinvestigation
On April 10, the U.S. District Court for the Eastern District of Pennsylvania denied a credit reporting agency’s (CRA) motion for summary judgment in a certified class action suit accusing the CRA of willfully violating the reinvestigation provision in the FCRA. Plaintiff claimed that he disputed an alleged inaccurate hard inquiry on his credit report, and argued that not only did the CRA fail to remove the hard inquiry from his credit file, he was given a sales pitch for an identity theft product. The CRA conceded that it did not reinvestigate the dispute and argued, among other things, “that hard inquiries do not necessarily decrease a consumer’s credit score and, even if they did, such diminutions do not necessarily result in the denial of credit.” Experts for both parties debated the extent to which a hard inquiry affects a consumer’s credit score.
The court disagreed with the CRA’s position concerning the impact of hard inquiries on consumers’ credit scores, noting the conflict with federal regulators’ cautionary advice that “[t]hese inquiries will impact your credit score because most scoring models look at how recently and how frequently you apply for credit.” Moreover, the CRA’s own expert opined that hard inquiries usually do have a “minor impact” on consumers’ credit scores. Additionally, the court rejected the CRA’s argument that it did not willfully violate the FCRA because its process for handing hard-inquiry disputes was in line with industry-wide practices. The court cited Third Circuit precedent requiring CRAs to reinvestigate any information a consumer claims is inaccurate if the CRA does not deem the information frivolous or chooses not to delete it from the customer’s file. “When industry practices are contradicted by clear statutory language and case law giving force to that language, common practice does not save a defendant from a finding of willfulness,” the court wrote. With respect to the decertification request, the court said class members established that the time and resources spent trying to resolve disputes over inaccurate hard inquiries, and their lowered credit scores, amounted to concrete injury that can be fairly traceable to the CRA’s statutory violation.
The court denied summary judgment for two reasons. First, the court did not find that the CRA’s actions were “objectively reasonable” based on the CRA’s reliance on a “contorted and inconsistent” reading of the FCRA and its interpretation of § 1681i (which “requires a reasonable reinvestigation when consumers raise a dispute of inaccuracy”). The court also denied summary judgment “[b]ecause a jury could find that [the CRA’s] blanket policy of refusing to reinvestigate disputes of hard inquiries is not reasonable under the law.”
FTC examines small business credit reporting
On March 16, the FTC launched an inquiry into the small business credit reporting industry, seeking information from firms on how information is collected and processed for business credit reports, how these reports are marketed, and firms’ approaches for addressing factual errors contained in the reports. Firms are also asked to provide information on the types of services provided to businesses for monitoring or enhancing their own credit reports. The FTC noted that currently there is no federal law that specifically outlines credit reporting processes and protections for small businesses, unlike individual consumer credit reports, which are governed by the FCRA.
9th Circuit: Law firm did not violate FCRA by accessing credit report
On March 17, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of a defendant law firm that allegedly accessed a plaintiff’s credit report to obtain her current address after it was hired to collect unpaid homeowner association (HOA) assessments. The plaintiff filed a class action lawsuit claiming, among other things, that the defendant violated the FCRA by accessing her credit report without her consent and that neither the HOA nor the defendant are creditors within the meaning of the FCRA. The district court disagreed, concluding that the HOA was in fact a creditor for purposes of the FCRA. “Under the [a]greement, the HOA determines the assessment amount for a full year and then makes it payable in installments over the course of the year. Thus, it regularly extends credit,” the district court wrote, explaining that because the HOA is a creditor, its attorneys, in collecting on the account, have the right to review a consumer’s credit report without consent. Moreover, the district court determined that the defendant had established the requisite “direct link” between the credit transaction and its request for the plaintiff’s credit report.
The 9th Circuit concluded that the “[d]efendant’s reading of the statute was not objectively unreasonable” because the plaintiff “had a grace period during which she could receive half a month’s services that she had not yet paid for,” which “could be considered an extension of credit.” While concurring with the panel, one of the judges commented, however, that “[i]t is hard to imagine that Congress intended FCRA, a statute that protects consumer privacy, to empower HOAs composed of neighboring homeowners to run their neighbors’ credit reports if homeowners fall two weeks behind in their payments.” The judge recommended that the appellate court “revisit the issue,” noting that it is unclear under current case law whether an HOA assessment qualifies as a “credit transaction” under the FCRA.
District Court: Failure to investigate duplicate reporting dispute could violate the FCRA
On March 10, the U.S. District Court for the Southern District of Illinois ruled a defendant credit union failed to properly report an individual’s debt to a consumer reporting agency or investigate his dispute. Plaintiff obtained a credit card from the defendant but fell behind on his payments. After his account was later sent to a third-party collection agency, the plaintiff obtained a copy of his credit report where he noticed that his credit card debt was listed twice—once as a “individual” and “revolving” account with a balance of $10,145, and another time as an “open” collections account with a different balance. Plaintiff sent identical dispute letters to the three major credit reporting agencies (CRAs), acknowledging the delinquent credit card but expressing confusion as to why the account was listed twice. He submitted additional similar disputes with the CRAs, claiming that the error caused him to be denied the opportunity to rent an apartment and made it difficult for him to obtain a mortgage. During discovery, two corporate witnesses testified on behalf of the defendant—one of whom is responsible for reviewing consumer credit disputes and verified the information being reported was accurate. A second witness also testified that while the defendant understood that the plaintiff was alleging inaccuracies due to the debt being reported twice, it chose to focus its investigation on verifying that the information in the plaintiff’s credit report matched the information in its internal system.
In denying the defendant’s motion for summary judgment, the court noted that while the U.S. Court of Appeals for the Seventh Circuit “has not decided whether double-reporting of a single debt on a credit report is an FCRA violation, district courts across the country have found that whether the practice is misleading and violates the FCRA is an issue of fact.” The court explained that an issue of fact exists as to whether double reporting the debt created a misleading impression that the plaintiff has two separate debts totaling $22,000 rather than a single debt of roughly $10,000. Moreover, even though the plaintiff’s dispute contained the message “duplicate,” the defendant did not address this issue nor did it request that a change be made to the plaintiff’s credit report. “A jury could reasonably conclude [] that [defendant’s] investigation was inadequate under the FCRA,” the court wrote. “[W]hether [defendant’s] investigation or protocol may qualify as a willful violation giving rise to statutory or punitive damages is an issue for a jury as well.”
CFPB seeks input on data broker businesses
On March 15, the CFPB issued a Request for Information (RFI) seeking public input on data broker business practices in order to inform planned rulemaking under the FCRA and help the agency understand the current state of the industry. “Modern data surveillance practices have allowed companies to hover over our digital lives and monetize our most sensitive data,” CFPB Director Rohit Chopra said in the announcement. He added, “[o]ur inquiry will inform whether rules under the [FCRA] reflect these market realities.” The Bureau explained that the FCRA—which covers data brokers such as credit reporting companies and background screening firms, as well as parties who report information to these firms—provides several protections, including accuracy standards, dispute rights, and restrictions on how data can be used. The RFI seeks feedback on business models and practices used by the data broker market, including information about the types of data being collected and sold and the sources data brokers rely upon. In particular, the Bureau seeks information on consumer harm and market abuses, and wants to understand “whether companies using these new business models are covered by the FCRA, given the FCRA’s broad definitions of ‘consumer report’ and ‘consumer reporting agency.’” The Bureau stated it is also interested in learning about consumers’ direct experiences with data brokers, including when consumers try to remove, correct, or regain control of their data. Comments on the RFI are due by June 13.
CFPB receives FCRA rulemaking petition on debt collection
On March 3, the CFPB received a rulemaking petition from the National Consumer Law Center (NCLC) in response to forthcoming FCRA rulemaking announced in the Bureau’s Fall 2022 regulatory agenda. As previously covered by InfoBytes, the Bureau announced it is considering pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. In January, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). At the time, CFPB Director Rohit Chopra said that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.” (Covered by InfoBytes here.)
The NCLC presented several issues for consideration in the FCRA rulemaking process, including that the Bureau should (i) “establish strict requirements to regulate the furnishing of information regarding a debt in collections by third-party debt collectors and debt buyers”; (ii) “require translation of consumer reports by the [CRAs] into the eight languages most frequently used by limited English proficient consumers”; and (iii) “establish an Office of Ombudsperson to assist consumers who have been unable to fix errors in their consumer reports from the nationwide CRAs and other CRAs within the CFPB’s supervisory authority.”
“Given the level of errors, problems, and abuses by debt collectors in furnishing and resolving disputes, requiring an original creditor tradeline is a reasonable quality control mechanism,” the NCLC said. “Alternatively, if the CFPB continues to permit the furnishing of debt collection information without a pre-existing tradeline by the original creditor, the Bureau should require that the furnisher of debt collection activity (whether a debt collector, debt buyer, servicer or other) provide a complete account history in the tradeline, including positive payments,” the petition added, stressing that “such reporting must require adequate substantiation[.]”