Consumer Crossroads: Where Financial Services and Litigation Intersect

Last week, the U.S. House of Representatives passed a bill, H.R. 2547, on a strict party-line vote. Titled "The Comprehensive Debt Collection Improvement Act, the bill would amend several consumer finance statutes for the first time in decades and impose new requirements and limitations on debt collectors, among others. Its fate now rests in the U.S. Senate.

In its recent Special Edition of Supervisory Highlights on COVID-19 Prioritized Assessments, the Consumer Financial Protection Bureau (CFPB) summarized challenges and risks with respect to several industries it had informally examined since the start of the pandemic. Beginning in May 2020, the Bureau rescheduled about half of its planned examinations and instead conducted "prioritized assessments" in response to the pandemic. These assessments included seeking information on how institutions were responding and communicating with consumers, and also examining how institutions were confronting and adapting compliance in response to the pandemic.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the continuing threat posed by the coronavirus (COVID-19) pandemic. Among other provisions, the CARES Act amends the Fair Credit Reporting Act (FCRA) with the intent to stop adverse credit reporting during the period of national emergency related to the coronavirus crisis. Despite this, furnishers should be aware that their procedures for responding to consumer disputes during the crisis period should not be relaxed.

A recent Minnesota federal court decision (Hrebal v. Nationstar Mortg. LLC) joined a growing number of courts across the country in finding that a creditor's failure to mark a tradeline as disputed can violate the Fair Credit Reporting Act (FCRA) without a consumer having to prove that a reasonable investigation could have uncovered an actual inaccuracy. This trend has created a split between courts in the Fourth, Eighth, and Eleventh Circuits and the First, Fifth, Seventh, and Ninth Circuits.

In Paz v. Portfolio Recovery Associates, a debtor sued for violations of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. Within a month of filing suit, the creditor invoked Rule 68 in making a formal offer to settle, and subsequently made two additional Rule 68 offers of judgment. The debtor never responded to these settlement offers, and later rejected a final offer to settle all claims, costs and attorneys' fees for $25,000. At trial, the debtor prevailed on both of his claims, but because the jury determined he had sustained no actual damages, his total recovery was limited to $1,000 in statutory damages.

New York Governor Andrew Cuomo has issued a final regulation that requires credit reporting agencies doing business in New York to register annually with the Department of Financial Services (DFS) and also to comply with accompanying cybersecurity regulations, including the implementation of a cybersecurity program consistent with the requirements already in place for banks, insurance companies and other financial services institutions. The purpose of the new regulation is to protect New Yorkers from data breaches, such as the Equifax breach which exposed the private data of millions of individuals.

After much anticipation, Senate bill 2155—which rolls back major aspects of the Dodd-Frank law—was approved by Congress and was signed into law by President Trump.

Hinshaw obtained a significant ruling in the Seventh Circuit in Walton, which involved claims under both the FDCPA and the FCRA. The Defendant sent Deborah Walton a dunning letter, which stated she owed delinquent debt on an AT&T account. But the letter listed an invalid account number—the first three digits of the account number were transposed with the middle three digits. Walton called Defendant to dispute that the debt belonged to her, she acknowledged that her name and address were correct, but falsely denied that the last four digits of her social security number matched those given by the representative. Walton also sent a letter to Defendant asserting that she did "not own [sic] AT&T any money under the account number listed above." Defendant checked the information it had received from AT&T and sent Walton a letter reporting that, based on a records review, it had verified Walton's name, address, social security number, and the amount of the debt. Defendant also reported Walton's debt as disputed with two credit reporting agencies. Walton then disputed the debt to the credit reporting agencies, which triggered an ACDV[1] report to Defendant about Walton's dispute. The notice simply stated that the debt did not belong to her.

The year of 2017 was highly volatile for the consumer financial services industry and featured significant court rulings, regulatory changes, and other developments.

We have another court decision relying on the Supreme Court's recent Spokeo decision that found a class action plaintiff did not meet the injury-in-fact requirement under Article III of the United States Constitution. In Groshek v. Time Warner Cable, Inc., the Seventh Circuit concluded that a plaintiff's claim of statutory violations under the Fair Credit Reporting Act ("FCRA") alone did not create an injury-in-fact sufficient to establish standing to sue.

A California jury recently returned a large verdict in a Fair Credit Reporting Act ("FCRA") case which alleged that TransUnion's credit reporting confused the class consumer names with the names of criminals and terrorists on a government watch list. Five years after lead plaintiff Sergio L. Ramirez filed suit against TransUnion alleging violations of the FCRA, the consumer class was awarded statutory and punitive damages exceeding $60 million. The jury awarded each of the 8,185 class members $984.22 in statutory damages and $6,353.08 in punitive damages.