InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB looks at removing medical debt from credit reports
On March 1, the CFPB announced plans to review whether data on unpaid medical bills should be included in consumer credit reports. The Bureau stated in its report, Medical Debt Burden in the United States, that research found $88 billion in medical debt on consumer credit reports, accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe,” CFPB Director Rohit Chopra said in a statement.
The Bureau noted that medical debt is often less transparent than other types of debt, due to opaque pricing, complicated insurance, charity care coverage, and pricing rules, reporting that in many instances, consumers may not even sign a billing agreement until after receiving treatment. Medical debts often end up in collections, the Bureau added, which can cause far-ranging repercussions even if the bill itself is inaccurate or erroneous. The report noted additional challenges for uninsured consumers, as well as for Black and Latino families, consumers with low incomes, veterans, older adults, and young adults of all races and ethnicities. The report further stated that the Covid-19 pandemic has exacerbated the situation, with costs and medical debt expected to increase post-pandemic, and found that medical debt weakens underwriting accuracy, as it is less predictive of future repayment than reporting on traditional credit obligations. The Bureau pointed out that it has seen dramatic effects when newer credit scoring models weigh medical collections tradelines less heavily, but noted that there has been very little adoption of this approach so far.
The Bureau stated it intends to examine CRAs to ensure they are collecting accurate information from medical debt collectors and expects CRAs to take action against furnishers who routinely report inaccurate information, including cutting off their access to the system. The Bureau also plans to work with the Department of Health and Human Services to make sure consumers are not forced to pay more than the amount due for medical debt. A January compliance bulletin reminded debt collectors and CRAs of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act. The Bureau also recently supported changes by the Department of Veterans Affairs to amend its regulations related to the conditions by which VA benefit debts or medical debts are reported to CRAs. (Covered by InfoBytes here and here.)
CFPB releases comment letter on FTC enforcement action
On February 18, the CFPB released a comment letter in response to the FTC’s request for comments on its proposed order with a business credit reporting agency alleging that the respondent engaged in deceptive and unfair practices. (Covered by InfoBytes here). In commending the FTC, the CFPB noted that “there are troubling conflicts of interest when the purveyor of credit reports also sells ancillary services.” The CFPB also discussed that the FCRA “may not have contemplated the serious challenges that small businesses face with respect to business credit reports and associated services such as the provision of credit scores,” and that small business “may not benefit” from the FCRA. The Bureau noted that “[b]usiness credit reporting companies should not be able to unfairly harm a small business’s and their owner’s or operator’s financing opportunities.” In supporting “greater remedial authorities for the FTC to be more in line with other civil law enforcement agencies,” the comment letter argued that “[s]tronger authorities for the FTC may help to remediate this full range of harms,” and that the Bureau “stands ready to work with the FTC and other federal and state law enforcement partners to examine whether there are other unlawful practices related to small business credit reporting by other providers.” According to the CFPB, the Bureau will be working with the FTC “to ensure that small businesses are treated fairly when it comes to accessing loans.” The CFPB also noted that it is “working on a rule to shine more light on small business lending, by gathering more data about whether and how small businesses are able to access credit,” and will provide regulators the opportunity “to understand the landscape of credit availability to small businesses that for too long have had to rely on opaque business credit reporting agencies as gatekeepers of financing,” according to the comment letter.
1st Circuit vacates ruling in Maine FCRA case
On February 10, the U.S. Court of Appeals for the First Circuit vacated a district court’s ruling that the FCRA preempts amendments to the Maine Fair Credit Reporting Act that govern how certain debts are reported to credit reporting agencies. As previously covered by InfoBytes, a trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—sued the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) for enacting 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 FCRA, and contended that language under FCRA Section 1681t(b)(1)(E) should be read to encompass all claims relating to information contained in consumer reports. The district court agreed, ruling 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.” The defendants appealed.
On appeal, the plaintiff argued that the phrase “relating to information contained in consumer reports” broadly preempts all state laws, but the appellate court was not persuaded and concluded that the broad interpretation “is not the most natural reading of the statute’s syntax and structure.” The 1st Circuit found “no reason to presume that Congress intended, in providing some federal protections to consumers regarding the information contained in credit reports, to oust all opportunity for states to provide more protections, even if those protections would not otherwise be preempted as ‘inconsistent’ with the FCRA under 15 U.S.C. § 1681t(a).” In addition, the court reminded the plaintiff that “even where Congress has chosen to preempt state law, it is not ousting states of regulatory authority; state regulators have concurrent enforcement authority under the FCRA, subject to some oversight by federal regulators.” As such, the appellate court held that the FCRA did not broadly preempt the entirety of Maine’s amendments, and remanded the case back to the district court to determine the scope under which the amendments may be preempted by the FCRA.
9th Circuit affirms judgment for defendant in FCRA suit
On February 8, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by willfully and negligently disclosing a 10-year-old criminal charge that had been dismissed six years prior to an inquiry made on the plaintiff’s credit report. The plaintiff allegedly submitted an application for housing in 2010, which was denied. In 2010, the defendant provided a tenant screening report, which included details of a criminal charge from 2000, which was outside the seven-year window of the FCRA. However, the plaintiff’s criminal charge was dismissed in 2004, which was within the seven-year reporting window. The plaintiff sued under the FCRA, alleging that the defendant reported criminal information older than seven years, failed to maintain procedures designed to avoid violating the FCRA and ensure the maximum possible accuracy of the information in the report, and failed to conduct a reasonable reinvestigation after receiving a consumer dispute.
In ruling for the defendant, the 9th Circuit stated that “to prove a negligent violation [of the FCRA], a plaintiff must show that the defendant acted pursuant to an objectively unreasonable interpretation of the statute.” The 9th Circuit held that Section 1681c(a)(5) of the FCRA “does not specifically state the date that triggers the reporting window.” Further, the appellate court looked to guidance from the FTC and the CFPB, which “appeared to permit reporting the charge” at the time.
As the appellate court explained, whether the consumer reporting agency correctly interpreted § 1681c(a)(5) to permit the reporting of a criminal charge that was filed outside of, but dismissed within, the statute’s seven-year window, arose as a matter of first impression. However, the consumer reporting agency introduced evidence that its interpretation was consistent with industry norms and standards. Likewise, FTC guidance on the question, at the time, appeared to permit reporting the charge. The appellate court noted, therefore, that it “cannot say, nor could any other reasonable fact finder, that on this record defendant’s violation of [the FCRA] was negligent, much less willful.” As a result, the 9th Circuit affirmed summary judgment in favor of the defendant.
District Court grants MSJ to creditor in FCRA case
On February 4, the U.S. District Court for the Middle District of Florida granted a defendant creditor’s motion for judgment on the pleadings in a case alleging FCRA violations. The plaintiff alleged that the payment status for a tradeline appearing on her credit report incorrectly showed it as “90 days past due” despite the account being paid and closed. She filed suit against the defendant and two consumer reporting agencies (CRAs) claiming the information furnished by the defendant to the CRAs was inaccurate and that the CRAs prepared and issued credit reports containing “inaccurate and misleading information.” Under the FCRA, entities that furnish information to CRAs are required to ensure the accuracy of the information. If an entity receives a notice of dispute from a consumer it is required to conduct an investigation and report the results to the CRAs—actions, the plaintiff claimed, the defendant failed to do. She further contended that the “pay status” field—which she claimed “is ‘specifically designed to be understood as the current status of the account’”—was causing her credit score to be lower than if it was marked as closed. However, upon review, the court determined that when objectively viewing the plaintiff’s credit reports in their entirety, it is apparent that the account is accurate and not misleading. According to the court, “the only reasonable reading of the [disputed] account is that the account was past due in September 2020, at which time the account was updated one last time and closed—zeroing out the balance. It does not indicate, as [the plaintiff] argues, that she is currently 60 days (or 90 days) past due.” Moreover, no reasonable creditor would look at the report and be misled into believing that the plaintiff had a present pending amount due, the court added.
CFPB issues guidance on medical debt covered by the NSA
On January 13, the CFPB released a new Bulletin to remind debt collectors and credit reporting agencies (CRAs) of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act (NSA). Effective for plan years beginning on or after January 1, 2022, the NSA establishes new federal protections against surprise medical bills arising out of certain out-of-network emergency care. The CFPB notes that medical debt often poses special risks to consumers as consumers are “rarely informed of the costs of medical treatment in advance” and are “generally ill suited to the task of identifying [medical] billing errors.” Specifically, the Bulletin reminds debt collectors of the FDCPA prohibition against “false representation of the ‘character, amount, or legal status of any debt’” and the use of any “unfair or unconscionable means to collect or attempt to collect any debt.” According to the Bulletin, these would include “misrepresenting that a consumer must pay a debt stemming from a charge that exceeds the amount permitted by the [NSA].” The Bulletin also reminded debt collectors, as furnishers of information to CRAs, and the CRAs themselves of their obligations under the FCRA to assure the accuracy of information furnished or included in a consumer report, as well as to “conduct reasonable and timely investigations of consumer disputes to verify the accuracy of furnished information.” The Bulletin clarified that the accuracy and dispute obligations imposed by the FCRA “apply with respect to debts stemming from charges that exceed the amount permitted” by the NSA. The Bulletin further offered several examples of acts or practices that may be violative of the FDCPA and/or the FCRA in connection with medical debt covered by the NSA. According to the Bulletin, the CFPB “will hold debt collectors accountable for failing to comply with the FDCPA and Regulation F, and it will hold CRAs and furnishers accountable for failing to comply with the FCRA and Regulation V.” The Bureau also noted that it “will continue to work with the U.S. Department of Health and Human Services and other partners to address medical debt abuses.”
CFPB reports on NCRA’s complaint responsiveness
On January 5, the CFPB released a report, pursuant to Section 611(e)(5) of the FCRA, on information gathered by the Bureau on certain consumer complaints transmitted by the Bureau to the three largest nationwide consumer reporting agencies (NCRAs). According to the report, the CFPB received over 800,000 credit or consumer reporting complaints between January 2020 to September 2021, and of the complaints, over 700,000 were submitted about the same three NCRAs discussed in the report. According to the Bureau, complaints submitted about the NCRAs accounted for over 50 percent of all complaints received by the Bureau in 2020 and over 60 percent in 2021. The Bureau’s analysis revealed that consumers submitted more complaints in each complaint session and are increasingly returning to the Bureau’s complaint process, with a significant amount of complaints regarding inaccurate information on their credit and consumer reports. The CFPB found that the NCRAs reported relief in less than 2 percent of complaints, which is down from approximately 25 percent of complaints in 2019. Additionally, consumers most frequently complained that the inaccurate information belongs to other individuals, and consumers often described being victims of identity theft. The Bureau, in addition to pointing out how the NCRAs are “fail[ing] to meet [their] statutory obligations” under the FCRA, also noted that medical debts are an “unnavigable quagmire” and needs to be addressed. It reported that the NCRAs “do not take available steps to distinguish between complaints authorized by the consumer and those not authorized by the consumer.” The Bureau also mentioned issues that consumers face when attempting to dispute information on their credit reports, such as, among other things: (i) unsuccessfully disputing information in a timely manner; (ii) frequently expending resources to correct inaccuracies; and (iii) and finding themselves caught between furnishers and NCRAs when attempting to resolve disputes. Other highlights of the report include noting that the NCRA rely “heavily” on utilizing template responses to complaints, despite having 60 days to respond, and that two of the NCRAs mentioned in the report do not give “substantive responses to consumers’ complaints if they suspected that a third-party was involved in submitting a complaint.”
11th Circuit affirms FCRA suit dismissal
On December 23, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court’s dismissal of an FCRA case where a furnisher (defendant) allegedly failed to conduct a reasonable investigation in response to materials that the plaintiff had sent to two credit reporting agencies (CRAs), which was then forwarded to the furnisher. According to the opinion, the plaintiff had submitted a letter to each CRA requesting they remove a dispute notation on her credit report with respect to her account with the furnisher because the account in question was no longer being disputed. The CRAs forwarded the plaintiff’s request to the furnisher, who then investigated and notified the CRAs that the account was still being disputed. The plaintiff did not otherwise directly tell the furnisher that she no longer disputed the tradeline. After discovering that the account was still reported as disputed, the plaintiff filed suit under the FCRA against the furnisher for failing to investigate the dispute and failing to direct the CRAs to remove the notation of account in dispute. The district court granted the defendant’s motion to dismiss for the plaintiff’s failure to state a claim.
On appeal, the 11th Circuit found that the letter sent by the plaintiff to the CRAs failed “to make anything clear” to the furnisher. The appellate court explained that the plaintiff “could have written a better letter: one that made clear that she was attempting to revoke her dispute for the first time or, better yet, one addressed to the bank itself. But that is not the letter on which she premised her lawsuit.” The appellate court also noted that, although the furnisher could have contacted the plaintiff directly, the FCRA does not require the furnisher to do so. In effect, “[w]hat [the plaintiff] wants [the bank] to do — either (1) to intuit that she no longer disputed the tradeline from her report to the CRAs or (2) to reach out to her directly to clarify and confirm that she no longer wished to dispute the tradeline — goes beyond what FCRA reasonableness requires,” the appellate court explained in its ruling. The appellate court therefore found that it was reasonable for the furnisher to review its official records, which indicated that the tradeline was still in dispute, and retain the dispute notation on the plaintiff’s credit report.
7th Circuit: Collector did not violate FCRA by obtaining a “propensity-to-pay score”
On December 22, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a defendant debt collector in an FCRA action alleging a plaintiff’s credit information was acquired without a permissible purpose. The plaintiff and her husband jointly filed for bankruptcy protection. The bankruptcy court ordered a discharge of their debts, which included a debt incurred by the plaintiff’s husband that was being serviced by the defendant. The defendant was notified of the discharge (which included each of the four former last names used by the plaintiff) and scanned its system for affected accounts; however, by the time it received notice of the bankruptcy, it had already closed the account it had been servicing. Later, another account bearing one of the plaintiff’s former names was placed with the defendant. The defendant sent the account to a third-party vendor to see if the individual had filed for bankruptcy protection and did not received any bankruptcy results. It then ordered a “propensity-to-pay-score” from a credit reporting agency. The plaintiff’s records were eventually updated by the third-party vendor with information about the bankruptcy, and the defendant closed the account. However, the plaintiff noted the soft inquiry on her credit report and sued, alleging the defendant did not have a permissible purpose to make such an inquiry. The district court granted summary judgment to the defendant.
On appeal, the 7th Circuit determined that the plaintiff had suffered a concrete injury, concluding that an “unauthorized inquiry into a consumer’s propensity‐to‐pay score is analogous to the unlawful inspection of one’s mail, wallet, or bank account.” However, after reviewing the merits of the case, the appellate court held that an alleged invasion of privacy was not enough for it to overturn the district court’s ruling. There was no negligent violation of the FCRA “because no reasonable juror could conclude that the inquiry into [the plaintiff’s] propensity‐to‐pay score resulted in actual damages,” the appellate court wrote. Additionally, while the 7th Circuit acknowledged that the plaintiff’s debt was discharged by the time the defendant obtained her propensity-to-pay score, there was no willful violation of the FCRA because the defendant “lacked actual knowledge of the bankruptcy” and “did not recklessly disregard the possibility that debt had been discharged.” The appellate court added that the evidence showed that the defendant “had a reasonable basis for relying on its procedures.”
DOJ, FTC ban firm and CEO from negative option marketing
On December 16, the DOJ and the FTC announced that a brokerage firm and its CEO (collectively, “defendants”) must pay $21 million in consumer redress and are permanently banned from engaging in deceptive negative option marketing for allegedly violating, among other things, the FCRA, TSR, and the Restore Online Shoppers’ Confidence Act (ROSCA). According to the FTC’s complaint filed by the DOJ, the defendants claimed that the company’s background reports on certain individuals had particular criminal records, even when they did not include such information, to mislead consumers into signing up for auto-renewing, premium subscriptions. The FTC claimed consumers who allegedly searched the firm’s website for an individual’s background report were shown search results that often falsely implied that the subject of the search may have records of criminal or sexual offenses, which could only be viewed by purchasing a subscription from the firm. The complaint alleged that the firm’s misleading statements resulted in some consumers believing that they, or other individuals, had arrest or criminal records. The complaint further alleged that the firm operated as a consumer reporting agency and violated the FCRA by, among other things, failing to maintain verifiable, reasonable procedures on how its reports would be utilized to ensure the information was accurate and to ensure that the information it sold would be used for legal purposes. Additionally, the defendants allegedly violated the TSR by misrepresenting its refund and cancellation policies. The complaint also alleged that the defendants’ misleading billing practices violated ROSCA by, among other things, failing to clearly disclose upfront charges.
Under the terms of the settlement, the defendants agreed to separate judgments, which total approximately $33.9 million. The settlement also banned the defendants from engaging in deceptive negative option marketing. The CEO is ordered to pay a total of $5 million, and the firm is ordered to pay a partially suspended judgment of $16 million due to the company’s inability to pay the full amount. Together, the money will be used to provide refunds to consumers. The firm is required to pay the full remaining amount of the judgment if the company is found to have misrepresented its finances and must implement a monitoring program to ensure the company is complying with the FCRA.