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Financial Services Law Insights and Observations

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  • FTC rescinds FCRA model forms and disclosures

    Agency Rule-Making & Guidance

    On May 22, the FTC published a final rule in the Federal Register rescinding model forms and disclosures promulgated pursuant to the FCRA. The FTC has determined the model forms and disclosures are no longer necessary and the rescission would reduce confusion as the CFPB’s FCRA model forms and disclosures were updated in 2018. Specifically, the final rule rescinds: (i) Appendix A—Model Prescreen Opt-Out Notices; (ii) Appendix D—Standardized Form for Requesting Annual File Disclosures; (iii) Appendix E—Summary of Identity Theft Rights; (iv) Appendix F—General Summary of Consumer Rights; (v) Appendix G—Notice of Furnisher Responsibilities; and (vi) Appendix H—Notice of User Responsibilities. The final rule also makes conforming amendments to FTC rules that reference the applicable forms issued under the FCRA. The rule is effective May 22.

    Agency Rule-Making & Guidance Federal Register FTC CFPB Dodd-Frank FCRA

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  • 9th Circuit revives FCRA suit against credit reporting agency

    Courts

    On May 17, the U.S. Court of Appeals for the 9th Circuit revived a putative class action lawsuit against a national credit reporting agency for allegedly failing to follow reasonable procedures to assure maximum possible accuracy in the plaintiffs’ credit reports, in violation of the FCRA. According to the opinion, the credit reporting agency failed to delete all the accounts associated with a defunct loan servicer, despite statements claiming to have done so in January 2015. As of October 2015, 125,000 accounts from the defunct loan servicer were still being reported, and the accounts were not deleted until April 2016. A consumer filed the putative class action alleging the credit reporting agency violated the FCRA by continuing to report her past-due account, even after deleting portions of the positive payment history on the account. The district court granted summary judgment in favor of the credit reporting agency on the consumer’s claim that the credit reporting agency failed to “follow reasonable procedures to assure maximum possible accuracy” in her credit report.

    On appeal, the court determined that a “reasonable jury could conclude that [the credit reporting agency]’s continued reporting of [the account], either on its own, or coupled with the deletion of portions of [the consumer’s] positive payment history on the same loan, was materially misleading.” Moreover, the appellate court noted that a jury could conclude that the credit reporting agency’s reading of the FCRA “runs a risk of error substantially greater than the risk associated with a reading that was merely careless,” and that the length of delay in implementing the decision to delete the defunct loan servicers accounts “entail[ed] ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”

    Courts Appellate Ninth Circuit FCRA Credit Reporting Agency Class Action

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  • 11th Circuit: Bank not obligated to investigate FCRA dispute

    Courts

    On April 25, the U.S. Court of Appeals for the 11th Circuit affirmed a district court’s dismissal of a putative class action against a national bank, finding that the plaintiff failed to show an investigation would reveal the bank inaccurately furnished information to credit reporting agencies (CRAs). According to the opinion, after the plaintiff failed to make payments on his mortgage, the bank reported the delinquencies to the three CRAs. A Florida circuit court entered a final judgment of foreclosure in the bank’s favor, which the plaintiff paid two years later after the account was transferred to a different lender. Two years after he paid the foreclosure judgment, the plaintiff noticed that the CRAs showed his account as past due despite the fact that the judgment had been paid. However, following an investigation, the CRAs confirmed that the information provided by the bank was accurate, since it reflected two years of missed payments that the plaintiff later contended he was not obligated to make due to the filing for the foreclosure action. The plaintiff filed a class action suit alleging the bank violated the FCRA by failing to report that he had paid off the foreclosure judgment. The district court dismissed the case with prejudice, ruling that the bank satisfied its obligations under the FCRA, and that the plaintiff failed to support his claim that the bank was obligated to report the payoff after it transferred the account.

    On appeal, the 11th Circuit agreed with the district court, opining that because the plaintiff never claimed that the bank was informed of the past-due status dispute by the CRAs, the bank was not obligated to investigate under the FCRA. The court noted that the plaintiff “never alleged that [the bank] received notification from the CRAs that he disputed his account's past-due status as of July 2017,. . .that the CRAs provided notification of any such dispute to [the bank],. . .or even that he contacted the CRAs to dispute that aspect of his credit reports.” The plaintiff further argued that the filing of the foreclosure action and acceleration of the loan relieved him of the obligation to make monthly payments. The 11th Circuit was “unconvinced” by the argument and said that, nonetheless, “[w]hether [the plaintiff] was obligated to make payments on the mortgage after the Foreclosure Action was filed is a currently unresolved legal, not a factual, question. Thus, even assuming [the bank] furnished information that turned out to be legally incorrect under some future ruling, [the bank’s] purported legal error was an insufficient basis for a claim under the FCRA.”

    Courts FCRA Credit Reporting Agency Class Action Eleventh Circuit Appellate

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  • District Court approves relief order in Spokeo

    Courts

    On March 11, the U.S. District Court for the Central District of California approved a stipulation for prospective relief, settling a consumer FCRA action against a purported credit reporting agency (defendant) for alleged procedural violations. In 2016, the case went to the U.S. Supreme Court (covered by a Buckley Special Alert), which remanded the case so the 9th Circuit could fully consider whether the plaintiff had standing under Article III of the Constitution. The approved stipulation lasts three years and, among other things, requires the defendant to (i) post a “clear and appropriately-titled” link to its opt-out privacy form; (ii) create a step requiring that its customers affirmatively agree not to use its information to determine eligibility for a FCRA-related purpose; and (iii) state on all of its webpages that it is not a consumer reporting agency. The order also prohibits the defendant from publishing “any numerical estimates or predictions of consumer credit scores” unless its terms and conditions specify that the information may not be used for FCRA purposes.

    Courts FCRA Spokeo Credit Reporting Agency

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  • 9th Circuit: Plaintiffs failed to show harm in FCRA action

    Courts

    On March 25, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of five plaintiffs’ allegations against two credit reporting agencies, concluding the plaintiffs failed to show they suffered or will suffer concrete injury from alleged information inaccuracies. According to the opinion, the court reviewed five related cases of individual plaintiffs who alleged that the credit reporting agencies violated the FCRA and the California Consumer Credit Report Agencies Act (CCRAA), by not properly reflecting their Chapter 13 bankruptcy plans across their affected accounts after they requested that the information be updated. The lower court dismissed the action, holding that the information in their credit reports was not inaccurate under the FCRA. On appeal, the 9th Circuit, citing to U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert), concluded that the plaintiffs failed to show how the alleged misstatements in their credit reports would affect any current or future financial transaction, stating “it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements.” Because the plaintiffs failed to allege a concrete injury, the court affirmed the dismissal for lack of standing, but vacated the lower court’s dismissal with prejudice, noting that the information may indeed have been inaccurate and leaving the door open for the plaintiffs to refile the action.

    Courts Ninth Circuit Appellate Spokeo FCRA Bankruptcy Credit Reporting Agency

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  • District Court reduces jury’s $3 million award in FCRA action to $490,000

    Courts

    On March 21, the U.S. District Court for the Northern District of Alabama reduced a consumer’s punitive damages award from $3 million to $490,000 in an action against a credit reporting agency for the alleged misreporting of credit information. According to the opinion, after the consumer had a debt dismissed by small claims court, he requested that the credit reporting agencies remove the trade line from his credit report. When one credit reporting agency refused to initiate a dispute investigation because it suspected fraud, the consumer filed a complaint alleging violations of the FCRA. In May 2018, a jury awarded the consumer $5,000 in compensatory damages and $3 million in punitive damages. The credit reporting agency moved to have the court enter judgment as a matter of law and/or have the judgment amended or altered. The court reviewed the award, noting that the punitive to compensatory damages ratio of 600 to 1 “suspiciously cocked” the “court’s eyebrows.” The court emphasized that a single-digit multiplier would not be sufficient to deter the credit reporting agency from future wrongdoing and instead, applied the 98 to 1 ratio used by the U.S. Court of Appeals for the 4th Circuit, bringing the punitive damages down to $490,000. In addition, the court applied the “one satisfaction” rule, concluding the credit reporting agency did not have to pay the compensatory damages, as the consumer already received settlement proceeds that exceed the jury award from other defendants, and “the injuries the [consumer] described are indivisible between [the credit reporting agency] and the settling defendants.”

    Courts Credit Reporting Agency FCRA Damages Punitive Damages Fourth Circuit Appellate

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  • FTC report highlights 2018 privacy and data security work

    Privacy, Cyber Risk & Data Security

    On March 15, the FTC released its annual report highlighting the agency’s privacy and data security work in 2018. Among other items, the report highlights consumer-related enforcement activities in 2018, including:

    • an expanded settlement with a global ride-sharing company over allegations that the company violated the FTC Act by deceiving consumers regarding the company’s privacy and data practices (covered by InfoBytes here).
    • a settlement with a global online payments system company to resolve allegations that its payment and social networking service failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction (covered by InfoBytes here).
    • a settlement with a Texas-based company over allegations that it violated the FCRA by failing to take reasonable steps to ensure the accuracy of tenant-screening information furnished to landlords and property managers (covered by InfoBytes here).

    The report also highlighted the FTC’s hearings on big data, privacy, and competition conducted through its Hearings on Competition and Consumer Protection in the 21st Century initiative. (Covered by InfoBytes here and here.)

    Privacy/Cyber Risk & Data Security FTC Enforcement Settlement FCRA Consumer Finance

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  • 4th Circuit: No waiver of sovereign immunity for lawsuits under the FCRA

    Courts

    On March 6, the U.S. Court of Appeals for the 4th Circuit held that Congress did not waive sovereign immunity for lawsuits under the FCRA, affirming the lower court’s dismissal of a consumer action. According to the opinion, a consumer filed a lawsuit against the U.S. Department of Education (the Department), a student loan company, and the three major credit reporting agencies, alleging numerous claims, including violations of the FCRA for failing to properly investigate disputes that federal student loans were fraudulently opened in his name. The Department filed a motion to dismiss to the FCRA claims against it arguing the court lacked subject matter jurisdiction based upon a claim of sovereign immunity. The lower court agreed, holding Congress had not affirmatively waived sovereign immunity for suits under the FCRA.

    On appeal, the 4th Circuit agreed with the lower court. The appellate court noted that, although the FCRA includes a “government or governmental subdivision or agency” as part of the definition of “person” in the statute, there is a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” and that waivers of sovereign immunity need to be “unambiguous and unequivocal.” The appellate court noted that Congress waived immunity in other sections of the FCRA, which were not at issue in this case and, had Congress waived immunity for enforcement purposes under the FCRA, it would raise a new host of “befuddling” and “bizarre” issues, such as the prospect of the government bringing criminal charges against itself. Therefore, the appellate court concluded that the federal government may be a “person” under the substantive provisions, but that without a clear waiver from Congress, the federal government is still immune from lawsuits under the FCRA’s enforcement provisions.

    Courts FCRA Congress Sovereign Immunity Student Lending Appellate Fourth Circuit Department of Education

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  • New Jersey appellate court affirms dismissal of lease fraud claims against auto financier

    Courts

    On March 1, the Superior Court of New Jersey Appellate Division affirmed a lower court’s order granting summary judgment to an auto finance company and dismissing with prejudice a plaintiff’s New Jersey Consumer Fraud Act (CFA) and Fair Credit Reporting Act (FCRA) claims. According to the opinion, the plaintiff entered into a lease agreement for a vehicle serviced by the defendant. The plaintiff, who incurred late charges on 35 of her 39 monthly payments of $300, returned the vehicle before the end of the lease and was required to pay a $495 vehicle return fee, along with wear and tear fees and late charges. The plaintiff subsequently entered into a new lease transaction, in which the dealership agreed to pay the defendant the outstanding payments on her old lease, but did not, according to the court, waive the vehicle return fee. The dealership paid the full balance to the defendant after the plaintiff received notification about an overdue lease payment, and the day after the dealership’s payment was applied, the plaintiff paid an additional $300—which was mistakenly applied to a $395 disposition fee, as opposed to the larger vehicle return fee. The plaintiff made a final payment of $655 to settle the balance of the disposition fee as well as wear and tear fees and late charges. A complaint was filed later by the plaintiff against the defendant alleging that it fraudulently procured an additional $300 lease payment and falsely reported that she was delinquent on payments.

    Affirming the lower court, the appeals court concluded that the defendant’s representations regarding the outstanding $300 payment were accurate and, under the lease terms, the plaintiff remained responsible for the vehicle return and wear and tear fees. In addition, the appeals court held that the plaintiff’s FCRA claim failed because the record confirmed that within 30 days of being notified of a dispute with the plaintiff’s credit score, the defendant conducted an investigation and requested that the credit reporting agencies remove the “late marks.”

    Courts Appellate State Issues Auto Finance FCRA

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  • District Court cites 9th Circuit, holds Fannie Mae is not a CRA

    Courts

    On February 26, the U.S. District Court for the Northern District of California granted summary judgment in favor of Fannie Mae in an action brought by a consumer alleging that Fannie Mae violated the California Consumer Credit Reporting Agencies Act (CCCRA) and the Fair Credit Reporting Act (FCRA) by prohibiting lenders from providing consumers a copy of Fannie Mae’s Desktop Underwriter (DU) report. According to the opinion, two years after completing a short sale on his previous home, a consumer sought a mortgage with three lenders. One lender used Fannie Mae’s DU program to determine if the loan would be eligible for purchase by the agency, but the DU report listed his prior mortgage loan as a foreclosure rather than a short sale. The lender ultimately denied the application, rather than manually underwrite it. Upon reviewing Fannie Mae’s motion for summary judgment, the court noted that in order for the consumer to succeed on his CCRA and FCRA claims, he must establish Fannie Mae is a credit reporting agency. The court rejected the consumer’s attempts to distinguish his case from the recent 9th Circuit decision in Zabriskie v. Fed. Nat’l Mortg. Ass’n, which held that Fannie Mae was not a credit reporting agency under the FCRA. (Covered by InfoBytes here.) The court acknowledged that even though Fannie Mae may have problems with its foreclosure recommendations in the DU system, it does not undercut the conclusion that Fannie Mae operates the DU system to assist lenders in making purchasing decisions, does not “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, and therefore, is not a credit reporting agency.

    Courts Fannie Mae Credit Reporting Agency FCRA Ninth Circuit Appellate Foreclosure

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