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District Court rules in favor of debt collectors in FDCPA, FCRA dispute
On October 7, the U.S. District Court for the Eastern District of Pennsylvania granted defendants’ motion for summary judgment in an FDCPA, FCRA action. According to the opinion, the plaintiff took out a $20,000 loan but never made any payments on the loan. The charged off loan was assigned to the defendant debt purchaser, and a written notice was sent to the plaintiff who requested validation of the debt. The defendant loan servicer provided the account information to the plaintiff and later began furnishing the information to the consumer reporting agencies (CRAs). The plaintiff sued alleging the defendants violated sections 1681s-2(a) and 1681s-2(b) of the FCRA, as well as multiple sections of the FDCPA. Under section 1681s-2(b), a furnisher who has been notified by a CRA of a consumer dispute is required to conduct a reasonable investigation and follow certain procedures. The court noted, however, that these obligations are only triggered if the furnisher received such notice. In this instance, there is no record showing that any CRA reported the plaintiff’s dispute to the defendants, the court said, adding that, moreover, section 1681s-2(a) does not include a private right of action. With respect to the plaintiff’s FDCPA claims, the court determined that, among other things, (i) the plaintiff failed to provide evidence supporting the majority of his claims; (ii) section 1692g does not require the defendants to verify the plaintiff’s account by providing documentation bearing his signature or providing the contractual agreement governing the debt (in this instance, the defendant loan servicer met the minimal requirements by providing an account summary report); and (iii) that nothing in section 1692g requires a debt collector to respond to a dispute within 30 days—this timeframe only applies to when a debtor must dispute a debt, not to the debt collector’s period to provide verification, the court wrote.
District Court grants summary judgment in FCRA and FDCPA suit
On September 30, the District Court for the Northern District of New York granted a defendant’s motion for summary judgment in an FCRA and FDCPA suit. According to the order, the plaintiff allegedly discovered that the defendant communicated incorrect information regarding a debt to credit reporting agencies (CRAs) and subsequently began disputing the debt. The defendant confirmed that the tradeline was accurate and that the account had been paid in full. The plaintiff then sent letters to the different CRAs, the original creditor, and the defendant, claiming that the information being communicated was inaccurate. The plaintiff continued to receive responses indicating that the information being reported was accurate and that the account had been paid in full. The plaintiff then received a letter from a bank rejecting his application for a credit card on the basis that they had received negative information about the plaintiff’s credit from a credit reporting agency. The plaintiff claimed that the defendant violated the FCRA by failing to conduct a reasonable investigation, failing to review information provided by the CRAs, and failing to modify or delete information it could not verify as accurate. The court disagreed, finding that the defendant’s investigations were “reasonable under the circumstances,” given that the plaintiff’s disputes contained “various misleading descriptions that indicated” the debt was not the plaintiff’s, when he had admitted in other circumstances it was. Regarding the FDCPA claim, the court noted that “even if this information was false or inaccurate, there is no evidence whatsoever that it was communicated in connection with the collection of a debt.”
District Court grants partial summary judgment to debt collector in credit reporting and debt collection action
On September 21, the U.S. District Court for the District of Maryland partially granted a defendant debt collector’s motion for summary judgment in a credit reporting and debt collection action. The plaintiff disputed debt related to two electric bills for two different residences that were eventually combined into one account. After the plaintiff informed the electric company that she would not be paying the bill, the debt was eventually referred for collection to the defendant. The plaintiff disputed the debt, and the defendant conducted an investigation. The plaintiff continued to contend that the defendant was certifying the debt without proof and claimed the defendant’s agents called her a liar and incorrectly asserted that she had not made payments. The defendant argued that it was entitled to summary judgment on the plaintiff’s FCRA and FDCPA claims, contending, among other things, that FCRA 1681e(b) “expressly applies to [credit reporting agencies] and not to furnishers.”
The court first reviewed the plaintiff’s FCRA claims as to whether the defendant conducted a reasonable investigation. The court stated that the plaintiff bore the burden to establish whether the defendant failed to conduct a reasonable investigation, and noted that because she failed to provide certain evidence to the defendant “there is no genuine dispute that the investigation conducted by [defendant] was not unreasonable” or that the defendant reported accurate information to the CRAs about the debt. With respect to some of the FDCPA claims, the court denied the defendant summary judgment on the basis that the plaintiff created a genuine dispute about whether the defendant violated § 1692d (the provision prohibiting a debt collector from engaging in harassment or abuse). According to the opinion, evidence suggests that the defendant’s agents incorrectly informed the plaintiff that she had never made a payment on one of the accounts, called her a liar when she protested this information, and used a “demeaning tone” in their communications. “[A] reasonable jury could conclude that the language would have the natural consequence of abusing a consumer relatively more susceptible to harassment, oppression, or abuse,” the court wrote.
Additionally, the court ruled on Maryland state law claims introduced in the plaintiff’s opposition to summary judgment. The court ruled against her Maryland Consumer Debt Collection Act claim regarding the alleged use of abusive language, writing that the agents were not “grossly abusive” and that the plaintiff failed to generate a genuine dispute on this issue. Nor did the plaintiff show a genuine dispute as to whether the debt was inaccurate or that the defendant knew the debt was invalid. The court also entered summary judgment in favor of the defendant on the plaintiff’s Maryland Consumer Protection Act and Maryland Collection Agency Licensing Act claims.
FTC, CFPB say furnishers must investigate indirect disputes
On September 13, the FTC and CFPB (agencies) filed a joint amicus brief with the U.S. Court of Appeals for the Third Circuit, seeking the reversal of a district court decision that held furnishers of credit information are only obligated to investigate “bona fide” indirect disputes and may choose to decline to investigate other indirect disputes raised by consumers that are deemed frivolous. The agencies argued that this “atextual, judge-made exception” could undermine a key FCRA protection that allows consumers to dispute and correct inaccurate information in their credit reports, leading to a likely increase in consumer complaints related to credit reporting inaccuracies. Under the FCRA, consumers may file a direct dispute with a furnisher or file an indirect dispute with a consumer reporting agency (CRA), which may refer the dispute to the furnisher.
The case involves a direct dispute submitted by a plaintiff to a cable company, requesting an investigation into an allegedly fraudulent delinquent account listed on his credit report. The plaintiff informed the cable company that he was a victim of identity theft and that the account was opened in his name without his authorization. The cable company eventually referred the account to a debt collector (defendant) for collection after the plaintiff failed to provide requested information showing his account was opened due to fraud. An indirect dispute was later filed by the plaintiff with the CRA, which in turn sent the dispute to the defendant as the furnisher of the allegedly inaccurate information. After a second indirect dispute was filed noting the allegedly fraudulent account was the subject of litigation, the defendant removed the account from the plaintiff’s credit report and ceased collections. The plaintiff sued, asserting claims under the FCRA, FDCPA, and Pennsylvania law. The district court granted summary judgment in favor of the defendant, ruling that the plaintiff failed to provide evidence substantiating the basis of his dispute, and that “a furnisher is obligated to investigate only ‘bona fide’ indirect disputes and may therefore decline to investigate any indirect dispute it deems frivolous.”
In urging the appellate court to overturn the decision, the agencies countered in their amicus brief that the text of the FCRA is unambiguous—“furnishers must investigate all indirect disputes.” Nothing in the text suggests that a furnisher can choose not to investigate an indirect dispute if it determines it to be frivolous, the agencies stressed, further noting that if Congress intended to “create an exception for frivolous disputes, it knew how to do so,” and that in other parts of the statute Congress expressly provided that certain frivolous disputes do not need to be investigated.
The amicus brief also pointed out that under the FCRA, consumers are entitled to be notified about the outcome of their disputes, as well as given an opportunity to cure any deficiencies. The district court holding, the agencies said, would circumvent these requirements, thereby undercutting a central remedy under the FCRA that ensures consumers are able to dispute and correct inaccurate information in their credit reports. If furnishers were able to ignore disputes referred to them by CRAs, it could open an unintended loophole that would allow disputes to disappear “into a proverbial black hole,” the agencies asserted, emphasizing that if the district court’s interpretation is affirmed, consumers who submit an indirect dispute that is deemed frivolous by a furnisher may never receive any notice of that determination, and therefore, may never be able to cure any deficiencies or correct erroneous information in their credit reports.
The agencies also challenged whether the exception created by the district court’s ruling is necessary, as the FCRA already provides protections to furnishers from investigating frivolous disputes. Specifically, the statute allows CRAs to determine if a dispute a frivolous before forwarding a dispute to the furnisher. Moreover, furnishers “are not required to conduct an unreasonably onerous investigation into a conclusory or unsubstantiated dispute,” the agencies explained, stating that whether a furnisher has satisfied its obligation to conduct a reasonable investigation is normally a fact-intensive question for trial.
The Bureau noted in an accompanying blog post that it has also filed several other amicus briefs in other pending FCRA cases (previously covered by InfoBytes here) related to consumer reporting obligations.
CFPB reports on nursing home debt collection
On September 8, the CFPB released an Issue Spotlight on nursing home debt collection, which focuses on the risk of financial harm that nursing homes and their debt collectors cause by attempting to collect invalid debts. The report, conducted by the Bureau’s Office of Financial Protection for Older Americans, analyzes consumer complaints, nursing home admission contracts, and debt collection lawsuits to assess risks to nursing home residents and their caregivers. In particular, the report found that many facilities include clauses in admission contracts that require caregivers to be a “responsible party” for the resident’s costs of care, or that otherwise subject the caregiver to financial liability should the admitted resident incur a debt. The report also found that nursing home residents stay for significant amounts of time, the average nursing home stay among residents being 1 year and 4 months, and that most older adults are not insured against the costs of long-term care. According to a statement by CFPB Director Rohit Chopra, he expects the "Office for Older Americans will emerge as a key pillar within the policymaking and law enforcement community on financial issues faced by older adults and their caregivers."
The same day, the CFPB released Circular 2022-05, which asks the question: “Can debt collection and consumer reporting practices relating to nursing home debts that are invalid under the Nursing Home Reform Act [(NHRA)] violate the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA)?” The Circular explained, though the Bureau does not enforce the NHRA, that the NHRA prohibits a nursing facility from conditioning a resident’s admission or continued stay on receiving a guarantee of payment from a third party, such as a relative or friend. The Circular also highlighted certain practices related to the collection of nursing home debts that are invalid under the NHRA and its implementing regulation that also violate the FDCPA and FCRA. The Bureau also issued a joint letter with the Centers for Medicare & Medicaid Services to nursing facilities and debt collectors reminding them of their responsibilities under the NHRA, FDCPA, and FCRA.
3rd Circuit vacates dismissal of FCRA lawsuit regarding sovereign immunity
On August 24, the U.S. Court of Appeals for the Third Circuit vacated the dismissal of an FCRA lawsuit, holding that the federal government does not have sovereign immunity under the statute and can be held liable for reporting requirement violations. The plaintiff sued the Department of Agriculture (USDA) and a student loan servicer for allegedly reporting two loans as past due even though he claimed both were closed with a $0 balance. The plaintiff notified the relevant consumer reporting agency who in turn notified the USDA and the servicer. When neither entity took action to investigate or correct the disputed information, the plaintiff sued all three parties for damages under Section 1681n and 1681o of the FCRA. The USDA moved to dismiss for lack of subject matter jurisdiction based on sovereign immunity claims, which the district court granted on the grounds that the United States and its agencies are not subject to liability under the FCRA—a decision in line with opinions issued by the 4th and 9th Circuits.
On appeal, the 3rd Circuit disagreed, instead siding with opinions issued by the D.C. and 7th Circuits that reached the opposite conclusion. According to the 3rd Circuit, the federal government and its agencies enjoy sovereign immunity from civil suits unless Congress unambiguously waives it within a statute. The FCRA provides that any “person” who either negligently or willfully violates the statute is liable to the consumer for civil damages, the appellate court wrote, noting that the term “person” is defined to include any “government or governmental subdivision or agency.” The appellate court stressed that Congress need not express its intent in any particular way, and that courts need only look at the statutory text to discern Congress’ intent. Where Congress wanted to use a narrower definition of “person” in the FCRA, it did so, the appellate court said, pointing to where the FCRA specifically excludes the federal government from the statutory obligations for persons who make adverse employment decisions based on credit reports. “We presume, therefore, that Congress’s failure to do so in §§ 1681n and 1681o was deliberate and intended to convey the full statutory definition,” the 3rd Circuit wrote, finding that Congress unambiguously waived the government’s sovereign immunity in enacting FCRA.
3rd Circuit: District Court erred in applying ascertainability precedent when denying class action certification
On August 24, the U.S. Court of Appeals for the Third Circuit vacated a ruling denying class certification in an action concerning inaccurate consumer reports, holding that the district court misinterpreted Section 1681g(a) of the FCRA and erred in applying the appellate court’s ascertainability precedent. According to the plaintiffs, the defendant, a consumer reporting agency (CRA), provided inaccurate consumer reports as part of a rental application process. The plaintiffs further alleged that the defendant refused to correct the information on the reports unless plaintiffs “obtained proof of the error from [the defendant’s] sources” despite failing to provide the identity of the sources to the plaintiffs. Plaintiffs responded by filed a putative class action alleging the defendant “violated its obligation under the FCRA to disclose on request ‘[a]ll information in the consumer’s file at the time of the request’ and ‘the sources of that information.’” However, the district court denied class certification on the grounds that class members “failed to satisfy Rule 23(b)(3)’s predominance and superiority requirements and that their proposed class and subclass were not, in any event, ascertainable.”
On appeal, the 3rd Circuit closely reviewed when the provisions of § 1681g(a) were applicable. The appellate court first determined the disclosure requirements of § 1681g(a) could only be triggered by a direct request from a consumer, and not a third-party request as the plaintiffs had argued. In so doing, the appellate court found that the district court was “right to distinguish between consumers who made direct requests under § 1681g and consumers who received courtesy copies of the property managers’ Rental Reports,” and affirmed the denial of the “All Requests” class sought by plaintiffs. The appellate court next determined that the district court incorrectly narrowed the disclosure requirements of § 1681g(a) to where a request was specifically made for a consumer’s “file” as opposed to a request for a “report.” The appellate court concluded that “[n]othing in the statute’s text, context, purpose, or history indicates that any magic words are required for a consumer to effect a ‘request’ under § 1681g(a) or that a consumer’s request for ‘my consumer report’ is any less effective at triggering the CRA’s disclosure obligations than a request for ‘my file.’” As a result, the appellate court vacated the district court’s finding as to the predominance requirement of class certification and remanded for the district court “to consider whether Rule 23(b)(3)’s predominance and superiority requirements are satisfied with respect to” consumers in a purported subclass who had made a direct request for a report or file.
The appellate court concluded by determining the district court had additionally errored in its analysis of ascertainability of the proposed class by requiring too high a standard for administrative feasibility. The district court had ruled that where identification of putative class members would require a file-by-file review, ascertainability was “not administratively feasible.” The appellate court disagreed, stating that ascertainability does not mean that “no level of inquiry as to the identity of class members can ever be undertaken,” as it “would make Rule 23(b)(3) class certification all but impossible.” The appellate court instead held that “a straightforward ‘yes-or-no’ review of existing records to identify class members is administratively feasible even if it requires review of individual records with cross-referencing of voluminous data from multiple sources.”
8th Circuit affirms rulings for defendant in FCRA suits
On August 16, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection. The bankruptcy court entered a discharge, and when the plaintiff obtained the credit reports, among other things, one debt was still being reported as “Current; Paid or Paying as Agreed” with an outstanding balance. The plaintiff filed suit, alleging the defendants violated the FCRA because they “do not maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.” The plaintiff claimed to suffer emotional distress and obtained credit at less favorable rates. The defendants jointly moved to dismiss the complaint, contending that the plaintiff failed to plausibly allege the reporting. The district court granted the motion and dismissed the case with prejudice.
According to the 8th Circuit, the plaintiff’s complaint was “too thin to raise a plausible entitlement to relief.” The appellate court noted that, “[i]t is not the credit reporting agencies’ job to “wade into individual bankruptcy dockets to discern whether a debt survived discharge.” The appellate court ultimately agreed with the district court that “’there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’”
The same day, in a separate suit, the 8th Circuit affirmed another district court’s dismissal of a complaint in an FCRA case. According to the opinion, the plaintiff filed for Chapter 7 bankruptcy protection, and after the debts were discharged, the plaintiff’s credit report still listed a debt with an outstanding balance that was noted as “open” and “past due.” The plaintiff filed suit, alleging the defendants violated the FCRA “by neglecting to ‘maintain reasonable procedures to ensure debts that are derogatory prior to a consumer’s bankruptcy filing do not continue to report balances owing or past due amounts when those debts are almost certainly discharged in bankruptcy.’” The plaintiff sought damages resulting from emotional distress and financial harm, but the district court granted summary judgment in favor of defendants, agreeing that plaintiff failed to show proof of actual damages.
On the appeal, the 8th Circuit noted that it was the bankruptcy, not the information in plaintiff’s credit report, that led to her applications for credit cards being denied. Regarding her allegation about emotional distress, the appeals court reasoned that plaintiff “‘suffered no physical injury, she was not medically treated for any psychological or emotional injury, and no other witness corroborated any outward manifestation of emotional distress.’” Accordingly, the court concluded that defendants were entitled to judgment as a matter of law.
3rd Circuit adopts new “reasonable reader” standard for evaluating accuracy of credit reports
On August 8, the U.S. Court of Appeals for the Third Circuit issued an opinion in a matter consolidated on appeal concerning claims of alleged violations of the FCRA brought by several student loan borrowers. According to the opinion, each of the three borrowers defaulted on their student loan payments. The original lenders closed the accounts and transferred the loans to other lenders after the borrowers were more than 120 days late in their payments. The borrowers claimed that a “pay status” notation included in each of their credit reports, which read “Account 120 Days Past Due Date,” was inaccurate and could create the misleading impression that the borrowers were currently four months behind on payments when they did not owe a balance to the previous creditors. The consumer reporting agency (CRA) responsible for the credit reports at issue countered that the notations accurately reflected the historical status of the closed accounts. The borrowers appealed, arguing that the district court misapplied the “reasonable creditor” standard and that the credit reports did not meet the FCRA’s “maximum possible accuracy” requirement.
On appeal, the 3rd Circuit agreed with the CRA’s interpretation, holding that the credit reports “contain multiple conspicuous statements reflecting that the accounts are closed and Appellants have no financial obligations to their previous creditors.” As such, “[t]hese statements are not in conflict with the Pay Status notations, because a reasonable interpretation of the reports in their entirety is that the pay status of a closed account is historical information,” the appellate court wrote. However, while the 3rd Circuit affirmed previous rulings dismissing the cases issued by the U.S. District Court for the Eastern District of Pennsylvania, it concluded that the “reasonable creditor” standard that the district court applied did not accurately reflect how the FCRA contemplates a range of permissible users, such as employers, investors, and insurers, and not just creditors. To account for this, the 3rd Circuit adopted a new standard for evaluating whether credit reports are inaccurate or misleading when read in their entirety by a “reasonable reader,” and applied that test in its precedential opinion. “A court applying the reasonable reader standard to determine the accuracy of an entry in a report must make such a determination by reading the entry not in isolation, but rather by reading the report in its entirety,” the appellate court said.
CFPB issues consent order against nonbank automotive finance company
On July 26, the CFPB announced a consent order against a nonbank automotive finance company to resolve allegations that it engaged in furnishing inaccurate information to consumer reporting companies. The CFPB alleged that the company violated the FCRA and Regulation V by, among other things, failing to: (i) “promptly update and correct information it furnished to Consumer Reporting Agencies (CRAs) that it determined was not complete or accurate, and continued to furnish this inaccurate and incomplete information;” (ii) “modify or delete information disputed by consumers that [the company] found to be inaccurate”; and (iii) “establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.” The CFPB also alleged that the company violated the CFPA because of the FCRA and Regulation V violations, which it alleged also constitute violations of the CFPA, and for using “ineffective manual processes and systems containing known logic errors to furnish information to CRAs.” Under the terms of the Bureau’s consent order, the company is required to provide $13.2 million in redress to harmed consumers, review all account files that it currently furnishes to credit reporting companies and correct all inaccuracies described in the order, then send updated information to the credit reporting companies, establish and implement written a compliance plan, and pay a $6 million civil penalty to the Bureau.