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CFPB Files Suit Against Nation's Largest Student Loan Company
On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CFPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systematically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”
Later that day, the lender issued a statement categorically rejecting the CFPB's charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”
CFPB Orders Medical Debt Collection Law Firms to Refund $577,135 to Consumers
On January 9, the CFPB entered into a Consent Order and Stipulation against two medical debt-collection law firms and their president for alleged violations of the FDCPA and FCRA. Based on these allegations, the CFPB ordered the Respondents to provide $577,135 in relief to affected consumers, correct their business practices, and pay a $78,800 civil money penalty. According to the allegations set forth in the consent order, between January 2012 and August 2016, debt collectors working for the firms violated the FDCPA by giving the false impression that the firm’s “Demand Letters were from an attorney or that the firm’s attorneys were meaningfully involved in reviewing the consumer’s case or had reached a professional judgment that sending a Demand Letter or making a collection call was warranted.” The Bureau also found that the firms notarized consumer affidavits for use in debt-collection lawsuits without properly verifying the truth of the signature. The CFPB also alleged that the firms violated FCRA’s Regulation V by failing to establish, implement, and periodically review and update reasonable written policies and procedures regarding the accuracy and integrity of consumer information furnished to consumer reporting agencies.
Legislators Appeal to CFPB Regarding Payday Loan Proposal
In a letter sent to CFPB Director Richard Cordray on December 1, a group of Republican members of Congress expressed concern about the Bureau’s proposal regarding payday, vehicle title, and certain high-cost installment loans. The letter observes that CFPB’s proposal “attempts to further regulate an industry that is already highly regulated by nearly a dozen federal laws including the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act.” Specifically, the letter contends that the CFPB’s framework will effectively preempt existing statutory and regulatory frameworks and/or eliminate regulated small dollar credit products from the market, thereby leaving consumers without access to credit or forcing them to seek “riskier, illegal” forms of credit.
CFPB Issues Consent Order to a National Bank Over Student Loan Servicing Practices
On August 22, the CFPB issued a consent order to a national bank to resolve allegations that its student loan servicing practices were unfair and deceptive in violation of the Dodd-Frank Act and that its payment aggregation practices violated the Fair Credit Reporting Act. The CFPB alleged that the bank failed to disclose key aspects related to its payment allocation process, including that partial payments would be distributed across all loans, even if a payment was sufficient to satisfy the minimum payment required for an individual loan. According to the consent order, the bank’s “allocation of a Partial Payment proportionally to all loans in the account sometimes caused consumers’ payments to satisfy fewer, if any, of the loan amounts due in the account than if the Partial Payment had been allocated in a manner that satisfied as many of the loan amounts as possible.” According to the CFPB, the bank’s failure to properly disclose its method for payment allocation resulted in consumers incurring improper late fees, which, if left unpaid for more than 30 days at the end of the month, were reported as delinquent to consumer reporting agencies. The CFPB further alleged that the bank’s payment processors used a late fee monitoring report that had a system coding error that improperly charged consumers late fees if a payment was made on the last day of a grace period, or if consumers chose to make partial payments instead of one payment. The CFPB contended that the bank failed to update, correct, or remove negative information that was inaccurately reported to credit reporting agencies. Pursuant to the consent order, the bank must (i) pay $410,000 in consumer redress; (ii) pay a civil penalty of $3.6 million; (iii) improve its student loan servicing practices to ensure that consumers’ partial payments are distributed in such a way that the amount due is satisfied for as many loans as possible, unless the consumer requests otherwise; (iv) enhance its disclosure statements; and (v) remove or correct errors on consumers’ credit reports.
Eleventh Circuit Reverses District Court Ruling in FCRA Case
On July 11, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a decision from the District Court for the Southern District of Georgia, concluding that the district court had erred in dismissing the plaintiff’s claims under Section 1681s-2(b) of the FCRA. Hinkle v. Midland Credit Mgmt., Inc. et al., No. 15-10398 (11th Cir. July 11, 2016). Pursuant to 15 U.S.C. § 1681s-2(b), after receiving notice of a dispute, furnishers of information are required to either verify disputed information via investigation or to notify the credit reporting agencies (CRAs) that the disputed information cannot be verified. At issue in Hinkle was whether the debt buyer’s search of its internal records was a reasonable investigation to verify debt accounts when the plaintiff disputed their validity. The debt buyer argued that, “once it compared the information the CRAs possessed with its own internal records and confirmed a match, it was entitled to report the accounts as having been ‘verified.’” The plaintiff maintained that, without obtaining account-level information beyond its internal records, the debt buyer should have reported the results of its reinvestigation to the CRAs as “cannot be verified.” The court agreed with the plaintiff, determining that a reasonable jury could find that the debt buyer’s failure to attempt to consult account-level documentation to confirm that it was seeking to collect the debts from the right person, was an unreasonable investigation on the facts of this case.
Special Alert: SCOTUS Vacates Ninth Circuit Decision in Case Alleging Procedural FCRA Violations
On May 16, the United States Supreme Court issued an opinion vacating the Ninth Circuit’s 2014 ruling that a plaintiff had standing under Article III of the Constitution to sue an alleged consumer reporting agency as defined by the Fair Credit Reporting Act (FCRA), for alleged procedural violations of the FCRA, 15 U.S.C § 1681 et seq. Spokeo v. Robins, No. 13-1339 (U.S. May 16, 2016). According to plaintiff Thomas Robins, the reporting agency violated his individualized (rather than collective) statutory rights by reporting inaccurate credit information regarding Robins’s wealth, job status, graduate degree, and marital status in willful noncompliance with certain FCRA requirements. In a 6-2 opinion delivered by Justice Alito, the Court ruled that Robins could not establish standing by alleging a bare procedural violation because Article III requires a concrete injury even in the context of statutory violation. Here, the Ninth Circuit erred in failing to consider separately both the “concrete and particularized” aspects of the injury-in-fact component of standing. The Court opined that the Ninth Circuit’s analysis was incomplete:
[T]he injury-in-fact requirement requires a plaintiff to allege an injury that is both “concrete and particularized.” Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180-181 (2000) (emphasis added). The Ninth Circuit’s analysis focused on the second characteristic (particularity), but it overlooked the first (concreteness). We therefore…remand for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.
Relying on case law, the Court emphasized that the “irreducible constitutional minimum” of Article III’s standing to sue relies on the plaintiff demonstrating (i) an injury-in-fact; (ii) that the injury is fairly traceable to the challenged conduct of the defendant; and (iii) that the injury is likely to be redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S., 560-561 (U.S. June 12, 1992); Friends of the Earth, Inc., 528 U.S., at 180-181. Spokeo primarily revolves around the first element, establishing an injury-in-fact. Again relying on Lujan, the Court reasoned that to establish injury-in-fact, the plaintiff must “show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Lujan, at 560. According to the Court, the Ninth Circuit’s discussion of Robins’s standing to sue, and in particular its discussion of whether Robins had articulated an individualized statutory right rather than a collective right, concerned only the particularization element of establishing an injury-in-fact. The Court stated that the Ninth Circuit’s standing analysis was incomplete because it had failed to consider whether the “concreteness” requirement for an injury-in-fact—whether Robins had a “real” and “not abstract” injury—also had been satisfied. While the Court did make clear that a concrete injury could be intangible and that Congress may identify intangible harms that meet minimum Article III requirements, it noted that “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”
The Court noted that because the Ninth Circuit had not fully distinguished concreteness from particularization, it had failed to consider whether the reporting agency’s procedural violations of the FCRA constituted a sufficient degree of risk to Robins to meet the concreteness standard. The Court observed that while a procedural violation of the FCRA may, in some cases, be sufficient to establish a concrete injury-in-fact, not all inaccuracies in consumer information, i.e. an incorrect zip code, cause harm or a material risk of harm. Further, because “Article III standing requires a concrete injury even in the context of a statutory violation” the Court explained that “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.”
The Court vacated the Ninth Circuit’s judgment, and remanded the case for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Amanda Raines Lawrence, (202) 349-8089
- Fredrick Levin, (310) 424-3984
- Andrew Louis, (202) 349-8061
FTC Issues Guidance on Consumer Reporting Obligations under the FCRA
On May 10, the FTC released new guidance on consumer reporting obligations under the FCRA. The guidance is intended to assist companies in understanding whether or not they are subject to consumer reporting requirements under the FCRA. According to the FTC, a company that sells or provides “consumer reports” as defined in Section 603 of the FCRA, 15 U.S.C. § 1681a(d), is considered a “consumer reporting agency” bound by FCRA requirements: “even if you don’t think of your company as a consumer reporting agency, it may be one if it provides information about people to employers for use in hiring or other employment decisions.” The guidance further notes that employment background screening companies are typically subject to FCRA requirements, such as: (i) establishing and following “‘reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates’”; (ii) obtaining certifications that verify, among other things, their clients are legitimate and that the credit report will only be used for employment purposes; (iii) providing clients with information regarding their responsibilities under the FCRA, as well as a summary of consumer rights under the FCRA; and (iv) honoring certain rights of applicants and employees, including providing access to files upon request and conducting a reasonable investigation of consumer disputes.
CFPB Provides Consumers with Information on Obtaining Credit Reports
On January 27, the CFPB announced that it published its 2016 list of consumer reporting companies. The list includes contact information for the three largest nationwide reporting companies and various specialty reporting companies concentrating on specific geographic market areas and consumer segments. In addition, the list provides consumers with (i) tips on determining which specialty credit reports may be important to review depending upon the particular circumstances, such as applying for a job or a new bank account; (ii) information regarding how companies confirm the identity of the consumer requesting a copy of his or her credit report; and (iii) information on which companies also provide free credit scores. The CFPB also reminds consumers of their legal rights to (i) obtain the information in their credit reports, per the FCRA; and (ii) dispute inaccuracies contained in the report.
FTC Issues Report on Big Data
On January 6, the FTC published a report titled, “Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues.” The report, which draws from information from a September 2014 FTC workshop, as well as public comments and research, primarily focuses on the final stage in the life cycle of big data use by addressing the commercial use of consumer data and its effect on low-income and underserved populations. According to the report, participants in the 2014 workshop expressed concern that potential inaccuracies and biases from big data may lead companies to “exclude low-income and underserved communities from credit and employment opportunities.” For example, the report states that, “if big data analytics incorrectly predicts that particular consumers are not good candidates for prime credit offers, educational opportunities, or certain lucrative jobs, such educational opportunities, employment, and credit may never be offered to these consumers.” In order to minimize legal and ethical risks, and to avoid possible exclusion and/or discrimination, the report suggests that companies should obtain an understanding of various laws that may apply to their big data practices, including the FCRA, equal opportunity laws, and the FTC Act. The report provides a basic overview of these laws and presents companies with a number of questions to consider when examining whether or not their data practices comply with such laws, including, but not limited to, whether or not a company maintains reasonable security over consumer data, and whether it complies with requirements under the Equal Credit Opportunity Act regarding requests for information and record retention. In addition to these questions, the report advises companies to consider the following four key policy questions: (i) How representative is your data set? (ii) Does your data model account for biases? (iii) How accurate are your predictions based on big data? (iv) Does your reliance on big data raise ethical or fairness concerns? Finally, while the report acknowledges the benefits of big data, such as providing access to credit using non-traditional methods and increasing equal access to employment, the FTC’s report stresses the significance of examining and raising awareness about big data practices that have the potential to adversely impact low-income and underserved populations.
CFPB Takes Action Against "Buy-Here, Pay-Here" Auto Dealer and Affiliated Financing Company
On December 17, the CFPB announced a consent order against a Minnesota-based auto dealer and its affiliated financing company for alleged violations of the FCRA and the CFPA. The CFPB alleged that the auto dealer, acting through its financing company, (i) repeatedly furnished inaccurate consumer credit information for more than 84,000 customers from January 2009 through September 2013; and (ii) engaged in deceptive acts and practices by failing to report “good credit” to the credit reporting agencies (CRAs) for tens of thousands of consumers after making written representations that the it would report positive credit information to help consumers build and maintain good credit. Alleged FCRA violations include: (i) inaccurately reporting that vehicles were repossessed and borrowers owed balances after the vehicles were returned to the dealer in accordance with the company’s 72-hour return policy; (ii) inaccurately reporting that consumers had outstanding balances after issuing documentation that disputed accounts had been settled; and (iii) failing to establish and maintain reasonable written policies and procedures to ensure the accuracy and integrity of consumer information furnished to CRAs.
Under the terms of the consent order, the companies are required to pay a $6,465,000 civil money penalty. In addition, the companies must (i) establish and implement written consumer-information furnishing policies and procedures that comply with the Furnisher Rule; (ii) identify and correct inaccurate consumer-information that was furnished to the CRAs (iv) cease from making false representations that it will report “good credit” or other positive information to the CRAs; (v) provide affected consumers with free credit reports; and (vi) implement an effective audit program of its credit reporting practices.