In this week’s episode of As the CFPB Turns questions remain regarding Director(?) Richard Cordray’s constitutional authority to act as the Director of the CFPB. House Financial Services Committee Chairman, Jeb Hensarling, R-Texas, advised Cordray that the D.C. Circuit’s recent decision, which found that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional, applied to the CFPB director as well. Mr. Hensarling advised Director(?) Cordray that “absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such.” Thus, Mr. Hensarling advised Director(?) Cordray that he was not allowed to testify before the House Financial Services Committee. Mr. Hensarling’s comments received the expected cheers from the right side of the legislative aisle and jeers from the left. Stay tuned for next week’s episode to find out whether Director(?) Cordray and Mr. Hensarling will meet for beers at the White House. On to other news …
The Consumer Financial Protection Bureau (the “Bureau”) has taken over rulemaking and enforcement responsibilities for the Fair Credit Reporting Act (“FCRA”) and has updated an important FCRA form that employers must use when utilizing consumer reports in conducting background investigations of prospective and current employees. Employers must use the new form beginning in January.
The FCRA is a federal law that imposes a number of obligations on employers who use reports from consumer reporting agencies (“CRAs”) to conduct background screenings of potential and current employees. If an employer uses such reports as the basis of an adverse employment action, such as terminating or failing to hire an employee, without complying with the FCRA, the employer is subject to liability under the FCRA.
The Bureau has updated the form entitled “A Summary of Your Rights Under the Fair Credit Reporting Act” (“Summary of Rights”) to indicate that it has primary responsibility for the FCRA. Previously, the Federal Trade Commission (“FTC”) had responsibility for the FCRA. On the new form – which employers must use – the Bureau encourages employees to visit its website for further information about their rights.
An employer is required to provide the Summary of Rights to job applicants and current employees before it obtains an investigative consumer report (a report that contains information gathered through personal interviews with people who know the applicant or employee) from a consumer reporting agency. Employers are also required to provide the Summary of Rights with any pre-adverse action notice sent to an employee when the employer plans to rely on the information contained in the background report to make an employment-related decision.
Employers must use the new form – and doing so provides them with the ability to raise a defense against a claim of improper disclosure under the FCRA.
By updating the Summary of Rights (as well as other forms used by CRAs), the Bureau has indicated that the FCRA is on its radar. Employers should expect that the Bureau will use its enforcement powers to ensure employer compliance with the FCRA.
Be sure to use the right form! The Bureau announced on November 14 that the forms it previously issued late last year for use by January 2013 contained typos and other errors. The Bureau recently reissued corrected forms, which can be found here. While the forms issued late last year are sufficient for the time being, the Bureau will discontinue use of those forms at some point in 2013, so it is important to make the switch to the proper form as soon as practicable.
The U.S. Court of Appeals for the Seventh Circuit recently opined that consumers are barred from asserting state common law claims based on inaccurate information furnished to a consumer reporting agency. The Court held that state law causes of action for wrongful furnishing are preempted by the federal Fair Credit Reporting Act (FCRA), and claims for wrongful furnishing under FCRA may be brought only by federal and state enforcement agencies and not by the consumer.
In this case, Purcell v. Bank of America, Kristine Purcell filed a complaint in Indiana state court, alleging that Bank of America (B of A) had furnished information of Purcell’s alleged delinquency in loan payments to consumer reporting agencies when B of A knew that was not the case. B of A removed the case to U.S. District Court for the Northern District of Indiana. The District Court dismissed Purcell’s claims under FCRA because FCRA does not permit a private action for damages for violation of FCRA’s prohibition on wrongful furnishing. The District Court also dismissed Purcell’s state common law claims without prejudice to refiling in state court.
B of A appealed, asserting that the state common law claims are expressly preempted by FCRA and that the District Court’s dismissal of those claims should have been with prejudice, On appeal, the Court of Appeals agreed with B of A’s position and remanded the case to the District Court with instructions to enter judgment for B of A on both federal and state law claims.
The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., was designed to ensure that consumer reporting agencies (CRAs) – like Experian, TransUnion and Equifax – fairly and accurately report information relevant to consumer credit worthiness. The FCRA requires CRAs – which are, essentially, warehouses of consumer credit information – to provide consumers with reports of the credit information they have received, and to take steps to verify any information disputed by a consumer. CRAs receive consumer information from “furnishers,” including banks and credit card companies.
When a consumer notifies a CRA of possibly incorrect credit information, Section 1681i (a)(2) of the FCRA requires the CRA to notify the furnisher that the information it provided to the CRA is being disputed. Once notified, Section 1681s-2(b) requires the furnisher to investigate the dispute and correct any inaccurate information. If the furnisher fails to investigate the disputed information, or correct information found to be inaccurate, it is liable to the consumer for, inter alia, actual damages, punitive damages and attorneys’ fees. See 15 U.S.C. § 1681n.
The recent Ninth Circuit decision, Gonzalez v. Arrow Financial Services, LLC, — F.3d —, 2011 WL 4430844 (9th Cir Sept. 23, 2011), addresses several issues relating to claims brought under the Fair Debt Collection Practices Act (“FDCPA”) and examines that statute’s interaction with the corresponding California debt collection statute, the Rosenthal Act.
Last week the United States Court of Appeals for the Third Circuit clarified the requirements for bringing a Fair Credit Reporting Act case for faulty credit reporting. Michelle SimmsParris is a New Jersey lawyer who allegedly made a couple of late payments on her mortgage loan from Countrywide Home Loans.
In February 2008, SimmsParris learned that Countrywide had reported her as twice late. At her behest, her law firm fired off a letter to Countrywide, stating that it furnished false information. When Countrywide did not change the report, SimmsParris sued. The district court threw the case out on summary judgment, and the Third Circuit affirmed.
As mandated by Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act, new final rules issued by the Federal Reserve Board and the Federal Trade Commission (FTC) require creditors to disclose credit scores and information about credit scores to applicants for credit in adverse action and risk-based pricing notices.
Creditors who use credit scores in denying applications for credit (or otherwise taking adverse action), and/or in granting or extending credit on material terms that are materially less favorable than the most favorable terms offered by them to a substantial proportion of their consumer customers, will need to modify their forms of adverse action and risk-based pricing notices. The rules prescribe model forms for these notices.
The new rules were issued on July 6, 2011, and modify the Federal Reserve Board’s Regulations B and V (12 CFR Parts 202 and 222) and the FTC’s risk-based pricing and model forms rules (16 CFR Parts 640 and 698). The new rules will become effective 30 days after publication in the Federal Register (which is expected imminently).
This week the Eighth Circuit affirmed a Minnesota district court order granting summary judgment to a mortgage company, holding that it complied with all of its responsibilities under the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. 1681s-2(b), because it investigated dispute notices sent to it by credit reporting agencies and verified the plaintiff’s account was being reported correctly. Anderson v. EMC Mortgage Corp., – F.3d –, 2011 WL 409095 (8th Cir. Feb. 9, 2011).
Plaintiff-Appellant Chad Anderson (“Anderson”) filed the underlying action against Defendant-Appellee EMC Mortgage Corp. (“EMC”) and others (who were separately dismissed prior to the appeal) after a dispute arose over whether Anderson had timely made a mortgage payment to EMC in December 2006. The facts revealed that Anderson did in fact timely mail his December 2006 payment to EMC, which even credited his account. However, the check was subsequently lost and EMC did not present a substitute check to Anderson’s bank until mid-March 2007. In the interim, Anderson had made timely January, February and March 2007 payments to EMC, and had also emptied and closed the bank account on which the December check had been drawn. The substitute check was subsequently refused when EMC presented it to Anderson’s bank in March 2007. EMC, in turn, “uncredited” the December payment and began reporting Anderson’s account as more than 30 days past due. After significant back-and-forth with EMC over the status of his account, Anderson made an extra payment in May to bring his account current, but not before, he alleged, the effect on his credit rating led to him losing favorable financing for a real estate purchase.
In Bormes v. United States, the Federal Circuit held that the Federal Government has waived its sovereign immunity for claims arising under the Fair Credit Reporting Act ("FCRA").
The plaintiff, an attorney, filed an unrelated lawsuit on behalf of one of his clients using the United States District Court for the Northern District of Illinois’ electronic filing system and paid the filing fee using his personal credit card. The government provided the plaintiff with a confirmation page that appeared on his computer screen, containing the expiration date of the plaintiff’s credit card. The plaintiff then brought a class action under Section 1681c(g)(1) of the FCRA, which prohibits electronic receipts from displaying the last five digits of a credit card number or its expiration date.
In Ross v. Federal Deposit Insurance Corp., No. 08-1851, 2010 WL 4261819 (4th Cir. Oct. 29, 2010), the U.S. Court of Appeals for the Fourth Circuit affirmed the grant of summary judgment in favor of Washington Mutual Bank (“WaMu”) and against Charlotte Ross who alleged common law defamation claims, violations of the Fair Credit Reporting Act (FCRA), and violations of the North Carolina Unfair and Deceptive Trade Practices act (NCUDTPA).
Ross became the sole owner of home in 2001 while her husband retained sole responsibility for the mortgage, held by WaMu. Ross nonetheless requested that WaMu send her the mortgage statements and the IRS 1098 form. In the course of fulfilling Ross’s request, WaMu mistakenly listed Ross’s name on the mortgage.
In Cortez v. Trans Union LLC, the United States Court of Appeals for the Third Circuit decided a case at the intersection of the Fair Credit Reporting Act (FCRA) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, better known as the USA PATRIOT Act (Patriot Act). Central to the case was a service offered by Trans Union through a third-party vendor called “OFAC Advisor.” OFAC Advisor was designed to generate an alert on a Trans Union credit report whenever an individual’s name was similar to a name on the Office of Foreign Asset Control’s (OFAC) “Specially Designated Nationals” (SDN) list. The SDN list is compiled by OFAC to identify individuals such as terrorists and narcotics traffickers with whom, under the Patriot Act and accompanying regulations, U.S. persons are generally prohibited from dealing.
In Carvalho v. Equifax Information Services, LLC, No. 09-15030, 2010 W.L. 3239477 (9th Cir., Aug. 18, 2010), the Ninth Circuit affirmed a lower court’s grant of summary judgment dismissing Plaintiff’s claims under the California Consumer Credit Reporting Agencies Act (“CCRAA”).
The Plaintiff alleged that three credit reporting agencies, Equifax Information Services, LLC (“Equifax”), Experian Information Solutions, Inc. (“Experian”) and Transunion LLC (“Transunion”), erroneously reported a debt on her credit report despite her requests for reinvestigation and correction of outstanding debt information provided to the agencies by Credit Consulting Services (“CCS”), a collection agency. CCS successfully filed a general demurrer alleging that the federal Fair Credit Reporting Act (“FCRA”) preempted the Plaintiff’s claims against it under the CCRAA. Defendant Equifax successfully removed the case to the District Court for the Northern District of California, claiming that the case met the $5 million amount-in-controversy requirement of the Class Action Fairness Act of 2005 (“CAFA”).
Wen Chiang succeeded on the law but failed on the facts in his Fair Credit Reporting Act claim against Verizon. In Chiang v. Verizon New England Inc., Case No. 09-1214 (lst Cir., Feb. 9, 2010), Chiang claimed that Verizon failed to investigate adequately his disputes about the telephone bill payment information it furnished to the consumer reporting agencies (“CRA”). In this case of first impression for the lst Circuit, the Court concluded that the FCRA does provide a private right of action when a furnisher of credit information fails to conduct a reasonable investigation after a CRA notifies it that a consumer disputes information it provided. 15 U.S.C. § 1681s-2(b). In order to make out a case, a plaintiff must show:
- The furnisher received a dispute from a CRA;
- The furnisher’s investigation of the dispute was unreasonable; and
- There were actual inaccuracies that the furnisher could have discovered had it conducted a reasonable investigation.
A Wisconsin college student has filed a seven count class action complaint against Experian for its freecreditreport.com ads. The Plaintiff alleges that she was in the midst of purchasing a new car and wanted to check her credit. She claims that in March 2008, she went to freecreditreport.com for a single (but free) credit report and did not see any disclaimers that the service came with a $14.95 per month credit monitoring service. After noticing the fee on her credit card statement months later, she went back to the website and found, in her words, “a poorly displayed disclaimer” of the monthly fee. She was able to cancel the service, but was not able to have her money refunded. She seeks to represent a class of consumers who signed up for a free credit report and were charged the monthly fee.
As noted before, the Government has been trying to crack down on the freecreditreport.com ads by making its own parodies.
Each year, Chief Justice John Roberts. Jr. issues a report about the state of the federal judiciary. For 2009, Justice Roberts reported a 6% year-to-year decline in filings in the Supreme Court and federal courts of appeals. The federal district courts saw a 3% increase in filings over 2008 filings, up to 276,397 filings in 2009. Particularly relevant to the consumer federal services industry (and this blog), Justice Roberts found that, in 2009:
Filings of cases involving consumer credit, such as those filed under the Fair Credit Reporting Act, increased 53% (up 2,143 cases), fueled in part by the current economic downturn, particularly in the nation’s most populous districts.
Justice Roberts concluded that “[t]he courts are operating soundly, and the nation’s dedicated federal judges are conscientiously discharging their duties.” You can read the entirety of his report here.
In Gorman v. Wolpoff & Abramson, LLP & MBNA America Bank N.A., No. 06-17226 (Oct. 21, 2009), the Ninth Circuit Court of Appeals issued a mixed opinion on claims of violations of the Fair Credit Reporting Act (“FCRA”) and a California statutory counterpart, and of common law libel.