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Third Circuit Shields Property Reporting Firm from FCRA Liability
On December 6, the U.S. Court of Appeals for the Third Circuit held that a property reporting firm cannot be held liable for a willful violation of FCRA because the firm’s interpretation that it was not a consumer reporting agency subject to FCRA requirements was not unreasonable. Fuges v. Southwest Fin. Servs., Ltd., No 11-4504, 2012 WL 6051966 (3rd Cir. Dec. 6, 2012). The borrower filed a putative class action against a property reporting firm, alleging that the firm failed to comply with FCRA when it prepared a report requested by a bank in connection with the borrower’s credit application. On the reporting firm’s motion for summary judgment, the district court explained that the property report contained information about deeds, mortgages, parcel number and taxes, and lien information that more closely relate to a particular parcel of property than to a particular consumer, and that the report did not contain a social security number, payment history, previous addresses, or other information typically included in consumer credit reports. It held that no jury could find that the firm acted willfully because the firm’s reading of FCRA as not being applicable to property-reporting activities was not unreasonable, and granted summary judgment in favor of the firm. The appellate court agreed, holding that (i) the statute’s terms are ambiguous, (ii) the firm’s reading of the those terms has some foundation in the statutory text, and was therefore not objectively unreasonable, and (iii) there is no judicial or agency guidance that would suggest that the firm’s reading is contrary to the intended meaning of the provisions in question, and therefore the firm did not run a substantial risk in adopting its interpretation. Further, the court rejected the borrower’s argument that the reporting firm should lose the potential protection of the “reasonable interpretation” defense, because it never actually interpreted FCRA prior to the commencement of the suit. The court affirmed summary judgment in favor of the reporting firm.
CFPB Warns Specialty Consumer Reporting Agencies about FCRA Compliance
On November 29, the CFPB issued a bulletin to nationwide specialty consumer reporting agencies (NSCRAs) reminding such firms of their obligation under FCRA to facilitate the process by which consumers may obtain a free annual consumer report. The CFPB also announced that its enforcement team issued warning letters to several NSCRAs that may be violating FCRA, based on reviews conducted under the CFPB’s new authority to examine certain CRAs. According to Bulletin 2012-09, the CFPB expects every NSCRA to (i) enable consumers to request a free annual consumer report by a toll-free telephone number that is published as specified, (ii) ensure that its streamlined process for obtaining a free annual consumer report has adequate capacity to accept requests, (iii) collect only as much personal information from a consumer requesting a free annual consumer report as is reasonably necessary to identify the consumer properly, (iv) provide clear and easily understandable information and instructions to consumers, (v) comply with Regulation V when using or disclosing personally identifiable information collected from a consumer in connection with the consumer’s request for any FCRA-required disclosure, and (vi) accept requests for free annual consumer reports from consumers who use methods other than the streamlined process or instruct such consumers on how to use the streamlined process. The sample warning letter released by the CFPB cites possible violations of the requirements outlined in the Bulletin and urges recipients to review practices and procedures to ensure compliance.
FTC Settles Charges Related to Sale and Use of Consumer Mortgage Payment Data
On October 10, the FTC announced that a major consumer reporting agency (CRA) agreed to settle charges that it improperly sold lists of consumers who were late on their mortgage payments. The CRA will pay $393,000 to resolve allegations that it violated the FTC Act by failing to implement procedures to prevent the sale of lists of consumer information to firms that should not have received them. In a separate but related case, which the DOJ pursued under a referral from the FTC, a data reseller and its affiliates settled charges that the companies violated the FTC Act and FCRA by (i) obtaining prescreened lists without having a permissible purpose, (ii) reselling the reports without disclosing to the consumer reporting agency that provided them who the end users would be, (iii) failing to maintain reasonable procedures to ensure that prospective users had a permissible purpose to get them, (iv) to the extent that firm offers of credit were made, failing to maintain a record of the criteria used to select consumers for these offers, and (v) failing to control access to sensitive consumer financial information. The resellers agreed to pay a $1.2 million civil penalty and will be barred from using or selling prescreened lists without a permissible purpose, or in connection with solicitations for debt relief or mortgage assistance relief products or services.
Senator Seeks Information from Data Brokers
On October 10, Senator Rockefeller (D-WV), Chairman of the Senate Commerce Committee, sent letters to nine data brokers seeking information about how those companies compile and sell consumer information. For example, Mr. Rockefeller asked that, by November 2, 2012 the data brokers (i) provide a list of the sources from which the brokers have collected or received data from or about consumers over the past four years, (ii) describe the methods of data collection employed, (iii) identify the consumer data collected during that period, and (iv) list the products or services offered to third parties. This follows similar requests made in August by a bipartisan group of members of the House of Representatives. Because the data brokers targeted by members of the respective chambers of Congress overlap only in part, a total of fourteen companies have been asked to produce information and materials to Congress.
CFPB Continues Credit Card Enforcement Activity
On October 1, the CFPB announced a coordinated enforcement action taken by federal regulators against a major credit card company and several of its subsidiaries alleged to have violated multiple consumer financial protection laws. According to the CFPB, the investigations conducted by it and other federal regulators and a state regulator revealed that the companies (i) charged illegal late fees, (ii) discriminated on the basis of age in the offering of credit, (iii) engaged in deceptive marketing, and (iv) failed to properly report consumer credit disputes. To resolve the allegations, the companies agreed to enter into several different consent orders. Two orders obtained by the CFPB and a joint CFPB/FDIC order require three of the subsidiaries collectively to refund approximately $85 million to approximately 250,000 customers and pay a cumulative $18 million in civil money penalties. Likewise, the OCC issued a consent order that includes an additional $500,000 penalty, and provides for restitution that overlaps with the broader restitution ordered by the CFPB. Finally, an order obtained by the Federal Reserve Board, requires the company, and certain of its subsidiaries, to pay an additional $9 million penalty. Furthermore, pursuant to the various orders, the companies agreed to undergo an independent audit and implement enhanced compliance systems to address the alleged illegal practices. This is the third public CFPB-led enforcement action aimed at credit card companies, and the first to go beyond allegations regarding ancillary products and resolve alleged violations of the CARD Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act.
Sixth Circuit Allows Private FCRA Action To Proceed Against Bank
On September 27, the U.S. Court of Appeals for the Sixth Circuit revived an individual’s private action under FCRA against a bank, alleging that the bank failed to adequately investigate and respond to notices it received from several consumer reporting agencies regarding disputed car loan. Boggio v. USAA Fed. Savings Bank, No 11-4040, slip op. (6th Cir. Sep. 27, 2012). After experiencing credit problems caused by his ex-wife’s failure to make payments on a car she purchased during their marriage by signing both of their names to a check, the plaintiff wrote to several consumer reporting agencies to dispute his responsibility for the loan in light of the forgery, as well as the parties’ separation and divorce agreements that stated the ex-wife would be responsible for the car payments. The plaintiff alleges that the reporting agencies notified the bank of the dispute, which the bank refused to investigate without a police report or fraud affidavit from the plaintiff, as required by the bank’s fraud policy. The district court granted summary judgment in favor of the bank, holding that the bank reasonably investigated the notices it received from credit reporting agencies, and that the plaintiff had ratified the debt. On appeal, the circuit court reversed and remanded the district court’s decision, holding that there is a genuine dispute of material fact with regard to the sufficiency of the bank’s investigation. The court added that the plaintiff’s failure to comply with the bank’s fraud policy does not alter its finding of a genuine dispute of material fact, holding that FCRA does not permit the bank to require independent confirmation of the reporting agencies’ notices before conducting an investigation. The court also held that the dispute over ratification requires resolution by a trier of fact given the ambiguity of the separation agreement, among other issues.
Ninth Circuit Holds Reporting Fraudulent Accounts As Lost or Stolen May Violate FCRA
On August 7, the U.S. Court of Appeals for the Ninth Circuit revived a consumer’s suit against his bank and a consumer reporting agency (CRA) in which he alleges that the bank and CRA violated FCRA in connection with a fraudulent account opened in the consumer’s name. Drew v. Equifax Info. Servs. LLC, No. 11-15008, 2012 WL 3186110 (9th Cir. Aug. 7, 2012). The consumer claims that though his account was actually fraudulent, the bank reported it as lost or stolen. He alleges the bank violated FCRA when, after receiving a “fraud block notification” from the CRA, the bank (i) failed to conduct a sufficient investigation, (ii) continued to report the fraudulent account as belonging to the consumer, and (iii) reported the fraudster’s address as the consumer’s address. The district court granted summary judgment on these claims in favor of the bank and granted summary judgment to the CRA based on its argument that the consumer’s claims exceeded the statute of limitations. The appeals court agreed that the bank’s investigation was legally sufficient, but held that material issues of fact remained with regard to the consumer’s other claims. The court reasoned that a jury could find (i) that reporting a fraudulently opened account as a lost or stolen account belonging to the consumer was untrue or facially inaccurate in violation of FCRA and (ii) that reporting the fraudster’s address as the consumer’s address violated FCRA’s requirement to correct inaccurate information. The court also found that the consumer presented evidence of emotional distress sufficient to allege emotional damages, and that such damages are cognizable under FCRA. Finally, the court held that facts regarding the timing of the consumer’s knowledge remain in dispute and overturned the district court’s holding that the consumer’s suit exceeded the statute of limitations.
Tenth Circuit Overturns Heightened Pleading Standard for TILA Rescission Cases
On July 30, the U.S. Court of Appeals for the Tenth Circuit overturned a district court ruling that would have required borrowers seeking rescission under TILA to state their ability to repay in the initial complaint. Sanders v. Mountain Am. Fed. Credit Union, No. 11-4008, 2012 WL 3064741 (10th Cir. Jul. 30, 2012). The borrowers timely sued to compel rescission of their mortgage loan, claiming that the lender failed to provide disclosures required under TILA. The district court held that the borrowers were not entitled to rescission because they failed to plead their ability to repay. On appeal the court held that, while TILA recognizes that a court may entertain a creditor’s petition for an order equitably modifying the rescission procedure, in this case the district court impermissibly altered that procedure and created a pleading standard that would require all borrowers seeking TILA rescission to plead their ability to repay. The court reasoned that such a standard would add a condition not supported by TILA or Regulation Z, and that categorical relief is outside of the district court’s equitable powers. However, the court maintained that a district court still may use its equitable powers to protect a creditor’s interest during the rescission process. The appellate court also reversed the district court’s dismissal of the borrowers’ ECOA claim related to a separate refinance transaction because the district court made factual assumptions about the refinance process in violation of its obligation to draw all reasonable inferences in favor of the plaintiff borrowers. While the TILA and ECOA claims were remanded for further proceedings, the court upheld the district court’s dismissal of the borrowers’ claims that the lender also violated FCRA when it reported false information to consumer reporting agencies, holding that FCRA does not provide a private right of action against the furnisher of credit information.
FTC Settles FCRA Charges Against Data Broker
On June 12, the FTC announced that a data broker agreed to settle charges that it marketed and sold consumer profiles to companies engaged in human resources, background screening, and recruiting without taking steps to protect consumer information as required by FCRA. The FTC claimed that the data broker operated as a consumer reporting agency and violated FCRA when it failed to ensure that the information it compiled and sold would be used only for permissible purposes. The broker also allegedly failed to ensure that consumer information it sold was accurate and failed to inform buyers of their FCRA obligations. Among other things, the settlement requires the data broker to pay an $800,000 civil penalty and prohibits the firm from any future violations of FCRA.
D.C. Federal Court Holds FCRA Credit Report Notice Requirements Apply to Auto Dealers Engaging in Third Party Financing Transactions
On May 22, the U.S. District Court for the District of Columbia rejected the National Automobile Dealer's Association's (NADA) challenge to an FTC determination that an automobile dealer that executes a credit contract based on a third party financing source "uses a consumer report" under FCRA, and, thus, must provide prospective buyers with a risk-based pricing notice. National Automobile Dealers Assoc. v. Federal Trade Commission, No. 11-cv-01711, 2012 WL 1854088 (D.D.C. May 22, 2012). A risk-based pricing notice must be provided to buyers who, based upon information contained in their consumer reports, are offered credit at terms materially less favorable than the most favorable terms available to a substantial proportion of consumers. The notice is intended to alert buyers to the existence of negative information in their credit reports to enable them to correct any inaccuracies. The FTC's 2011 amendments to the Fair Credit Risk-Based Pricing Regulations clarified that even in the context of a third-party transactionwhere the auto dealer is not the ultimate source of financing and does not physically obtain a consumer's credit reportthe auto dealer must provide a risk-based pricing notification. According to NADA, the FTCs interpretation placed an unreasonable burden on auto dealers who outsource financing to banks or other entities. NADA also argued that the interpretation was arbitrary and capricious and that it was not entitled to Chevron deference. In its ruling, the court rejected these challenges, stating, among other things, that the FTC's determination was "eminently reasonable" and consistent with the overall regulatory scheme of FCRA because auto dealers are able to obtain credit report information and are best suited to convey that information to consumers. NADA intends to appeal the decision.