On September 30, California enacted AB 1220, which extends protections under the state’s consumer reporting law. Under the federal Fair Credit Reporting Act, a consumer reporting agency may not prohibit a user of a consumer credit report furnished by the agency from providing a copy of the report to a consumer, upon the consumer’s request, if the user has taken adverse action against the consumer based upon the report. AB 1220 adopts the same prohibition, and also makes it unlawful for a consumer reporting agency to dissuade, or attempt to dissuade a user from providing the report. Further, the bill allows state and local law enforcement authorities to bring a civil action for a civil penalty up to $5,000 against a violating consumer reporting agency.
Recently, Senate Commerce Committee Chairman Jay Rockefeller (D-WV) continued his committee’s examination of the way data brokers collect and share personal information. The Senator sent a letter to one data broker seeking additional information about the broker’s customer vetting practices and how it shares consumer information with those customers. As the basis for the letter, Senator Rockefeller cited news reports alleging that a company acquired in March 2012 by the data broker receiving the letter had sold data to an identity theft scheme. At least one report suggested that the alleged activity continued after the broker conducted its due diligence and completed the acquisition. The Senator’s letter also poses follow up questions based on the broker’s response to the Senator’s original October 2012 request to numerous data brokers, which the Senator expanded to include other industry participants in September 2013.
This week, Maine enacted a bill to simplify the state’s credit reporting law. The bill, SP 504, was drafted by the Bureau of Consumer Protection to ease compliance burden primarily by eliminating provisions mirroring the federal Fair Credit Reporting Act (FCRA), and instead incorporating the federal FCRA and its implementing regulations. The bill retains and reorganizes existing additional state credit reporting consumer protections.
CFPB Releases Consumer Reporting and Money Transfer Complaints, Expands Complaint Database Functionality
On May 31, the CFPB published for the first time consumer complaints about credit reporting, which the CFPB began accepting in October 2012, and money transfer complaints, which it began accepting in April 2013. The CFPB also announced that all complaints in its consumer complaint database now include a field for the state from which the complaint was filed. That field allows the CFPB to report, for example, that the top states for per capita mortgage complaints are (i) New Hampshire, (ii) Maryland, (iii) the District of Columbia, (iv) Georgia, and (v) Florida.
On April 25, New York Governor Andrew Cuomo announced that the New York Department of Financial Services (DFS) sent a letter to several consumer credit bureaus, demanding that the firms (i) ensure that credit scores are not lowered for consumers adversely impacted by Hurricane Sandy, (ii) reset any scores that have been lowered, (iii) work with banks and other lenders to red flag any negative information relating to storm-impacted consumers, and (iv) meet with the DFS to permanently change procedures to prevent credit scores from going down for consumers impacted by a disaster. The letter asserts such actions are required because financial challenges created by the storm could negatively impact individual credit scores for reasons that are unrelated to their creditworthiness. The state’s press release provides a phone number for consumers to call if they believe that their credit has been “unfairly impacted” by the storm.
Federal Court Holds Credit Furnisher Must Show Proof of Investigation of Consumer Dispute under FCRA
On February 22, the U.S. District Court for the District of Arizona held that a furnisher of credit information must present evidence regarding its investigation of a consumer’s credit reporting dispute in order to satisfy the FCRA dispute resolution requirements. Modica v. Am. Suzuki Fin. Servs., No. CV11-02183-PHX, 2013 WL 656495 (D. Ariz. Feb. 22, 2013). The plaintiff leased a vehicle from the defendant and did not return it at the end of the lease term. The defendant reported the account as “current/paying as agreed” after the plaintiff returned the vehicle. The plaintiff disputed this charge to the credit bureaus which contacted the defendant to notify them of the dispute and confirm the charge. The defendant eventually changed the report to show an unpaid balance with a charge-off, prompting the plaintiff to bring suit alleging breach of contract, violation of a state law regarding credit reporting, and violation of FCRA. In denying the defendant’s motion for summary judgment as to the FCRA claim, the court noted that FCRA requires a furnisher of credit information to conduct a “reasonable investigation” upon receipt of a consumer dispute. The court found that the creditor did not engage in a reasonable investigation—the defendant was unable to explain discrepancies between what it submitted to the credit reporting agencies and a letter it submitted to the plaintiff which showed she had no past due payments. In fact, the defendant was unable to say what the credit investigation entailed, a fact that precluded its claim for summary judgment.
On February 20, in remarks during the public portion of the CFPB’s Consumer Advisory Board meeting, CFPB Director Richard Cordray identified four “classes of problems” the CFPB will seek to address in the future. Mr. Cordray stated that the CFPB will focus on (i) deceptive and misleading marketing of consumer financial products and services; (ii) financial products that trigger a cycle of debt; (iii) certain markets – such as debt collection, loan servicing, and credit reporting – where consumers are unable to choose their provider; and (iv) discrimination. While the CFPB has already taken a number of enforcement actions to address the first set of problems, Mr. Cordray noted that with respect to the second class of problems the CFPB is still assessing how to deploy its various tools to best protect consumers while preserving access to responsible credit. Mr. Cordray also noted that loan servicing practices remain a concern, and again drew parallels between the mortgage servicing market and the student loan servicing market, noting that the CFPB is looking to take steps that may address the same kinds of problems faced by student loan borrowers. With respect to discrimination, Mr. Cordray argued that African-Americans and Hispanics have unequal access to responsible credit and pay more for mortgages and auto loans, and reiterated the CFPB’s commitment to utilizing the disparate impact theory of discrimination when pursuing enforcement actions.
On February 15, Senate Banking Committee members Mark Warner (D-VA) and Elizabeth Warren (D-MA) sent a letter to the CFPB and the FTC following up on the agencies’ recent reports regarding the consumer reporting market. The Senators ask for the agencies’ help in “tak[ing] further action to improve consumer credit reporting,” and request that they prepare a separate report on whether the current legal framework for the regulation of credit reporting is sufficient or whether additional legislation may be needed.
On February 11, the FTC released the results of its study of the U.S. credit reporting industry, including its finding that five percent of consumers had errors on one of their three major credit reports that could lead to them paying more for products. The study also found that (i) one in four consumers identified errors on their credit reports that might affect their credit scores; (ii) one in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed; (iii) four out of five consumers who filed disputes experienced some modification to their credit report, with slightly more than one in 10 noticing a change in their credit score after the agencies modified errors on their credit report; (iv) approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points. The main types of disputed and confirmed material errors identified by the study were errors in the trade line (consumer accounts) or collections information. The FTC report is the first major study that looks at the full range of participants in the credit reporting and scoring process, including consumers; data furnishers, which include creditors, lenders, debt collection agencies, and the court system; the Fair Isaac Corporation, which develops FICO credit scores; and the national CRAs. The FTC is required to conduct a study of credit report accuracy and provide interim reports every two years, through 2012, with a final report due in 2014. Late last year, the CFPB, which shares jurisdiction over CRAs, published a white paper on its review of how the three largest CRAs manage consumer data and complaints.
On December 13, the CFPB issued a white paper on its review of 2011 data to determine how the three largest consumer reporting agencies (CRAs) manage consumer data and complaints. According to the CFPB press release, its review of the data revealed that more than half of the trade lines (the accounts in a consumer’s name reported by creditors) in the CRAs databases are supplied by the credit card industry, with 40 percent related to bank cards, such as general credit cards, and 18 percent from retail credit cards. Only seven percent comes from mortgage lenders or servicers, and only four percent comes from auto lenders. The CFPB also reported that (i) almost 40 percent of disputes have to do with collections, and debt in collection is five times more likely to be disputed than mortgage information, (ii) fewer than one in five people obtain copies of their credit report each year, (iii) most information contained in credit reports comes from a few large companies, and (iv) most complaints are forwarded to the furnishers that provided the original information, while the CRAs resolve an average of 15 percent of consumer disputed items internally. The report adds that certain documentation provided by consumers to support their cases may not be getting passed on to the data furnishers for them to properly investigate and report back to the CRA, but the report does not offer any policy prescriptions.
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.
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.
On November 8, a bipartisan group of lawmakers released the responses of nine firms the lawmakers targeted in July 2012 as “major data brokerage companies” and from which the members sought information about how each firm collects, uses, and protects consumer data. Representative Markey (D-MA) who is leading the inquiry of these firms characterized the responses as incomplete, particularly with regard to how the firms analyze personal information to categorize and rate consumers. Last month, Senator Rockefeller (D-WV) initiated a similar review of data broker practices.
CFPB Reports Examination Findings, Updates Examination Manual, and Details Supervisory Appeals Process
The CFPB today released its first periodic Supervisory Highlights publication, along with an updated examination manual and a bulletin about the Bureau’s examination appeals process.
The Supervisory Highlights report describes the CFPB’s supervisory activity from July 2011 through September 2012, including with regard to credit cards, credit reporting, and mortgages, and “signal[s] to all institutions the kinds of activities that should be carefully scrutinized.” During its first year of conducting exams, the CFPB states that it has found compliance management system deficiencies, including with regard to fair lending compliance programs and oversight of affiliate and third-party service providers. The report also reviews nonpublic actions taken to enforce compliance with the CARD Act and FCRA, and identifies several areas of concern for mortgage originators.
Bulletin 2012-07 details the CFPB supervisory appeals process, and addresses confidentiality and the role of the CFPB Ombudsman. Finally, the updated Supervision and Examination Manual incorporates the various procedures issued since the manual first was published in October 2011, e.g. the payday lending and consumer reporting exam procedures. The updated manual also includes new references to the Code of Federal Regulations to reflect the republishing of federal consumer finance law regulations under the CFPB’s authority.
On October 22, the CFPB announced that it has begun accepting consumer complaints regarding the activities of consumer reporting agencies (CRAs). In July 2012, the CFPB issued a rule that granted the Bureau authority, effective September 30, 2012, to supervise firms with more than $7 million in annual receipts from consumer reporting activities. As part of its new supervision activities, the CFPB is seeking consumer complaints with regard to (i) incorrect information on a credit report, (ii) a consumer reporting agency’s investigation, (iii) the improper use of a credit report, (iv) being unable to get a copy of a credit score or file, and (v) credit-monitoring or identity-protection services. The CFPB encourages consumers to attempt to resolve any problems directly with the CRA before submitting a complaint to the CFPB in order to take full advantage of certain rights afforded by federal consumer financial laws.