2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.


On January 5, Troutman Sanders filed an amicus brief on behalf of the National Association of Professional Background Screeners (“NAPBS”) in support of Spokeo, Inc.’s second petition for certiorari to the United States Supreme Court in Spokeo, Inc. v. Robins (U.S. No. 17-806).  The new petition requests that the Court revisit its prior ruling and add clarity to the divergence in lower court rulings over the past two years.

The NAPBS’s amicus brief contends that the Ninth Circuit’s Spokeo decision on remand misapplied the Court’s instruction to limit federal court jurisdiction to actual cases and controversies under Article III by allowing plaintiffs to file technical, no-injury claims or claims based on bare procedural violations.  In the class action context, such technical claims led to in terrorem settlements under the FCRA’s statutory damages scheme which does not cap the damages multiplier in a class case.  The NAPBS and its members “face a practical reality in which ruinous potential liability and litigation expense grossly outweigh any harm actually caused to consumers – which oftentimes is no injury whatsoever.”  In turn, the divergence in interpretations of Spokeo I coupled with the ability to command in terrorem settlements has resulted in forum shopping by plaintiffs in favorable jurisdictions like the Ninth Circuit.  “Clarity is warranted,” according to the NAPBS.

The NAPBS is a trade association representing over 900 small and large background screening firms whose mission is to advance excellence in the screening profession and provide a unified voice in the development of national, state, and local regulation of professional screening services.

A copy of the amicus brief can be found 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.

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.

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 8, the United States Supreme Court agreed to decide whether the tolling rule adopted in American Pipe & Construction Co. v. Utah i.e., that the filing of a class action tolls the limitations period for a purported class member’s individual claims – permits a previously absent class member to bring a subsequent and otherwise untimely class action.

The federal appellate courts have split on that question.  The First, Second, Third, Fifth, Eighth, and Eleventh circuits have held that American Pipe tolling only permits subsequent individual actions.  However, the Sixth, Seventh, and Ninth circuits have held that American Pipe tolling also permits subsequent class actions.

In the case before the Supreme Court, China Agritech Inc. v. Resh, shareholders of China Agritech filed a putative class action alleging that the company committed securities fraud.  China Agritech moved to dismiss, arguing that the putative class action was filed after the applicable two-year limitations period had lapsed and was thus untimely.  In response, the plaintiffs argued that, under American Pipe, the action was timely because the limitations period was tolled during the pendency of two earlier-filed but defective class actions against the same defendants based on the same underlying events.

The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely, but the Ninth Circuit reversed the district court’s decision.

The Ninth Circuit noted that the American Pipe tolling rule was adopted to “promote economy in litigation” and that, absent tolling, “[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.”  Relying in large part on that rationale, the Ninth Circuit then held that “once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied,” and that, at that point, members of the putative class are entitled to bring individual suits “either separately or jointly.”

In urging the Court to grant certiorari, China Agritech argued that the Ninth Circuit’s decision would lead to forum shopping.  The U.S. Chamber of Commerce agreed, arguing that the Ninth Circuit’s decision “erroneously extends a judicially created tolling doctrine to effectively eliminate Congressionally mandated statutes of limitations.”

The Court is expected to issue a decision in the case before the end of its term in June 2018.

L3 Technologies, Inc., a military contractor, was recently hit with a Fair Credit Reporting Act putative class action in California federal court, alleging that it violated the “stand-alone” disclosure requirement in its background reports.

According to the complaint, plaintiff Joseph Estes was hired by L3 and worked as a mechanic for the company in California.  During the application process, Estes filled out a “Background Investigation Consent” form permitting L3 to obtain a background report on him.  Estes claims that L3 “unlawfully inserted liability release provisions” into this form, in violation of the FCRA’s requirement that businesses obtaining a consumer report for employment purposes must notify the applicant of that request “in a document consisting solely of the disclosure.”

Estes seeks to represent a nationwide class of persons “who filled out [L3’s] standard ‘Background Investigation Consent’ form that included an authorization and a liability release clause” since November 21, 2012.

This case is the latest in a string of class actions based on the FCRA’s stand-alone disclosure requirement.  These class actions have affected every type of industry, including car rental companies, courier services, fast food restaurants, and food stores.

The case is Estes v. L3 Technologies, Inc., Civil Action No. 3:17-cv-02356 (S.D. Cal.).  We will continue to monitor the case for developments.

The Fair Credit Reporting Act regulates more than credit.  It includes provisions that govern employers who obtain consumer reports on applicants in connection with the application process.  One such provision deals with the disclosure that an employer must provide to an applicant before obtaining a background check.  According to the FCRA, the employer must provide the applicant with a clear and conspicuous disclosure, consisting solely of the disclosure, that a background check will be obtained.  In recent years, plaintiffs’ counsel have been developing new, different, and frequently more extreme, theories as to why employers’ documents are not “standalone” disclosures.  In Reed v. CRST Van Expedited, Inc., the District Court for the Middle District of Florida rejected one such theory.

In that case, Walter Reed alleged that he interviewed for a trucking position but was not informed that a background check would be procured on him.  In response, CRST filed a motion to dismiss, to which it attached Reed’s employment application and the disclosure that he signed.  The document included information about the content of the consumer report, Reed’s right to request a copy of the report, Reed’s right to dispute the report, and the companies potentially generating the report.  It also included a statement that CRST would provide additional notices.

In analyzing Reed’s claim, the court held that CRST’s disclosure was “clear and conspicuous” and consisted “solely of the disclosure.”  The court implicitly concluded that the existence of the information discussed above did not render the disclosure not “standalone.”  In other words, the court found that a background check disclosure could inform the consumer of information that is germane to the obtainment and use of the consumer report, while still complying with the “solely of the disclosure requirement.”

The court’s decision in Reed is significant because it applies a commonsense approach to the FCRA’s background check disclosure requirement.  While some courts have applied highly technical approaches to what constitutes a “standalone” disclosure, the Reed court implicitly held that a disclosure that informs a consumer that a background check will be obtained, while also including relevant information pertaining to that background check, does not violate the FCRA.

The FCRA poses many traps for unwary employers.  In its well-reasoned approach to what constitutes a “standalone” disclosure, the court in Reed prevented the creation of another such trap.

On November 17, car rental company Avis filed its memorandum in support of final approval of a $2.7 million class action settlement to resolve Fair Credit Reporting Act claims related to its background screening practices. The case is Angela Fuller v. Avis Budget Car Rental LLC, et al., No. 2:15-cv-03856, pending in the U.S. District Court for the District of New Jersey.  A copy of the final approval papers can be found here.

Plaintiff Angela Fuller filed her suit in June 2015, claiming that she lost a job with Avis because of improper background check practices – including the failure to provide an adverse action notice and stand-alone disclosure, as well as improper reliance on a 1985 citation for alcohol possession that should have been removed from her background report under the statute.

The settlement class consists of approximately 45,000 individuals, each of whom will receive cash payments or other compensation based on membership in one of four subgroups dictated by the timing of his or her background check with Avis.  Cash payments to settlement class members will range from $20 to $695.

Plaintiffs’ counsel are seeking about $891,000 to cover fees and expenses. Fuller is seeking $15,000 as an award for her services as class representative.  A final approval hearing is scheduled for November 28.

Troutman Sanders will continue to monitor this case and will report on any developments.

One of 2017’s more significant Fair Credit Reporting Act court opinions was the Ninth Circuit’s January 20 decision in Syed v. M-I, LLC, a putative FCRA class action.  In its decision, the Ninth Circuit Court of Appeals held that a prospective employer willfully violated the FCRA by including a liability waiver in its background check disclosure form.  The Court’s pronouncement was significant because it was, in a case of first impression, an appellate ruling that a particular course of conduct was willful violation of the statute as a matter of law.

The underlying case concerned a pre-employment background check disclosure form that included a waiver to discharge and release M-I from any potential liability related to the background check process.  The district court dismissed the claims, finding there were insufficient allegations of willfulness.  The Ninth Circuit reversed, relying on Section 1681b(b)(2)(A)’s “unambiguous” language that a disclosure must consist “solely of the disclosure.”

After the Ninth Circuit denied a request for rehearing, M-I, in papers filed in June, sought review by the Supreme Court, arguing Syed lacked standing and that the Ninth Circuit’s willfulness holding was incorrect.  M-I argued the case raised important issues for the industry.  The case also drew a handful of amicus briefs.

On November 13, in a miscellaneous orders list, the Supreme Court denied M-I’s petition for certiorari, providing no explanation for its reason for doing so.  As such, the Ninth Circuit’s decision stands as the pronouncement of the issue of willfulness in the case.

We will continue monitoring and reporting on the FCRA issue of willfulness and on further developments in this case, which now returns to the district court for further adjudication.