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CFPB questions CEOs on credit card payment reporting
On May 25, the CFPB announced that it sent letters to the CEOs of the nation’s largest credit card companies asking them to explain how they furnish data to credit reporting agencies regarding the exact monthly payment amounts made by borrowers. The letters noted that in 2020, the Bureau released a consumer credit trends report on the prevalence of actual payment information in consumer credit reporting, concluding that actual payment furnishing for installment loan products had increased steadily between 2012 and 2020 while actual payment furnishing for credit card and retail revolving accounts had declined significantly (covered previously by InfoBytes here). The Bureau stated in the letters that, based on “easily accessible credit report information,” the CFPB understands that the addressed companies do not currently “regularly or consistently” report actual payment amount information to the nationwide credit reporting agencies. The Bureau asserted, that without this information, lenders may have more difficulty pricing credit and offering consumers “the best valued credit offers and loans for their money.” Additionally, the letter stated that, “[c]onsumers reasonably expect that they will receive competitively priced credit based on their ability to manage and repay their credit obligations, but this is impaired if actual payment amount information is being suppressed by major credit card companies.” The letters present a series of questions that ask the CEOs to explain their companies’ credit card data furnishing practices, which include, among other things, if there are any “material barriers that would prevent including the actual payment field in the account information your company already furnishes,” and if there are “plans to start furnishing actual payment amount information.” The Bureau noted the letter does not serve as a supervisory request, and answering these questions is not mandatory, but submission of answers is due in writing within thirty days of the receipt of this letter.
9th Circuit: Revived FCRA suit questions reasonableness of furnisher’s investigation
On May 16, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant furnisher, stating that it is up to a jury to decide whether the defendant’s “reasonable investigation” into the plaintiff’s dispute complied with the FCRA. After the plaintiff defaulted on both his first and second mortgages, the property was foreclosed and sold. Several years later, the plaintiff tried to purchase another home but was denied a mortgage due to a tradeline on his credit report that showed one of his mortgages as past due with accruing interest and late fees due to missed payments. The plaintiff disputed the debt through the consumer reporting agency (CRA) and provided a citation to the Arizona Anti-Deficiency Statute, which abolished his liability for the reported debt. The CRA then told the defendant about the dispute and provided information about the statutory citation. The defendant originally “updated” the plaintiff’s account to show that the debt was being disputed, but continued to report current and past due balances. Yet after the plaintiff again disputed the validity of his debt, the defendant marked the account as “paid, closed” and changed the balance to $0.
The plaintiff sued, claiming the defendant violated the FCRA by failing to reasonably investigate his dispute and for reporting inaccurate information. The district court granted the defendant’s motion for summary judgment, ruling that the reports it made were accurate as a matter of law and that the defendant had reasonably investigated the dispute. Moreover, “whether the Arizona anti-deficiency statute rendered [plaintiff’s] debt uncollectible is a legal question, not a factual one,” the district court stated, adding that “the FCRA does not impose on furnishers a duty to investigate legal disputes, only factual inaccuracies.”
The 9th Circuit disagreed, writing that Arizona law required that the plaintiff’s balance be “abolished,” so it was “patently incorrect” for the defendant to report otherwise. In applying Arizona law, the plaintiff had “more than satisfied his burden” of showing inaccurate reporting, the appellate court wrote, explaining that the “situation was no different than a discharge under bankruptcy law, which extinguishes ‘the personal liability of the debtor.’” The 9th Circuit also held that the FCRA does not “categorically exempt legal issues from the investigations that furnishers must conduct.” Pointing out that the “distinction between ‘legal’ and ‘factual’ issues is ambiguous, potentially unworkable, and could invite furnishers to ‘evade their investigation obligation by construing the relevant dispute as a ‘legal’ one,’” the panel referred to an April 2021 amicus brief filed in support of the plaintiff by the CFPB, which argued that the FCRA does not distinguish between legal and factual disputes when it comes to furnishers’ obligations to investigate disputes referred from CRAs. The CFPB recently made a similar argument in an amicus brief filed last month in the 11th Circuit (covered by InfoBytes here). There, the CFPB argued that importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.”
Holding that there was a “genuine factual dispute about the reasonableness” of the defendant’s investigation, the appellate court ultimately determined that it would “leave it to the jury” to decide whether the defendant’s investigation had been reasonable. “Unless ‘only one conclusion about the conduct’s reasonableness is possible,’ the question is normally inappropriate for resolution at the summary judgment stage,” the appellate court stated. “Here, as is ordinarily the case, this question is best left to the factfinder.”
CFPB, FTC weigh in on consumer reporting obligations under the FCRA
On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”
The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”
In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.
Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”
The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” Importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.
CFPB issues spring supervisory highlights
On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
- Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
- Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
- Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
- Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
- Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.
The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).
District Court lowers punitive damages award in FCRA dispute
On April 8, the U.S. District Court for the Southern District of Florida denied in part and granted in part a defendant’s motion for judgment as a matter of law and alternative motion for a new trial, after concluding that the debt collector violated the FCRA by incorrectly reporting medical debts on the plaintiff’s credit reports despite allegedly receiving 31 separate disputes challenging the validity of the debt. The plaintiff contended that the medical debts in question belonged to his father, and that due to the inaccurate reporting, he was denied credit by two lenders. At trial, after finding that the defendant failed to conduct a reasonable investigation into the plaintiff’s FCRA disputes as required by the statute, a jury awarded the plaintiff $80,000 in actual damages and $700,000 in punitive damages for willful violations. The defendant challenged the award and requested a new trial, arguing that the court improperly admitted hearsay testimony, that the plaintiff failed to prove he suffered emotional damage, and that the jury’s punitive damages award was too high.
The court denied defendant’s request for a new trial, finding that the plaintiff suffered emotional damages and that the “verdict could be supported ‘without considering the challenged testimony.’” With respect to the amount of punitive damages awarded, the court concluded that the defendant’s actions were “highly reprehensible” and “callous” in the way it processed consumers’ disputes. However, in comparing the ratio of punitive damages to compensatory damages in other cases, the court determined that $700,000 was too high based on the actual damages award and lowered the punitive damages to $475,000 to be consistent with Eleventh Circuit law. The court concluded, “to be sure, the high punitive damages award likely reflects the jury’s assessment of Defendant’s callous behavior throughout the eighteen months of processing Plaintiff’s approximately thirty disputes, and Defendant’s employees’ testimony which confirmed that such treatment would likely repeatedly occur with countless other consumers,” adding that “given the size of [the defendant], and the number of disputes handled annually, it is not surprising that the jury deemed a high punitive damages award necessary to send the Defendant a deterrence message.”
FTC order targets credit reporter for UDAP violation
On April 7, the FTC finalized an order against a respondent business credit report provider to settle allegations that the respondent engaged in deceptive and unfair practices by failing to provide businesses with a clear, consistent, and reliable process to fix errors in their credit reports, even though the respondent was selling products to those businesses that purported to help the businesses improve their reports. The FTC’s administrative complaint also claimed that the respondent’s telemarketers deceptively pitched another service to businesses and falsely claimed that the businesses had to purchase the service in order for the respondent to complete the business’s credit profile. In addition, the respondent allegedly failed to disclose to businesses that the service’s subscription automatically renewed each year and that other renewal practices could lead to increasing costs (covered by InfoBytes here). Under the terms of the final order, the respondent is required to make substantial changes to its processes and provide refunds to harmed businesses. Measures include (i) deleting disputed information free of charge or conducting a reasonable reinvestigation to determine the accuracy of disputed information in a report of a business; (ii) complying with specific time periods within which to promptly investigate and correct errors; (iii) informing businesses of investigation results and providing businesses with free access to the revised information; (iv) making clear disclosures to businesses about the rate at which the firm accepts subscribers’ requests to add payment history information, as well as its limits for providing assistance in adding such information; (v) allowing current subscribers to cancel their services and obtain refunds; and (vi) placing restrictions on the respondent’s ability to automatically renew subscriptions or switch subscribers into a more expensive product.
Chopra says credit reporting on medical debt needs review
On April 6, CFPB Director Rohit Chopra expressed cautious optimism about medical debt credit reporting changes during remarks to the CFPB’s Consumer Advisory Board. The Bureau has studied the burden of medical debt on consumers since the agency’s inception and has issued reports examining the impact of including data related to unpaid medical bills on credit reports. Chopra noted that a report released by the Bureau last month (covered by InfoBytes here) found that $88 billion of outstanding medical bills in collections affect one in every five consumers, with medical debt accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). Shortly after the Bureau released the report, the three major CRAs announced they planned to eliminate nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, beginning July 1, paid medical collection debt will no longer be included on consumer credit reports issued by those three companies, and unpaid medical bills will only be reported if they remain unpaid for at least 12 months. Additionally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by these CRAs.
In response to the announcement from the CRAs, Chopra cautioned that “[i]mportant decisions about credit reporting should not be left up to three firms that arbitrarily decide how reporting will impact consumers’ access to credit.” While he acknowledged the importance of providing more time for providers and insurance companies to process claims before debts are reported, he stated that the announcement failed to “fundamentally address the concern that the credit reporting system can be used as a tool to coerce patients into paying bills they may not even owe.” Chopra presented three questions to the Consumer Advisory Board for consideration: (i) should unpaid medical bills be treated as a typical “debt”? (ii) if medical bills are not a good factor in predicting repayment on future loan obligations, should they be included in credit reports? and (iii) how should the inclusion of allegedly unpaid medical bills in credit reports be reviewed as part of the broader question of how data is used in consumer finance markets?
District Court: Consumer must notify furnisher directly to remove dispute notification from credit report
On March 21, the U.S. District Court for the Western District of Tennessee granted a Pennsylvania-based student loan servicer’s (defendant) motion for judgment on the pleadings, ruling that the servicer did not violate the FCRA when furnishing information to a credit reporting agency (CRA) that contained a notation of an “account in dispute” because the plaintiff submitted the removal request only to the CRA and not to the defendant itself. The plaintiff contended that his account was still being reported as in dispute even though he sent a letter to the CRAs indicating that he no longer disputed the tradelines and requesting that the dispute notification be removed. The CRAs forwarded the plaintiff’s dispute to the defendant. Several months later the plaintiff noticed the account was still being reported as in dispute on his credit report. The plaintiff sued, alleging the defendant violated Sections 1681s-2(b) and 1692s-2(b)(1) of the FCRA by, among other things, willfully failing to conduct a reasonable investigation after it received notice from the CRAs of the dispute. The court disagreed, pointing to caselaw which states that if a consumer wants to remove a dispute notification from his or her credit report, the consumer must alert the furnisher—not just the CRA. The court also referenced FTC guidance, which informs consumers that in order to correct mistakes on their credit reports they need to contact both the credit bureau and the furnisher that reported the inaccurate information. Additionally, the court wrote that “a defendant cannot, as a matter of law, fail to conduct a reasonable investigation under § 1681s-2(b) where the plaintiff never terminates the dispute directly with the furnisher, regardless of to whom the plaintiff initially disputed the account.”
Credit bureaus to eliminate 70% of medical debt tradelines
On March 18, three major credit bureaus released a statement announcing that they are eliminating nearly 70 percent of medical collection debt tradelines from consumer credit reports. According to the statement, beginning July 1, “paid medical collection debt will no longer be included on consumer credit reports. In addition, the time period before unpaid medical collection debt would appear on a consumer’s report will be increased from 6 months to one year, giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.” Finally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by the three credit bureaus. The statement noted that the decision to remove medical tradelines from credit reports was taken “after months of industry research.”
The same day Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, issued a statement supporting the credit bureaus’ announcement regarding medical debt. Brown noted the changes followed a CFPB announcement that it would hold consumer reporting agencies accountable for inaccurate reports (covered by InfoBytes here). Brown expressed his view that the CFPB is taking “real action for consumers” and noted he intends to collaborate with the CFPB to “address the growing burden of medical debt, protect working families, and hold bad actors accountable.”
Earlier on March 16, the CFPB a released a data spotlight regarding senior adults (those age 65 and older) and medical debt. The survey used information from the 2018 “FINRA Foundation National Financial Capability Study,” which was administered online to a sample of 27,091 adults ages 18 and older. In total, there were 5,166 respondents ages 65 and older. The study found that 8.5 percent of adults over 65 carried medical debt. The Bureau suggested this outcome “is likely the result of older Americans having the highest health insurance coverage rates of all age groups due to their eligibility for coverage through Medicare,” but referenced Medicare coverage as “limited.” The data spotlight also pointed out that, “[m]edical debt is more common among older people of color, older adults with incomes near the poverty line, people who are uninsured, who are currently unmarried, and who don’t own a home,” specifically noting that “[n]on-White older adults and older adults who are not married more often report medical debt than their counterpart.” The Bureau observed that 76 percent of seniors with medical debt are retired, while 17 percent are still employed and nearly 7 percent are disabled, sick, or unable to work. The Bureau noted that a recent job loss, declining health, or the onset of a disability may explain this data. The survey also found that older adults who had medical debt were significantly more likely to report significant cost-related health care challenges and hardships than others in the same age group without medical debt. More than 33.8 percent of older adults with medical debt have skipped medical treatment or a doctor’s visit due to cost, but just 6 percent of seniors without medical debt skipped medical treatment or a doctor’s visit due to cost, according to the survey data.
FTC, DOJ halt deceptive credit repair operation
On March 21, the FTC and DOJ announced that the U.S. District Court for the Southern District of Texas entered a permanent injunction against a credit repair organization accused of allegedly defrauding consumers out of millions of dollars by promising to remove negative information from their credit reports, while actually filing fake identity theft reports to explain the negative items. (Press releases linked here and here.) According to the complaint, filed by the DOJ on behalf of the FTC, the defendants allegedly claimed their “two-step process” could remove negative items from consumers’ credit histories or credit reports through “advance disputing” of negative information and help boost credit scores by adding “credit building products” to consumers’ credit reports. However, according to the FTC, defendants failed to follow through on their credit repair promises, and instead filed identity theft reports even when consumers had not actually been victims of identity theft. The FTC claimed many consumers actually saw their credit scores decrease because the defendants’ “unsupported challenges rarely if ever cause[d] credit reporting agencies to delete or change any consumer’s credit information.” Company representatives also allegedly informed consumers that the process could boost consumers’ credit scores by 50-200 points within 90 days—a violation of the Credit Repair Organizations Act and the Telemarketing Sales Rule. Additionally, the FTC claimed that the defendants illegally required consumers to pay upfront fees up to $1,500, and failed to include disclosures detailing cancellation policies or provide consumers with copies of the contracts they were required to sign in order to obtain the defendants’ services. The permanent injunction imposes financial restrictions on the defendants and halts their operations.