The Impact of Fair Credit Reporting Act in the Regulatory Enforcement and Developments of Financial Services

SEGMENT 1: 
Ronald I. Raether, Jr., Partner
Troutman Sanders LLP

• FCRA Basics
  • Applies to: insurance (underwriting); Financial Institutions; Debt Collections; Government Benefits (eligibility); Employment Screening and Tenant Screening.
  • Overall Requirements
    • Provide consumers with rights to:
      • access their data; and
      • dispute and correct inaccurate data
    • impose obligations on users to:
      • notify consumers when “adverse” decisions are made
    • imposes duties on CRAs to:
      • protect data and only provide for a permissible purpose;
      • maintain accuracy and investigate disputes;
      • report certain data and not other data;
      • requires furnishers of information to maintain accuracy and investigate disputes.
• High Risk Technical Issues
  • Categories of FCRA Companies
    • Nationwide Consumer Reporting Agency
    • Consumer Reporting Agency
    • Nationwide Specialty Consumer Reporting Agency
    • Reseller
    • Service Provider
    • Furnisher
  • Data Accuracy – CRAs must use reasonable procedures to assure maximum possible accuracy of the data they provide
    • Making sure data is correct; complete and not obsolete
    • Bankruptcy and reporting of debts
  • Using the Right Products for Debt Collection
• AG Settlements with NCRAs Highlights
  • Summary:  Broad sweeping agreements between multiple state AGs and Experian, Equifax and Trans Union and are meant to improve credit report accuracy; increase the fairness and efficacy of the procedures for resolving consumer disputes of credit report errors; and protect consumers from unfair harm to their credit histories due to medical debt. All three credit reporting agencies worked cooperatively to develop critical reforms.
  • Specifics from agreements:
  • Data Accuracy and Quality
    • Reporting of Collection Data
      • CRAs shall revise training materials and adopt policies and procedures to notify and instruct Collection Furnishers that the name of the Original Creditor and the use of Creditor Classification Codes are mandatory reporting requirements
      • CRAs implement process designed to effectively identify Collection Furnishers who misreport or misuse the Creditor Classification Codes on a recurring basis
      • CRAs shall revise training materials and instruct new and existing Collection Furnishers on accurately reporting and deleting accounts that are sold, transferred, or no longer managed by the reporting entity.
    • Minimum Identification Elements on Trade and Collection Data
      • Working Group shall establish minimum standards for the types of indicative information that furnishers of newly opened trade and collection data shall report to CRAs in order for CRA to accept data
  • The Dispute Process
    • Dispute Information Sharing Among CRAs
      • CRAs shall implement automated process to share following dispute outcomes:
        1. Deceased indicators;
        2. Death notices;
        3. Mixed File Information
           • CRAs shall implement an automated process to share relevant information about consumers who dispute information contained in their credit reports when a CRA confirms that a consumer’s credit file information was mixed with another identified consumer
    • Review of Supporting Dispute Documentation Submitted by Consumers
      • CRAs to utilize process designed to assure that during CRA reinvestigation of a dispute, if a consumer submits Supporting Dispute Documentation and CRA does not otherwise modify information, the Supporting Dispute Documentation shall be reviewed by an agent of the CRA with discretion to make a determination whether to make the change requested on the basis of the Supporting Dispute Documentation
  • Furnisher Monitoring
    • Working Group: to enhance their respective capabilities for monitoring furnishers, the CRAs shall develop the National Credit Reporting Working Group which shall:          
      • Catalogue and share best practices for monitoring furnishers;
      • Identify and establish data quality metrics;
      • Share and compare information and reports among CRAs to identify actionable data qualify and accuracy initiatives

SEGMENT 2: 
David N. Anthony, Partner
Troutman Sanders LLP

• Litigation Trends
  • Class Action Trends
    • Disclosure and authorization forms and failure to comply with 15 U.S.C. § 1681b(b)(2)
    • Permissible purpose litigation for failure to comply with 15 U.S.C. § 1681b(a)
    • Other recent class theories
  • Individual Litigation
    • Furnisher Obligations:
      • issues relating to reasonable investigation process
      • furnishing information that is accurate and complete
      • investigating consumer disputes about the accuracy of information you provide
    • Identity theft and mixed file cases
  • FCRA vs. Bankruptcy Code
    • Fair Credit Reporting Act Versus Bankruptcy Code
      • Fair Credit Reporting Act: a creditor not only has a duty to provide accurate information to a CRA but must also correct any information it later discovers is inaccurate (15 U.S.C. § 1681s-2)
        • Thus, if a debt is discharged, a creditor should correct its report to account for that fact
      • Bankruptcy Code Section 524(a)(2), known as the “discharge injunction,” provides that a discharge operates as an injunction against the commencement or continuation of an action , the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor
        • The failure to update a credit report to show that a debt has been discharged is also a violation of the discharge injunction if shown to be an attempt to collect the debt
    • In re: Rusty Haynes (Haynes v. Chase Bank USA, N.A.), No. 11-23212 (Bankr. E.D.N.Y. July 22, 2014)
      • SUMMARY: Class action lawsuit alleging a systematic violation of the discharge injunction based on Chase’s refusal to correct the plaintiffs’ credit reports by showing that their debts had been discharged
      • FACTS: Plaintiff and putative class members’ credit reports list their debt, post-discharge in bankruptcy.  Debt is only listed as “charged off,” rather than being “discharged in bankruptcy.  Chase contends that it has no obligation to revise or correct the credit reporting because it sold its debt pre-bankruptcy and therefore pre-discharge to a third party.  Chase argues that it neither has an ongoing obligation with respect to credit reporting under the FCRA, nor, as it no longer has a debt to enforce, under § 524(a) of the Bankruptcy Code.
      • HOLD: Court denied Chase’s Motion to Dismiss, holding that Chase is intentionally assisting in the collection of discharged debt by not correcting the debts’ credit reports to reflect that the debt has, in fact, been discharged
    • First, Court found that Sections 524(a) and 105(a) of the Bankruptcy Code preempt other federal statutes that might, on their face, otherwise be applicable, such as the FCRA
    • Second, Court found that Chase has an interest in continuing to enforce the discharged debt
      • Complaint alleges that Chase continues to receive payment either directly or indirectly on discharged debts
        • Chase sells the debts to debt buyers and profits by the sale
        • Complaint also alleges that Chase actually kept a percentage of any recoveries on the debt they had sold – directly profited from the failure to update the plaintiffs’ credit reports
      • Complaint alleges that Chase knows that if credit information is not updated, many class members will feel compelled to pay off the debt, even though it is discharged in bankruptcy
  • Take-Aways
    • Under Haynes, a pervasive failure to correct credit reports could be deemed an effort to profit from discharged debt in violation of the discharge injunction
    • Penalties could be significant especially if a class of injured plaintiffs brings claims for violations against a creditor
    • Furnishers must make reasonable efforts to update their debtors’ credit reports whenever debts are discharged in bankruptcy
• Spokeo, Inc. v. Robins and Article III standing under the FCRA
  • Discuss trends related to Motions to Stay and consequences related to potential decision
  • Review of recent oral argument:

    • Based on the argument, it appears that a clear majority of Justices would agree that standing requires a showing of harm to establish an injury-in-fact.

    • only judge who appeared to accept the plaintiff’s argument that Congress can create a right and then provide for a cause of action regardless of harm was Justice Sonia Sotomayor.

    • the liberal wing judges, and particularly Justice Kagan, appear to believe that Congress’ determination of harm is due deference. Those judges also appeared to agree that Robins pleaded sufficient facts to show harm.

    • The conservative judges, on the other hand, appear concerned that the FCRA was so broadly written that enforcing it as written as is could undercut the concept that there needs to be concrete harm particular to a plaintiff. Questions during the argument indicate that the conservative judges read the particular section of the FCRA at issue – 15 U.S.C. § 1681e(b) – as allowing private lawsuits for procedural errors that resulted in no impact whatsoever on a consumer. These judges seem apprehensive about a ruling that would open the doors to lawsuits to enforce general rights. These judges also seemed unimpressed with the allegations of harm by the plaintiff.

    • A decision from the Supreme Court is expected by June 2016. While the decision is pending, various district courts have granted stays in pending cases. These courts have recognized the potential significant impact Spokeo could have on consumer litigation where no actual harm has occurred. While the Court’s decision may have a specific impact on consumer litigation as a whole, some specific areas of the law – including data breach and cyber attack scenarios – may be greatly affected by this decision.

• Recent CFPB Settlement
  • Enforcement action against two affiliated consumer reporting agencies under the FCRA based on the companies’ employment background screening practices. 
  • The consent order requires these background screeners to pay a total of $13 million in penalties and consumer redress. 
  • The Order also requires significant changes in the companies’ practices with regard to matching and use of public record information. 
  • All consumer reporting agencies (“CRAs”), all businesses that furnish data to a CRA (“furnishers”), and all users of data obtained from a CRA (“users”) should be concerned about the CFPB’s use of its enforcement authority.

SEGMENT 3: George N. Andrews, Partner
Shutts & Bowen LLP

• CFPB Supervision Overview
  • FCRA (furnisher responsibilities)
  • Rules for major CRAs
  • Supervisory Highlights – Furnishing issues, credit reporting
  • Reports on Consumer Reporting Market
  • Accepts Consumer Complaints on Credit Reporting
• CFPB Guidance
  • CFPB Bulletin 2014-01:  Obligation of furnishers to conduct investigations
  • CFPB Bulletin 2013-09:  Obligations of CRAs and furnishers to consider “all relevant information”
  • CFPB Bulletin 2013-08:  Representations regarding effect of debt payments on credit reports and scores
• CFPB Enforcement
  • Through examinations and enforcement actions
    • All “covered persons”
    • $1 million per day penalties
  • Recent actions: 
    • CFPB v. Syndicated Office Systems, LLC, 2015-CFPB-0012 (June 18, 2015)