Photo of Tim J. St. George

Tim's practice includes the representation of clients in federal and state court, both at the trial and appellate level. Tim focuses his practice on the areas of complex litigation and business disputes, financial services litigation, and consumer litigation.

On Tuesday, January 23rd, from 3-4 p.m. ET, Troutman Sanders attorneys David Anthony, Cindy Hanson and Tim St. George will present a webinar examining class actions under the Fair Credit Reporting Act. These class actions have surged, and they are a favorite vehicle for plaintiff’s counsel in both federal and state court.  Because of the outsized risk posed by such actions, effective planning and aggressive defense strategies can be the difference between an individual case and a truly bet-the-company class action.  Please join three highly-experienced FCRA class action litigators as they share their tips about how to defend against such class actions, as well as strategies on avoiding class actions in the first place.

One hour of CLE credit is pending.  

To register, click here.

 

On December 20, New Jersey Governor Chris Christie signed a new bill amending the New Jersey Opportunity to Compete Act (“OTCA”) that went into effect in March 2015.  The amendment seeks to strengthen the “ban the box” legislation by adding express prohibitions as to expunged criminal records and providing clarity to the types of job applications at issue in the OTCA. It becomes effective immediately.

Under the amendment – Senate Bill 3306 – covered employers are barred from seeking information about the current and expunged criminal records of applicants during the early stages of the employment application process.  In addition to barring employers from making oral or written inquiries, the amendment also bars employers from doing online searches for an applicant’s criminal record or expunged criminal record.

The OTCA applies to employers with fifteen or more employees over twenty calendar weeks who do business, employ persons, or take applications for employment within New Jersey.  Those employers may ask about criminal records and any expungements after the initial employment application process, such as after the interview.  While New Jersey law does not prohibit employers from refusing to hire an individual because of his or her criminal history, under Senate Bill 3306, employers may not refuse to hire an applicant because of a criminal record that has been expunged or erased through executive pardon, unless the refusal is consistent with other applicable laws, rules and regulations.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

The Moore v. Rite Aid Headquarters Corp. case has a long history of addressing significant questions regarding an employer’s adverse action responsibilities under the Fair Credit Reporting Act.  That history recently ended in the District Court for the Eastern District of Pennsylvania, with a dismissal of Moore’s claims and a denial of her motion for class certification.  In its December 21 opinion, the court found that Moore could not show that she had suffered an injury-in-fact stemming from her claim that Rite Aid failed to provide her with adequate notice before declining her employment.

Moore had applied for employment with Rite Aid and, as part of the application process, Rite Aid obtained a background check on her.  Based on this background check, Moore was initially determined to be “ineligible for hire,” which triggered the mailing of a pre-adverse action letter to her.  In this letter, Rite Aid informed Moore that she would not be offered employment if Rite Aid did not hear from her within five business days from the date of receipt of the letter.  After receiving the pre-adverse action letter, Moore contacted Rite Aid to discuss her background.  Despite this conversation, Moore was mailed an adverse action letter exactly five business days after the date of the pre-adverse action letter.  This adverse action letter informed Moore that she would not be hired.

In her lawsuit, Moore alleged that Rite Aid violated the pre-adverse action provision of the FCRA (15 U.S.C. § 1681b(b)(3)) by taking adverse action against her without waiting the “full five day period” set forth in the pre-adverse action letter.  The court dismissed her claim, finding that Moore had not suffered any injury-in-fact based on Rite Aid’s conduct.

According to the court, the FCRA’s pre-adverse action requirements are designed to “afford employees time to discuss reports with employers or otherwise respond before adverse action is taken.”  That is exactly what happened here.  In the court’s view, Moore was able to discuss her background report with Rite Aid after she received the pre-adverse action letter and before Rite Aid made the final decision not to hire her.  According to the court, even if Rite Aid had failed to wait the full five-business-day period referenced in the pre-adverse action letter, the retailer did not violate Moore’s rights under the FCRA.  She exercised her right to dispute her background report, Rite Aid heard her version of events, and it did not act unreasonably “in making a final employment decision prior to the expiration of the five days referenced in the Pre-Adverse Action Notice.”

Based on its analysis, the court concluded that Moore had “not suffered a concrete harm to her procedural rights under the FCRA.”  As a result, it dismissed her claim for lack of standing.  In doing so, the court advanced a reasonable reading of the FCRA.  Its dismissal stands for the proposition that a defendant should not be held liable in federal court for a technical FCRA violation where the plaintiff experienced no actual negative consequences as a result.

On December 14, the Consumer Financial Protection Bureau officially withdrew a proposal to conduct a web-based consumer survey on the various debt collection disclosures required by the Fair Debt Collection Practices Act. According to the accompanying Notice of Action, the proposal was withdrawn at the CFPB’s request because the “Bureau leadership would like to reconsider the information collection in connection with its review of the ongoing related rulemaking.”

Published in June 2017, the purpose of the survey was to “explore consumer comprehension and decision making in response to debt collection disclosure forms” by collecting 8,000 completed surveys from targeted groups of participants. These groups would have included both individuals who have experienced debt collections in the past 24 months as well as a random sample of those with no such debt collections in the same timeframe. The CFPB expected the results of the survey to yield information regarding the clarity of debt disclosure forms as well information that would benefit the future development of effective debt collection disclosures. The estimated cost of the survey was set at just over $371,500.

Public comments on the proposal included submissions from the Association of Credit and Collection Professionals, the Consumer Bankers Association, the National Consumer Law Center, and the American Bankers Association. Most comments were critical of the proposed survey for failing to include the specific disclosures it was using as a basis for the survey questions. The commentators also pointed to certain methodological flaws within the survey that should be improved prior to implementation. In the end, the CFPB decided to scrap the proposed survey rather than implement the suggested changes.

Troutman Sanders will continue to monitor the activities of the CFPB under its new leadership and will report on any future developments.

On January 1, 2018, California Government Code § 12952 goes into effect.  § 12952 is yet another state law that regulates how employers can use criminal background checks in the hiring process.  Although state laws governing this practice have become commonplace, § 12952 is unique in that it contains new requirements as to what a potential employer must include in a pre-adverse action letter to job applicants – beyond what the federal Fair Credit Reporting Act (“FCRA”) already mandates.  California employers should review their forms to ensure they comply with this new California requirement.

When a potential employer is considering not hiring a job applicant based on information the employer learns from a criminal background check (among other types of background checks), the employer must follow the FCRA’s pre-adverse action protocol.  Under this protocol, the employer must provide the applicant with a copy of the background check and an FCRA summary of rights before making a final employment decision regarding the applicant.  This gives the applicant the opportunity to review the background check and point out any errors he or she believes exist.  Employers often deliver this information to applicants with a pre-adverse action letter, which typically informs the applicant about the possibility of adverse action.  Importantly, the FCRA does not require any specific content in the pre-adverse action letter.  The FCRA does not even require a letter at all.

California Government Code § 12952 changes that for Californians.  Under this new code section, the employer must provide the applicant with specific written notifications regarding the potential adverse action.  These notifications include the following:

  • Notification that the employer has made a “preliminary decision that the applicant’s conviction history disqualifies the applicant from employment;”
  • Notification of the disqualifying conviction or convictions that are the basis for the preliminary decision to rescind the offer of employment;
  • A copy of the conviction history report, if any; and
  • An explanation of the applicant’s right to respond to the notice of the employer’s preliminary decision before that decision becomes final and notification of the deadline by which the applicant may respond.  This explanation must inform the applicant that the response may include the submission of evidence challenging the accuracy of the conviction history report that is the basis for rescinding the offer, evidence of rehabilitation or mitigating circumstances, or both.

The employer may also explain its reasoning in making the preliminary decision, but that statement of reasoning is not required.

These pre-adverse action mandates are only a sampling of § 12952’s new requirements.  The legislation includes specific restrictions on when an employer can use criminal record information in the employment process, restrictions on the type of information an employer can use, and restrictions on the way an employer can use such information.  The statute also includes specific requirements for the adverse action letter (as opposed to the pre-adverse action letter) above and beyond what the FCRA requires.

With the new requirements poised to take effect, multistate employers should pay close attention to their pre-adverse action and adverse action letters to ensure they comply with this new California law.  That is especially true here, as § 12952 is one of the first state laws to regulate the content of these letters.

On November 8, the Eastern District of New York rendered an opinion granting Credit Control Services’ motion to dismiss plaintiff Yendy Cruz’s claim. Specifically, the Court found Credit Control’s collection letter was not false or misleading under the Fair Debt Collection Practices Act because Credit Control was not including either interest or fees on its balance listed in its collection letter under either N.Y. C.P.L.R. § 5001 or the underlying credit documents.  

In Cruz v. Credit Control Servs., originally filed in New York state court, Cruz alleged Credit Control sent her a debt collection letter listing a balance owed after the words “amount of debt” but failed to disclose whether interest or fees were accruing on the debt. Cruz contended such a disclosure was necessary because Credit Control had the right to collect pre-judgment interest on the debt under N.Y. C.P.L.R. § 5001 as well interest and fees through the underlying credit documents. Cruz alleged Credit Control’s failure to include the disclosure made the collection letter false and misleading to the least sophisticated consumer. She also alleged Credit Control used unfair and unconscionable means to collect the debt and that Credit Control falsely represented itself in the collection letter. Credit Control moved to dismiss the Complaint because it never requested pre-judgment interest on Cruz’s balance.  Further, Credit Control contended the letter clearly stated that if the amount listed in the letter was paid, Credit Control would consider the claim settled in full. 

In holding for Credit Control, the Court noted statutory pre-judgment interest can only be awarded by a court upon a petition by the judgment creditor. Since Credit Control had not filed a lawsuit, the Court found that, as a matter of law, pre-judgment interest could not be accruing on Cruz’s debt. Further, the Court found the letter clearly laid out steps a debtor would have to take to satisfy the debt. 

The Court was also unmoved by Cruz’s argument that the Second Circuit’s decision in Avila v. Riexinger applied because she failed to allege that interest or fees were accruing on the debt. The Court recognized that the facts in this case were “fundamentally distinguishable” from that in Avila. For those reasons, the Court dismissed Cruz’s current balance claims. 

In dismissing Cruz’s unconscionable conduct claim, the Court held that Cruz had failed to allege any additional conduct beyond what was alleged to support her current balance claims. This fact was fatal to Cruz’s claim that Credit Control’s actions were unfair or unconscionable. 

As an aside, the Court recognized that Cruz filed an identical claim in the same court. Since the Court had specifically addressed the same allegations in deciding the current action, it resolved the second case in favor of Credit Control. 

Troutman Sanders will continue to monitor this case as well as other current balance decisions as the district courts of New York review this issue further. Updates will be provided as they become available.

The New York Department of State’s Division of Consumer Protection recently implemented an “Identity Theft Prevention and Mitigation Program” and adopted emergency regulations, effective immediately.  According to the Division, the program is intended to “(1) inform consumers about how to protect their personal identifying information; (2) help consumers prevent identity theft, including taking steps to protect their identities once their personal identifying information has been compromised, and (3) help consumers mitigate issues related to the theft of their identities.”

The regulations, a copy of which is available here, establish requirements and procedures to provide consumers with “the means to protect themselves against identity theft and to assure appropriate assistance and complaint resolution mechanisms are in place for the protection and repair of their financial and credit history in the event their personal identifying information has been compromised.”

The regulations apply to any consumer credit reporting agency “that regularly engages in the practice of assembling or evaluating and maintaining, for the purpose of furnishing consumer credit reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, public record information and credit account information from persons who furnish that information regularly and in the ordinary course of business.”

Under the regulations, consumer credit reporting agencies are required to comply with any written requests for “documentation and/or records” from the Division of Consumer Protection within ten days.  Section 226.5 envisions that the Division, while acting on behalf of a consumer to “investigate, mediate and/or mitigate an identity theft complaint” may require “substantiating and/or supporting documentation and/or records” from a consumer credit reporting agency.

In addition, under Section 226.6, each consumer credit reporting agency operating within New York state is “required to file with the Department such information as the Division finds necessary to effectively administer the Program.”  Such information includes the following:

(a)   the name of the consumer credit reporting agency;

(b)   the principles and officers of the consumer credit reporting agency;

(c)   the direct contact information for an individual or individuals within the consumer credit reporting agency available to the Division during regular business hours;

(d)   the direct contact information for an individual or individuals within the consumer credit reporting agency available to the Division within 24 hours of a notification of a security breach pursuant to GBL §399-aa(8)(a);

(e)   contact information available to consumers, including the consumer credit reporting agency’s web address, telephone number, and email address;

(f)    a listing of all proprietary products offered by the consumer credit reporting agency to consumers for the prevention or mitigation of identity theft, any and all fees associated with the purchase of or subscription to such products, and the contractual provisions and disclosures in relation to such purchase or subscription, including but not limited to scope of services, liability for negligent or erroneous provision of services, and cancellation requests;

(g)   a listing and description of all business affiliations and contractual relationships with any other entities, where such business affiliations or contractual relationships relate to the provision of any products or services advertised to consumers as products or services available for the prevention or mitigation of identity theft; and

(h)   the consumer credit reporting agency’s D-U-N-S number.

Violations of the regulations can be referred to the Office of the New York Attorney General, the Department of Financial Services, or any other appropriate law enforcement or regulatory entity for action.

Troutman Sanders will continue to monitor related developments concerning the emergency regulations and their applicability to the credit reporting industry.

On November 27, the City Council for Spokane, Washington made that city the newest locality to approve a “ban the box” ordinance, which would prohibit employers from requesting criminal or arrest records to make decisions on employment until after an in-person interview.  The vote passed 5-2.  The mayor of Spokane has until December 14, 2017 to veto or sign the ordinance.

The ordinance only applies to those applying for positions within the Spokane city limits.  It is broad enough to cover all types of work, including “temporary or seasonal work, contracted work, contingent work and work through the services of a temporary or other employment agency; or any form of vocational or educational training, whether offered with or without pay.”  Notably, the ordinance has a carve-out exception aimed at local school employees that allows businesses hiring employees who will work with unsupervised children to continue to ask about criminal histories. There is also a Washington state law that requires school employees to complete a background check.

If passed, Spokane employers will have until July 2018 to comply with the new ordinance, although the city will not enforce it until 2019.  A violation of the ordinance is a class 1 civil infraction, with a fine of $261. The City may double the infraction penalty for any subsequent violations.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

In Long v. Southeastern Pennsylvania Transportation Authority (“SEPTA”), the Third Circuit is set to rule on a challenge to the named plaintiffs’ lack of Article III standing in a Fair Credit Reporting Act putative class action.

As we previously reported, in Long the named plaintiffs alleged that SEPTA violated the FCRA by failing to provide job applicants with a clear and conspicuous disclosure that a consumer report may be obtained about the applicant for employment purposes, and by failing to provide the plaintiffs with a pre-adverse action letter and copy of the consumer report before revoking their conditional offers of employment.  The plaintiffs did not allege that their consumer reports were inaccurate in any way.  SEPTA filed a motion to dismiss, arguing that the plaintiffs failed to allege facts sufficient to satisfy the standing requirements under Spokeo.  The United States District Court for the Eastern District of Pennsylvania granted SEPTA’s motion to dismiss, holding that the “Plaintiffs’ allegations amount to bare procedural violations without concrete harm.”

The plaintiffs appealed the Court’s decision, arguing that the district court erred in finding that they lacked standing under Article III.  The Third Circuit held oral arguments on December 12.  Counsel for the plaintiffs specifically argued that the district court’s decision creates an impossible pleading requirement by requiring plaintiffs to show that the consumer reports (of which they never received copies) contained inaccurate information that harmed their employment prospects.

The Third Circuit took the matter under advisement after the hearing.  We will continue to monitor the case for a final decision.

On December 5, a Court of Appeals for the state of Ohio affirmed dismissal of a putative FCRA class claim against Ohio State University on the basis that the plaintiffs lacked standing to assert their no-injury, statutory claim in Ohio state court.  The state appellate court declined to adopt a “statutory standing” doctrine in Ohio that would allow standing for a federal statutory claim without the existence of an alleged injury-in-fact.

Background

In 2012 and 2014, OSU hired the plaintiffs as a facility manager and a housekeeper. In October 2015, the plaintiffs, individually and on behalf of a class of others similarly situated, filed suit against OSU under the FCRA. They alleged that as part of their application and hiring process, OSU provided a background check disclosure and authorization to each of them that improperly included extraneous information and a liability release in violation of 15 U.S.C. § 1681b(b)(2)(A)(ii).

The following month, OSU removed the action to the United States District Court for the Southern District of Ohio, Eastern Division, based on federal question jurisdiction. In June 2016, the federal court found that appellants failed to allege that they sustained any injury-in-fact due to OSU’s alleged violations of the FCRA, and that they therefore lacked standing under Article III of the United States Constitution. Consequently, the federal court remanded the matter to the Ohio trial court pursuant to 28 U.S.C. 1447(c).

In July 2016, OSU moved to dismiss the action in the Ohio trial court based on its contention that the appellants lacked standing to bring their claims in Ohio state court because they alleged no injury-in-fact resulting from violations of the FCRA. In response, the appellants argued that Ohio law recognizes standing even in the absence of an injury-in-fact, when that standing is conferred by statute. In February 2017, the Ohio trial court dismissed the appellants’ claims against OSU based on its conclusion that they failed to plead any particularized injury-in-fact and lacked statutory standing to pursue their claims in the absence of a cognizable injury. The plaintiffs appealed.

Appellate Ruling

Noting the instructive ruling by the United States Supreme Court in Spokeo, the Court of Appeals of Ohio stated that the plaintiffs were relying on a concept of “statutory standing” that, according to the plaintiffs, provided standing to sue for a statutory violation “even in the absence of an alleged injury-in-fact.” The appellate court nevertheless disagreed with that argument, adding:

Ohio and federal law have diverged on the issue of whether a party may have standing to sue in the absence of an injury-in-fact. However, even though Ohio courts have, in some circumstances, found standing despite no allegation of concrete injury, appellants fail to cite, and our independent research does not reveal, any case in which an Ohio court has analyzed and found standing to exist on the basis of a federal statute despite the absence of an alleged injury-in-fact.

Ultimately, “[t]o the extent the ‘statutory standing’ doctrine constitutes an exception to the traditional principles of standing in Ohio,” the Ohio appellate court declined “to extend that exception to this circumstance involving the application of a federal statute.”

To find statutory standing here, the court said that it “would need to find that Congress intended to abrogate the Ohio common-law requirements to establish standing.” Yet, “there [was] no indication that Congress intended the pertinent FCRA statute to supplant the traditional requirements of standing in Ohio state court. Further, such a finding would be improper as it would permit Congress to affect the parameters of standing in Ohio courts, even though it is well-settled that Ohio law determines standing in Ohio courts.”

Troutman Sanders will continue to monitor these developments, especially as they relate to Spokeo and its progeny, and provide any further updates as they are available.