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  • CFPB releases semi-annual report

    Federal Issues

    On April 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning April 1, 2021 and ending September 30, 2021. The report, which is required by Dodd-Frank, addresses several issues, including difficulties faced by consumers in obtaining consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) taken steps to increase workforce and contracting diversity; (ii) carefully observed consumer reporting agencies’ and furnishers’ compliance with Fair Credit Reporting Act accuracy obligations relating to rental information, and outlined specific areas of focus and concern; (iii) hosted a roundtable examining racial bias in home appraisals; (vi) expanded housing efforts into a comprehensive, cross-federal campaign aimed at connecting homeowners and renters facing housing insecurity as a result of the Covid-19 pandemic with the resources available to help them stay in their homes; and (v) launched an initiative to reduce fees that consumers are charged by banks and financial companies. In regard to supervision, enforcement and fair lending, the report highlighted its public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information and proposed and final rules.

    Federal Issues CFPB Consumer Finance FCRA Dodd-Frank Discrimination Appraisal Covid-19 Supervision Fair Lending Enforcement

  • 3rd Circuit confirms adversary proceeding required to discharge student debt in bankruptcy

    Courts

    On March 25, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s dismissal of an FDCPA and FCRA case against a student loan servicer and three credit reporting companies for attempting to collect a loan debt after it had been discharged in bankruptcy. After the discharge and completion of his bankruptcy case, the plaintiff filed suit, alleging the defendants violated the FDCPA and the FCRA by attempting to collect student loan debt that had been discharged. The district court granted the defendants’ motion to dismiss, ruling that the plaintiff failed to state a claim because under Section 523(a)(8) of the Bankruptcy Code, student loan debt is presumptively non-dischargeable and the plaintiff had not filed an adversary proceeding to determine otherwise.

    On appeal, the plaintiff “argued that he was not required to file an adversary proceeding in Bankruptcy Court to determine the dischargeability of his student loan debt,” and that the Bankruptcy Court’s determination that the plaintiff was indigent rebuts “the presumption that his debt was nondischargeable by satisfying the exception in §523(a)(8) for undue hardship.” However, the appellate court held that “a finding of indigence is not the same as an undue hardship determination under §538(a)(8)” and that while the Bankruptcy Code does not require an adversary proceeding to discharge student loan debt, the procedures established in the Bankruptcy Rules do include such a requirement by providing that adversary proceedings include “a proceeding to determine the dischargeability of a debt” and are commenced by serving a summons and complaint on affected creditors. Accordingly, the appellate court affirmed dismissal.

    Courts Appellate Third Circuit Bankruptcy Consumer Finance Student Lending FDCPA FCRA Credit Reporting Agency

  • CFPB proposal would limit negative credit reporting on human trafficking victims

    Federal Issues

    On April 7, the CFPB released a proposed rule and solicited comments on regulations implementing amendments to the FCRA intended to assist victims of trafficking. The proposed rule would establish a method for a trafficking victim to submit documentation to consumer reporting agencies (CRAs) establishing that they are a survivor of trafficking, and would require CRAs to block adverse information in consumer reports after receiving such documentation.  The proposed rules would amend Regulation V to implement changes to FCRA enacted in the National Defense Authorization Act for Fiscal Year 2022, also referred to as the “Debt Bondage Repair Act,” which was signed into law in December 2021. (Covered by InfoBytes here). Under the law, CRAs are prohibited “from providing consumer reports that contain any negative item of information about a survivor of trafficking from any period the survivor was being trafficked.” In announcing the proposal, the CFPB noted that “Congress required the CFPB to utilize its rulemaking authorities to implement the Debt Bondage Repair Act through rule changes to Regulation V, which ensures consumers’ credit information is fairly reported by CRAs.” According to the CFPB, the proposal “would protect survivors of human trafficking by preventing CRAs from including negative information resulting from abuse.” Comments are due 30 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance CFPB Federal Register Consumer Finance Consumer Reporting Agency FCRA Regulation V Consumer Reporting

  • CFPB’s UDAAP claims to proceed against mortgage lender

    Courts

    On March 31, the U.S. District Court for the District of Columbia mostly denied motions to dismiss filed by a mortgage lender and four executives (collectively, “defendants”) sued by the CFPB for allegedly engaging in unlawful mortgage lending practices. As previously covered by InfoBytes, the Bureau filed a complaint last year against the defendants alleging violations of several federal laws, including TILA and the CFPA. According to the Bureau, (i) unlicensed employees allegedly offered and negotiated mortgage terms; (ii) company policy regularly required consumers to submit documents for verification before receiving a loan estimate; (iii) employees denied consumers credit without issuing an adverse action notice; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of FHA streamlined refinance loans. 

    The mortgage lender had argued in its motion to dismiss that neither TILA nor the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) required the lender to ensure that its individual employees were licensed under state law. In denying the motions to dismiss, the court disagreed with the lender’s position stating that in order for a mortgage originator to comply with TILA, it must also comply with Bureau requirements set out in Regulation Z, including a requirement that “obligates loan originator organizations to ensure that individual loan originators working for them are licensed or registered as required by state and federal laws.”

    The court also concluded that the individual defendants must face claims for allegedly engaging in unfair or deceptive practices. The Bureau contended that the company’s chief compliance officer had warned the individual defendants that certain unlicensed employees were engaging in activities requiring licensure, and that the company’s owners approved the business model that permitted the underlying practices. According to the court, an individual “engages” in a UDAAP violation if the individual “participated directly in the practices or acts or had authority to control them” and “‘had or should have had knowledge or awareness’ of the misconduct.” The court rejected defendants’ arguments that it was improper to adopt this standard, and stated that “the fact that a separate theory of liability exists for substantially assisting a corporate defendant’s UDAAP violations has no bearing on how courts evaluate whether an individual defendant himself engaged in a UDAAP violation.”

    While the court allowed the count to continue to the extent that it was based on allegations of unlicensed employees performing duties that would require licensure, it found that the complaint did not support an inference that the individual defendants knew that the employees were engaging in activities to make it appear that they were licensed. The court provided the Bureau an opportunity to replead the count to provide a stronger basis for such an inference.

    Courts CFPB Mortgages UDAAP Deceptive Enforcement TILA FCRA ECOA MAP Rule CFPA Regulation Z Unfair

  • District Court: Consumer must notify furnisher directly to remove dispute notification from credit report

    Courts

    On March 21, the U.S. District Court for the Western District of Tennessee granted a Pennsylvania-based student loan servicer’s (defendant) motion for judgment on the pleadings, ruling that the servicer did not violate the FCRA when furnishing information to a credit reporting agency (CRA) that contained a notation of an “account in dispute” because the plaintiff submitted the removal request only to the CRA and not to the defendant itself. The plaintiff contended that his account was still being reported as in dispute even though he sent a letter to the CRAs indicating that he no longer disputed the tradelines and requesting that the dispute notification be removed. The CRAs forwarded the plaintiff’s dispute to the defendant. Several months later the plaintiff noticed the account was still being reported as in dispute on his credit report. The plaintiff sued, alleging the defendant violated Sections 1681s-2(b) and 1692s-2(b)(1) of the FCRA by, among other things, willfully failing to conduct a reasonable investigation after it received notice from the CRAs of the dispute. The court disagreed, pointing to caselaw which states that if a consumer wants to remove a dispute notification from his or her credit report, the consumer must alert the furnisher—not just the CRA. The court also referenced FTC guidance, which informs consumers that in order to correct mistakes on their credit reports they need to contact both the credit bureau and the furnisher that reported the inaccurate information. Additionally, the court wrote that “a defendant cannot, as a matter of law, fail to conduct a reasonable investigation under § 1681s-2(b) where the plaintiff never terminates the dispute directly with the furnisher, regardless of to whom the plaintiff initially disputed the account.”

    Courts FCRA Consumer Finance Student Lending Student Loan Servicer Credit Reporting Agency Credit Report

  • District Court partially grants motion for class certification

    Courts

    On March 4, the U.S. District Court for the Eastern District of California granted in part a consumer plaintiff’s motion for class certification after denying the defendant credit reporting agency’s motion for summary judgment in an FCRA and California Consumer Credit Reporting Agencies Act (CCRAA) suit. The plaintiff, on behalf of the class, alleged that the defendant “failed to follow reasonable procedures to assure the maximum possible accuracy of the consumer information included in its OFAC Check documents” and “failed to disclose upon request all information in consumer files,” in violation of CCRAA and the FCRA. Additionally, the plaintiff alleged that the defendant “failed to reinvestigate the disputed OFAC-related information that it had prepared and sold” to its clients. In granting in part the plaintiff’s motion for class certification, the district court quoted the U.S. Supreme Court case TransUnion LLC v. Ramirez, which ruled that only a plaintiff concretely harmed by a defendant’s violation of the FCRA has Article III standing to seek damages against a private defendant in federal court (covered by InfoBytes here). In referencing TransUnion LLC v. Ramirez, the district court noted that “[the plaintiff] and the putative class members incurred the ‘same or similar injury’ in that they suffered ‘concrete reputational harm’ from the ‘same conduct’ of [the defendant].” The district court further noted that as a basis for class typicality, “[e]ven if [the plaintiff’s] injuries were slightly more severe than some class members’ injuries, [the plaintiff’s] injuries still arose ‘from the same event or practice or course of conduct that [gave] rise to the claims of other class members and [his claims were] based on the same legal theory.’” Consequently, the district court certified the class with respect to plaintiff’s FCRA allegations for statutory damages and CCRAA claims for injunctive relief. However, the district court denied class certification with respect to plaintiff’s CCRAA allegations for statutory damages, noting that “[t]he CCRAA, unlike the FCRA, requires a showing of actual harm where, as here, the plaintiff is seeking statutory punitive damages” because “individual issues will predominate.”

    Courts OFAC FCRA Class Action California State Issues Consumer Finance

  • CFPB investigates employer-driven debt and the sale of workers’ personal data

    Federal Issues

    On March 9, the CFPB published findings from a recent roundtable event where worker organizations and labor unions shared their members’ financial hardships and challenges. According to the Bureau’s blog post, more workers are reporting that they are responsible for paying for employer-mandated training and equipment, causing workers to owe significant debt to their employers or third-party debt collectors and making it difficult for them to change jobs. The Bureau stated it will continue to analyze information about employer-driven debt and employer/third-party collection efforts to best determine how to address consumer harm and any potential violations of federal consumer financial law, and will participate in the Truck Leasing Task Force with the Departments of Transportation and Labor to investigate predatory financial arrangements.

    Organizations also reported concerns related to surveillance technology and the sale of personal data, including how information is being “compiled and used for decision-making that may impact workers’ financial well-being far beyond their current employers.” One participant explained that workers may not be aware that tools designed to track hours worked across different platforms also have the capability to track them outside of working hours and are selling access to their data to financial institutions, insurers, and other employers. The Bureau also heard from participants about data firms that are collecting and selling workers’ data that “may not be following the appropriate protocols for privacy and transparency.” The Bureau emphasized that it will “closely monitor and better understand this emerging market along with our federal partners and assess where provisions of the Fair Credit Reporting Act and other consumer protection laws may protect workers.”

    Federal Issues CFPB Consumer Finance Privacy/Cyber Risk & Data Security FCRA

  • District Court partially grants defendant’s motion in FCRA case

    Courts

    On February 25, the U.S. District Court for the Eastern District of Pennsylvania denied in part and granted in part a defendant’s motion for summary judgment in an FCRA case. According to the opinion, the plaintiffs applied for a loan at a bank to refinance their home mortgage and the bank then engaged a service agency (defendant) to conduct a public records search and provide a report on the plaintiffs. To prepare the report, the defendant allegedly engaged an independent contractor to conduct a physical search of both the open judgment directory and the municipal lien directory. The plaintiffs claimed that the defendant’s report “erroneously” listed outstanding civil judgments against them and that defendant refused to investigate the alleged inaccuracies. The plaintiffs filed suit, alleging that the defendant violated the FCRA by failing to follow reasonable procedures to assure maximum possible accuracy when preparing a consumer report and by failing to conduct a reasonable reinvestigation of the plaintiffs’ dispute.

    The defendant moved for summary judgment, asserting that it was not subject to the FCRA as a matter of law since it was not a consumer reporting agency and that it did not supply “consumer reports” within the meaning of the FCRA. Additionally, the defendant claimed that even if it was subject to the FCRA, no reasonable juror could find that it violated either of those FCRA provisions. The district court found that the defendant is a “consumer reporting agency” under FCRA because its operations met the statutory definition. The court partially granted the defendant’s summary judgment on the plaintiffs’ claims that it willfully violated the FCRA by failing to conduct a reasonable reinvestigation of the plaintiffs’ dispute.

    Courts FCRA Consumer Reporting Consumer Reporting Agency Consumer Finance

  • 9th Circuit affirms judgment for defendant in FCRA suit

    Courts

    On March 1, the U.S. Court of Appeals for the Ninth Circuit affirmed dismissal in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by failing to disclose certain information about a consumer. The plaintiffs were originally part of a class action alleging FCRA disclosure violations against the defendant, but that case was dismissed. Instead of appealing the suit, three plaintiffs brought a separate proposed class action. The defendant removed the case to federal court and filed a motion to dismiss based on a failure to state a claim. Though the case was again dismissed, the plaintiffs were granted leave to amend their complaint. In their First Amended Complaint, the plaintiffs argued that under the FCRA, the disclosures they received from the defendant did not include, among other things: (i) behavioral data; (ii) “soft inquiries” not initiated by the consumer; (iii) the identity of parties procuring consumer reports; and (iv) the date on which employment data was reported. The district court found that the defendant was not obligated to include the behavioral data in its disclosure since the information alleged to have not been disclosed was not part of the consumer’s “file” under the FCRA and was not information that was or might be furnished in a consumer report.

    On appeal, the 9th Circuit noted that “none of the information [the plaintiffs] contend [the defendant] failed to disclose is of the type that has been included in a consumer report in the past or is planned to be included in such a report in the future.” The appellate court also noted that “the date employment dates were reported can have no ‘bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal, characteristics, or mode of living.’” Since the district court found that the data that the consumers alleged the defendants failed to include in its disclosures is actually not subject to disclosure under the FCRA, the appellate court affirmed the district court’s dismissal.

    Courts Appellate Ninth Circuit FCRA Consumer Reporting Agency Disclosures

  • CFPB looks at removing medical debt from credit reports

    Federal Issues

    On March 1, the CFPB announced plans to review whether data on unpaid medical bills should be included in consumer credit reports. The Bureau stated in its report, Medical Debt Burden in the United States, that research found $88 billion in medical debt on consumer credit reports, accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe,” CFPB Director Rohit Chopra said in a statement.

    The Bureau noted that medical debt is often less transparent than other types of debt, due to opaque pricing, complicated insurance, charity care coverage, and pricing rules, reporting that in many instances, consumers may not even sign a billing agreement until after receiving treatment. Medical debts often end up in collections, the Bureau added, which can cause far-ranging repercussions even if the bill itself is inaccurate or erroneous. The report noted additional challenges for uninsured consumers, as well as for Black and Latino families, consumers with low incomes, veterans, older adults, and young adults of all races and ethnicities. The report further stated that the Covid-19 pandemic has exacerbated the situation, with costs and medical debt expected to increase post-pandemic, and found that medical debt weakens underwriting accuracy, as it is less predictive of future repayment than reporting on traditional credit obligations. The Bureau pointed out that it has seen dramatic effects when newer credit scoring models weigh medical collections tradelines less heavily, but noted that there has been very little adoption of this approach so far.

    The Bureau stated it intends to examine CRAs to ensure they are collecting accurate information from medical debt collectors and expects CRAs to take action against furnishers who routinely report inaccurate information, including cutting off their access to the system. The Bureau also plans to work with the Department of Health and Human Services to make sure consumers are not forced to pay more than the amount due for medical debt. A January compliance bulletin reminded debt collectors and CRAs of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act. The Bureau also recently supported changes by the Department of Veterans Affairs to amend its regulations related to the conditions by which VA benefit debts or medical debts are reported to CRAs. (Covered by InfoBytes here and here.)

    Federal Issues CFPB Consumer Finance Medical Debt Credit Reporting Agency Covid-19 FDCPA FCRA Department of Veterans Affairs Department of Health and Human Services Debt Collection

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