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3rd Circuit: Failure to provide job applicants consumer reports has standing under Spokeo
On September 10, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order reversing in part and affirming in part a lower court’s dismissal of claims brought by three individuals who claimed a company violated the Fair Credit Reporting Act (FCRA) when it failed to provide them with copies of their consumer reports. According to the opinion, the three plaintiffs applied for jobs with the company and were ultimately not hired due to information discovered in their background checks. The plaintiffs filed a putative class action asserting the company did not send them copies of their background checks before it took adverse action when deciding not to hire them, and also failed to provide them with notices of their rights under the FCRA. The district court dismissed the claims against the company, finding there was only a “bare procedural violation,” and not a concrete injury in fact as required under the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert). On appeal, the 3rd Circuit reversed the lower court’s decision, concluding that the plaintiffs had standing to assert that the company violated the FCRA by taking adverse action without first providing copies of their consumer reports. Additionally, the court noted that “taking an adverse employment action without providing the required consumer report is ‘the very harm that Congress sought to prevent, arising from prototypical conduct proscribed’ by the FCRA.” However, the appellate court affirmed the lower court’s dismissal of the plaintiffs’ claim alleging the company failed to provide them with a notice of their FCRA rights, finding that the claim was a “‘bare procedural violation, divorced from any concrete harm,’” and lacked Article III standing under Spokeo. The 3rd Circuit remanded the case for further proceedings consistent with their findings.
CFPB issues updated FCRA model disclosures to implement Economic Growth, Regulatory Relief, and Consumer Protection Act amendments
On September 12, the CFPB issued an interim final rule to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) (previously Senate bill S. 2155). Section 301(a)(1) of the Act amends the FCRA to add section 605A(i), which requires consumer reporting agencies to provide national security freezes free of charge to consumers. Additionally, the new section requires that whenever a consumer is provided a “summary of rights” under section 609, the summary must include a notice regarding the right to obtain a free security freeze. The Act also amends FCRA section 605A(a)(1)(A) to extend from 90 days to one year the minimum time that a credit reporting agency must include an initial fraud alert on a consumer’s file.
The interim final rule, which is effective on September 21, amends the model forms in Regulation V to comply with the Act. The interim file rule also permits various compliance alternatives to mitigate the impact of the changes to these forms, including allowing the use of the 2012 model forms so long as a separate page provided in the same transmittal contains the new information required.
Comments on the interim final rule will be due 60 days after publication in the Federal Register. Links to the English and Spanish versions of the revised Summary of Consumer Rights and revised Summary Consumer Identity Theft Rights, covered by Section 609 of the FCRA, are available here.
California updates notice requirements on time-barred debt collection efforts
On September 5, the California governor signed AB 1526, which, among other things, amends state debt collection law to require certain written notices to be included in the first written communications provided to the debtor after the debt became time-barred and after the date for obsolescence under the FCRA. If the debt is not past the date of obsolescence, the debt collector is required to include specific language in the first written communication to the debtor after the debt has become time-barred that indicates the debtor will not be sued for the debt, but the debt may be reported as unpaid to credit reporting agencies as allowed by law. If the debt is past the date of obsolescence, the debt collector is required to include specific language in the first written communication to the debtor after the date for obsolescence indicating the debtor will not be sued for the debt and the debt will not be reported to credit reporting agencies. The law also incorporates a four-year statute of limitations on the collection of debt by specifically prohibiting a debt collector from initiating a lawsuit, an arbitration, or other legal proceeding to collect the debt after the four-year period in which the action must have been commenced has ended.
8th Circuit holds employee failed to plead injuries in FCRA suit against employer, law firm, and credit reporting agency
On September 6, the U.S. Court of Appeals for the 8th Circuit held that an employee lacked standing to bring claims under the Fair Credit Reporting Act (FCRA) because she failed to sufficiently plead she suffered injuries. An employee brought a lawsuit against her former employer, a law firm, and a credit reporting agency (defendants) alleging various violations of the FCRA after the employee’s credit report that was obtained as part of the hiring process background check was provided to the employee in response to her records request in a wrongful termination lawsuit she had filed. The district court dismissed the claims against the employer and the law firm and granted judgment on the pleadings for the credit reporting agency. Upon appeal, the 8th Circuit, citing the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert), concluded the former employee lacked Article III standing to bring the claims. The court found that the former employee authorized her employer to obtain the credit report and failed to allege the report was used for unauthorized purposes, therefore there was no intangible injury to her privacy. Additionally, the court determined that the injuries to her “reputational harm, compromised security, and lost time” were “‘naked assertion[s]’ of reputational harm, ‘devoid of further factual enhancement.’” As for claims against the law firm and credit reporting agency, the court found that the injury was too speculative as to the alleged failures to take reasonable measures to dispose of her information. Further, whether the credit reporting agency met all of its statutory obligations to ensure the report was for a permissible purpose was irrelevant, as she suffered no injury because she provided the employer with consent to obtain her credit report.
5th Circuit rejects enforcement of CFPB CID for failing to allege a violation
On September 6, the U.S. Court of Appeals for the 5th Circuit declined to enforce a Civil Investigative Demand (CID) issued by the CFPB against a Texas public records company, after holding the Bureau did not comply with Dodd-Frank when it issued the CID. After initially receiving the CID, the Texas company objected to its Notification of Purpose as inadequate, as it read, “whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer law.” In response, the Bureau filed a petition in federal court seeking to enforce the CID and the lower court granted the petition, holding that the Notification of Purpose provided fair notice of the violations under investigation as required by the Dodd-Frank Act. The 5th Circuit disagreed, however, finding that the CID did not identify an alleged violation. The court noted that the CID only made references to the FCRA, a “broad provision of law that the CFPB has authority to enforce,” and “any other federal consumer financial law,” which subsequently “defeats any specificity provided by the reference to the FCRA.” The court emphasized that it could not review the CID under the “reasonable relevance” standard, because the CID failed to identify the conduct under investigation and concluded that the Bureau does not have “unfettered authority to cast about for potential wrongdoing.”
Court finds no ECOA violation with credit union’s dispute-free credit report requirement
On August 28, the U.S. District Court for the Eastern District of Wisconsin dismissed an action against a credit union, holding that the credit union’s decision to consider only dispute-free credit reports of all applicants does not amount to a “prohibited basis” under the Equal Credit Opportunity Act (ECOA). According to the opinion, the credit union required the consumer to remove his disputed debts from his credit report in order for his application for a home equity loan to move forward. After the disputes were removed, the consumer’s credit score dropped below the minimum required by the credit union, and his application was denied. In December 2017, the consumer brought an action against the credit union, alleging that he was discriminated against in violation of ECOA for exercising his dispute rights under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). The court rejected the consumer’s arguments, concluding that the FDCPA and the FCRA do not give a consumer a right to dispute debts, but rather a right to ensure that disputed debts are accurately reported as such. The court also rejected the consumer’s theory of recovery under ECOA, finding that his arguments were inconsistent with ECOA’s implementing regulation, Regulation B. The court determined that Regulation B allows a creditor to restrict the types of credit history that it will consider if the restrictions are applied to all applicants without regard to a prohibited basis. Because the dispute-free restriction was applied to all applicants of the credit union equally, the consumer’s claim failed.
6th Circuit holds that failing to report a trial modification plan can constitute incomplete reporting under FCRA
On August 23, the U.S. Court of Appeals for the 6th Circuit held that a borrower met the requirements necessary for a Fair Credit Reporting Act (FCRA) claim to proceed when two mortgage servicers failed to report the existence of a trial modification plan when reporting the borrower was delinquent to reporting agencies. In 2014, a borrower brought an action against three credit reporting agencies and two mortgage servicers alleging, among other claims, violations of the FCRA due to payments being reported as past due while successfully making payments under a trial modification plan (also referred to as a Trial Period Plan, or “TPP”) and working towards a permanent modification. Regarding the FCRA claim, the 6th Circuit reversed the lower court’s decision granting the servicers’ motion for summary judgment, finding that the borrower met the statutory requirements for an FCRA claim because failing to report the existence of a TPP can constitute “incomplete reporting” in violation of the statute. The 6th Circuit rejected the servicers’ argument that the Home Affordable Modification Program guidelines “encouraged, but did not require” that they report a TPP. The court acknowledged this distinction but noted that “[r]eporting that [a borrower] was delinquent on his loan payments without reporting the TPP implies a much greater degree of financial irresponsibility than was present here.” The court remanded the case to the district court to determine whether the servicers conducted a reasonable investigation after the borrower disputed the reporting.
Court approves 1.8 million FCRA class action settlement with national bank
On August 16, the U.S. District Court for the Northern District of California approved a $1.8 million class action settlement resolving allegations that a national bank’s soft credit report inquiries were not permitted under the Fair Credit Reporting Act (FCRA). In 2015, a consumer filed the class action complaint alleging that the bank pulled his credit information without consent following a bankruptcy. The consumer alleged that because his debts to the bank had been discharged, the bank did not have a “permissible purpose” to pull the credit information. The approved settlement covers 114,512 claimants, who state their credit reports were accessed without permission by the bank, and grants each claimant $4.06. The settlement also requires the bank to pay attorneys’ fees and litigation costs for the plaintiff.
House passes appropriations bill that includes several financial services provisions, brings CFPB into the appropriations process
On July 19, the House passed H.R. 6147, the “Interior, Environment, Financial Services, and General Government Appropriations Act, 2019” by a vote of 217 to 199. Under the appropriations bill, the CFPB would be brought into the appropriations process, and a change to Dodd-Frank would strike the “for-cause” provision on the president’s authority to remove the director, which has been the subject of significant litigation. (See here for continuing InfoBytes coverage on legal challenges to the CFPB’s constitutionality.) Several other financial services provisions would, among other things, (i) amend the Federal Financial Institutions Examination Council Act of 1978 to create an independent examination review director to evaluate bank examination procedures to ensure consistency; (ii) authorize the Federal Reserve to make Volcker Rule exemption determinations and issue and amend rules under Section 13 of the Banking Holding Company Act; (iii) allow the appropriate federal banking agencies to make process improvements for living will submissions; (iv) amend the Fair Credit Reporting Act (FCRA) to allow the furnishing of positive credit reporting related to a consumer’s performance when making payments under a lease agreement with respect to a dwelling or pursuant to a contract for utility or telecommunications services; and (v) require the Comptroller General of the United States to submit a report on the impact of furnishing consumer information, pursuant to the amendments of the FCRA, to Congress no later than two years after the date of the enactment of this Act. As previously covered in InfoBytes, a similar measure concerning the furnishing of consumer data was also introduced as part of S. 488, which passed the House on July 17 as part of a larger package of securities and banking bills. H.R. 6147 now heads to the Senate.
House passes bipartisan package of securities and banking bills focusing on capital market regulations
On July 17, the House passed S. 488, the “JOBS and Investor Confidence Act of 2018” (Act) by a vote of 406 to 4. The package of 32 securities and banking bills now comprises Senate bill S. 488, which previously contained an amendment to the Securities Act Rule 230.701(e) and was included as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act S.2155/P.L. 115-174. The Act focuses on capital market regulations and contains many capital formation provisions designed to, among other things, (i) expand access for smaller companies attempting to raise capital; (ii) reduce regulation for smaller companies such as providing federal stress test relief for nonbanks; (iii) revise crowdfunding provisions to allow for crowdfunding vehicles and the registration of crowdfunding vehicle advisers; (iv) exempt low-revenue issuers from Sarbanes-Oxley Act Section 404; (v) grant banks safe harbor when they keep open certain accounts and transactions at the request of law enforcement; and (vi) clarify various rules, review current securities laws for inefficiencies, and establish additional procedures focusing on virtual currency and money laundering efforts. Additional changes would amend a section of the Exchange Act governing SEC registration of individuals acting as brokers or dealers. The Fair Credit Reporting Act would also be amended to permit entities—including HUD—the ability to furnish data to consumer reporting agencies regarding an individual’s history of on-time payments with respect to a lease, or contracts for utilities and telecommunications services, provided the information about a consumer's usage of the service relates to payment by the consumer for such service or other terms of the provision of that service. S. 488 would also allow certain non-profits conducting charitable mortgage loan transactions to use forms required under the TILA-RESPA Integrated Disclosure Rule, and require the director of the CFPB to issue such regulations as may be necessary to implement those amendments. S. 488 now returns to the Senate for further action.