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6th Circuit reverses FCRA ruling over misreported debt
On September 13, the U.S. Court of Appeals for the Sixth Circuit reversed a district court’s summary judgment ruling in favor of a defendant mortgage servicer, holding that a jury could find the defendant “willfully and negligently” violated the FCRA by incorrectly reporting a past due account status to consumer reporting agencies (CRAs) for over a year after the plaintiff’s mortgage loan was discharged in bankruptcy. The plaintiff discovered the loan was being mis-reported as past due when he checked his credit score in advance of buying a car and found it to be lower than expected. The plaintiff disputed the tradeline, and the CRAs forwarded his dispute to the mortgage servicer. In response to the dispute, the servicer changed the plaintiff’s account status from past due to “no status”—which meant the status had not changed from the prior month—and continued reporting it to the CRAs.
The plaintiff sued the servicer for violating the FCRA, claiming the defendant knew the loan had been discharged but still reported it as past due for more than a year. The defendant countered, among other things, that because the plaintiff “chose not to apply for a car loan” he could not prove that he was harmed by negligence due to the mis-reporting. The district court ultimately ruled that (i) the plaintiff did not have standing to allege a negligent violation of the FCRA, and (ii) no “reasonable jury” would find that the defendant had willfully violated the statute.
On appeal, the 6th Circuit disagreed, finding that the plaintiff had standing to assert a negligence claim under FCRA and that a reasonable jury could find a negligent and willful violation. The court pointed out that the plaintiff’s credit score increased by almost 100 points once the tradeline was removed, suggesting the servicer’s mis-reporting did harm the plaintiff and gave him standing to sue in negligence. The court also found the defendant “knew that [the plaintiff’s] loan had been discharged but for more than a year told the credit-reporting agencies that the loan was past due. A jury could therefore find that [the defendant] was either incompetent or willful in its failure to correct its reports sooner.” The 6th Circuit added that the defendant’s implementation of policies to guide its analysts through resolving credit disputes “hardly disproves as a matter of law that [the defendant] acted willfully.” The court held the defendant was not entitled to summary judgment and remanded the case for further proceedings.
FTC approves five FCRA rule changes for auto dealers
On September 8, the FTC announced it approved final revisions to rules that would implement parts of the FCRA in line with the Dodd-Frank Act. As previously covered by InfoBytes, the agency sought comment on the proposed rule changes in 2020. In separate notices, the FTC approved largely technical, non-substantive changes, clarifying five FCRA rules enforced by the FTC, which apply only to motor vehicle dealers. The changes affect the following rules:
- Address Discrepancy Rule, which requires users of consumer reports to implement policies and procedures for, among other things, handling notices of address discrepancy received from a nationwide consumer reporting agency (CRA) and furnishing an address for a consumer that a “user has reasonably confirmed as accurate to the CRA from whom it received the notice.”
- Affiliate Marketing Rule, which provides consumers the right to restrict a person from using certain information received from an affiliate to make solicitations.
- Furnisher Rule, which requires entities to implement policies and procedures regarding the accuracy and integrity of the consumer information they provide to a CRA.
- Pre-screen Opt-Out Notice Rule, which outlines requirements for those who use consumer reports to make unsolicited credit or insurance offers to consumers.
- Risk-Based Pricing Rule, which requires that persons who use information from a consumer report to offer less favorable terms are required to provide a risk-based pricing notice to consumers about the use of such data.
CFPB takes action against Maryland debt collectors
On August 16, the CFPB entered into a preliminary settlement with a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the FCRA, FDCPA, and the CFPA, resolving a case filed in the U.S. District Court for the District of Maryland. As previously covered by InfoBytes, the complaint alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. Under the terms of the proposed stipulated final judgment and order, the defendants are required to, among other things: (i) establish, modify, update, and implement policies and procedures on the accuracy of information furnished to consumer reporting agencies; (ii) establish internal controls to identify activities that may compromise the accuracy or integrity of information; (iii) establish an identity theft report review program; and (iv) retain an independent consultant to review the defendant’s furnishing of consumer information and debt collection activities in addition to provide recommendations. The proposed order also imposes a civil money penalty of $850,000.
District Court grants summary judgment against student loan debt-relief defendant
On August 10, the U.S. District Court for the Central District of California granted summary judgment against an individual defendant in an action by the CFPB against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here and here).
Responding to the Bureau’s motion for summary judgment against the individual defendant, the court, among other things, held that undisputed evidence showed that the individual defendant “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. The court also found that the individual defendant violated the TSR by mispresenting material aspects of the debt relief services and violated the CFPA by making false statements to induce consumers to pay advance fees for these services. Furthermore, the court rejected the individual defendant’s arguments involving boilerplate evidentiary objections and Fifth Amendment and statute of limitation claims. Because the individual defendant “was heavily involved in and controlled much of the [student loan debt relief businesses’] activities,” the court found that he acted recklessly and granted the Bureau’s motion for summary judgment, finding that injunctive relief, restitution, and a civil money penalty are appropriate remedies.
CFPB, Arkansas AG settle FCRA violations
On August 4, in an action brought by the CFPB and the Arkansas attorney general, the U.S. District Court for the Eastern District of Arkansas entered a stipulated final judgment and order against a Utah-based home-security and alarm company (defendant) for allegedly failing to provide proper notices under the FCRA. As previously covered by InfoBytes here, according to the complaint, the company extended credit to its customers by allowing them to defer payment for alarm and security-system equipment over the life of a long-term contract. In extending credit to its customers, the company allegedly obtained and used consumers’ credit scores to determine the amount of activation fees it would charge for its products and services and then charged higher fees to consumers who had lower credit scores, without providing those consumers with required risk-based pricing notices in accordance with the FCRA and Regulation V. Under the terms of the order, the company is required to submit a compliance plan and pay a $600,000 civil money penalty, of which $100,000 will be offset if it pays that amount to settle related litigation with the State of Arkansas that is pending in state court. The company will also be required to provide proper risk-based pricing notices as required under the FCRA.
7th Circuit: CRAs not required to make legal determinations under FCRA
On July 15, the U.S. Court of Appeals for the Seventh Circuit affirmed the rulings from a district court in a consolidated appeal finding that it is up to the court, not a consumer reporting agency, to decide if a creditor possesses the proper legal relationship to a debt. In each case, the plaintiff allegedly had a debt that was purchased by a debt buyer, who reported the unpaid debts to the credit reporting agencies. The plaintiffs contacted the debt buyers and disputed the information being furnished on the basis that the creditors did not actually own the debts. The plaintiffs also contacted the consumer reporting agencies to request that they reinvestigate the accuracy of their credit reports. The reporting agencies contacted the creditors, confirming that they were the legitimate owners of the debts but did not provide additional information. The plaintiffs sued, alleging that the defendants violated the FCRA by not fully investigating the disputes. The district court, relying on a 2020 decision in Denan v. TransUnion LLC (previously covered by Infobytes), held that determining ownership of a debt is a legal question, not a duty imposed on the furnishers under the FCRA.
On appeal, the 7th Circuit affirmed the district courts’ decisions, establishing that the key inquiry is “whether the alleged inaccuracy turns on applying law to facts or simply examining the facts alone.” because “consumer reporting agencies are competent to make factual determinations, but they do not make legal conclusion like courts and other tribunals do.” The appellate court further noted that “[b]ecause the plaintiffs in these cases asked the consumer reporting agencies to make primarily legal determinations, they have not stated claims under the [FCRA].”
District Court says retailer not an intended third-party beneficiary of a credit card arbitration provision
On July 8, the U.S. District Court for the Central District of California denied a retailer’s motion to compel arbitration in a consumer data sharing putative class action, ruling that the retailer was not an intended third-party beneficiary of an arbitration provision in a credit card agreement. The proposed class had filed an amended complaint accusing several national retailers of illegally sharing consumer transaction data in violation of the FCRA, the California Consumer Privacy Act, and California’s unfair competition law, among others. The motion at issue, filed by one of the retailers, addresses a named plaintiff’s opposition to compel arbitration. The retailer argued that as an “intended” third-party beneficiary of the contract, it had the right to enforce an arbitration clause contained in a credit card agreement purportedly signed by the plaintiff when she opened a retailer credit card account issued by an online bank.
The court disagreed, finding that the contract’s arbitration provisions specifically referred to the bank, and that the contract did not clearly “express an intention to confer a separate and distinct benefit on [the retailer].” Moreover, the court noted the contract at issue instructed the plaintiff to send any arbitration demand notices to the bank, adding that “[i]t seems unlikely that the parties would expect a demand for arbitration solely against the [retailer]—that does not involve [the bank]—to be sent to [the bank].”
District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action
On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.
After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.
District Court grants summary judgment for defendant in identity theft case
On June 30, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment in favor of a debt collection agency (defendant) with respect to a plaintiff’s FCRA and FDCPA allegations. The plaintiff alleged that the defendant, among other things, violated the FCRA and the FDCPA by failing to fulfill a reasonable investigation upon receipt of a dispute over an account that was allegedly opened in his name without his consent. According to the opinion, the plaintiff filed a suit against the defendant and three other companies, but “following various settlements,” the debt collection agency remained the sole defendant. The plaintiff was notified by the defendant that additional information was required to further investigate his claim, including a fraud and identity theft affidavit, proof of residence, a police report, and a valid government-issued ID, which was not allegedly provided to the defendant until after the plaintiff had filed the suit. The court dismissed the FCRA claim, finding that there was not enough evidence that the plaintiff submitted the necessary information to make his reported dispute a bona fide dispute, which is necessary to establish an FCRA violation. The court also dismissed the FDCPA claims stating that the plaintiff failed to identify false representation or deceptive means by the defendant in connection with the collection of the relevant debt.
District Court partially grants a defendant’s MTD in FCRA, FDCPA case
On June 29, the U.S. District Court for the Eastern District of Missouri granted in part and denied in part a Wisconsin-based debt collection agency’s (defendant) motion for judgment in an FCRA and FDCPA case where the plaintiff alleged the defendant failed to update the information it was furnishing to credit bureaus after the plaintiff notified a credit bureau that she was no longer disputing the debt. Prior to February 2020, the plaintiff disputed the accuracy of a tradeline by the defendant appearing on her credit report with an unspecified party and then notified a credit reporting agency that she was no longer disputing the debt. The credit reporting agency forwarded the plaintiff’s notice to the defendant. After the plaintiff saw that the tradeline was still reported as disputed on her credit report, she filed suit alleging the defendant violated the FCRA by failing to conduct a proper investigation after being notified that the plaintiff was no longer disputing the debt and the FDCPA for reporting information it had knowledge of being false. The defendant argued “that it cannot be liable under the FCRA based on [the plaintiff’s] allegations because it had no new information to ‘reasonably investigate.’” However, the court denied the defendant’s motion for judgment on the pleadings as to the plaintiff’s FCRA claims stating that, “at this stage of the case, the Court cannot determine whether it would have been reasonable for [the defendant] to rely solely on its own files when performing its investigation after receiving [the plaintiff’s] letter stating that she no longer disputed her tradeline.” With respect to the FDCPA claim, the court cited the 8th Circuit’s ruling in Wilhelm v. Credico, Inc., which held that “whether ‘the consumer has disputed a particular debt’ is ‘always material’ and thus a debt collector must disclose that an account is disputed when it ‘elects to communicate ‘credit information[,]’ the fact that an account is no longer disputed would also be material.” In addition, the court found that the plaintiff failed to state a claim pursuant to the alleged FDCPA violation because she did “not allege any facts demonstrating that [the defendant] continued to report false credit information after it received notice from [a reporting agency] that she no longer disputed her [debt].” However, the court granted the plaintiff leave to file an amended complaint.