On November 16, the United States District Court for the Southern District of California granted final approval of a $1.2 million Fair Credit Reporting Act class action settlement against Petco Animal Supplies, Inc.

As we previously reported, a putative class action was filed against Petco in June 2016, challenging the company’s form of disclosure for employment background checks.  The complaint alleged that the background check disclosure was “hidden” among other pages of “fine print” and did not constitute the “stand alone” disclosure required by law.  After more than two years of litigation, including discovery and motions practice, the parties reached a class settlement.

The key terms of the settlement are as follows:

  • Total Settlement Fund: $1.2 million
  • Settlement Class Definition: “All persons regarding whom Defendant procured or caused to be procured a consumer report for employment purposes during the period from May 1, 2014 through December 31, 2015.  Included in the Settlement Class is a subclass consisting of those against whom Petco took an adverse action subsequent to procuring a consumer report and did not receive a pre-adverse action notification letter.”
  • Settlement Class Sizes: The Disclosure Class consists of 37,279 class members.  The Adverse Action Subclass consists of 52 class members.
  • Settlement Class Member Benefits: Members of the Disclosure Class will receive approximately $20 each.  Members of the Adverse Action Subclass will receive an additional $150 each, for a total settlement of approximately $170 each.
  • Attorneys’ Fees: $300,000.
  • Total Incentive Award for the Two Named Plaintiffs: $10,000.

A copy of the Court’s Order granting final approval of the class settlement can be found here.

 

As Congress’ emboldened majority has sought to lessen the federal government’s regulatory footprint, the states have not always been quiet, as one summertime example amply shows.

In 2017, two congressmen introduced two bills which, if enacted, would expand the scope of federal preemption to include non-bank entities. Introduced by Rep. Patrick McHenry (R-N.C.), the first of these two bills – the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299) – states that bank loans with a valid rate when made will remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. A second bill known as the Modernizing Credit Opportunities Act of 2017 (HR 4439), championed by Rep. Trey Hollingsworth (R-Ind.), strives “to clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider.” Perhaps most significantly, it would establish federal preemption of state usury laws as to any loan to which an insured depository institution is the party, regardless of any subsequent assignments. In so doing, both bills amend provisions of the Home Owners’ Loan Act, Federal Credit Union Act, and/or Federal Deposit Insurance Act. Such an amendment would invalidate a long-line of judicial precedent barring a non-bank buyer’s ability to purchase a national bank’s right to preempt state usury law, which culminated in the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC, and thereby provide non-originating creditors with a potent – and until now nonexistent – shield against liability under certain state consumer laws.

On June 27, 2018, the attorneys general of twenty states[1] and the District of Columbia stated their opposition to both bills in a letter to Congressional leadership. Beginning with an historically accurate observation – “[t]he states have long held primary responsibility for protecting American consumers from abuse in the marketplace” – the A.G.s attacked these legislative efforts as likely to “allow non-bank lenders to sidestep state usury laws and charge excessive interest that would otherwise be illegal under state law.” The cudgel of preemption, they warned, would “undermine” their ability to enforce their own consumer protection laws. The A.G.s went on to argue many non-bank lenders “contract with banks to use the banks’ names on loan documents in an attempt to cloak themselves with the banks’ right to preempt state usury limits”; indeed, “[t]he loans provided pursuant to these agreements are typically funded and immediately purchased by the non-bank lenders, which conduct all marketing, underwriting, and servicing of the loans.” For their small role, the banks “receive only a small fee,” with the “lion’s share of profits belong[ing] to the non-bank entities.” In support of this position, the A.G.s cite to a 2002 press release by the Office of the Comptroller of the Currency (“OCC”) and the more recent OCC Bulletin 2018-14 on small dollar lending, the latter announcing the OCC’s “unfavorabl[e]” view of “an[y] entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).

The A.G.s concluded by arguing that the proposed legislation would erode an “important sphere of state regulation,” state usury laws having “long served an important consumer protection function in America.”

We will continue to monitor this legislation and other developments in the preemption arena, and will report on any further developments.


[1] The signatories come from California, Colorado, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington.

In a recent Eighth Circuit case, the appellate court vacated the district court’s orders, holding that the plaintiff lacked Article III standing to bring her Fair Credit Reporting Act claims in federal court. 

In Auer v. Trans Union, LLC, plaintiff Colleen Auer had accepted a job as city attorney for the City of Minot, North Dakota.  Several days later, Auer signed an authorization form permitting the City to run a background check on her.  The City later terminated Auer’s employment.  

Auer then filed a lawsuit against several defendants, including the City, the City’s law firm, and the consumer reporting agency that provided the background report, alleging violations of a number of obligations under the FCRA.  Specifically, Auer asserted that the City procured her consumer report without making “a clear and conspicuous disclosure” that her “consumer report may be obtained for employment purposes;” that the City did not obtain her written authorization to do so; and that the City procured and used her report for purposes not authorized by the FCRA.  Auer claimed that these purported violations “caused her to suffer injury to her privacy, reputation, personal security, the security of her identity information and loss of time spent trying to prevent further violations of her rights under the FCRA.”  The district court dismissed Auer’s claims on the merits and Auer appealed. 

On appeal, the Eighth Circuit first considered whether Auer had standing to assert her claims.  The Court held that “[b]ecause Auer consented to the City’s background check, she failed to plead an intangible injury to her privacy that is sufficient to confer Article III standing.”  Auer’s argument that she did not authorize or consent to the procurement and use of her consumer report “is belied by her well-pleaded allegation that she completed the City’s authorization form.”  In sum, Auer’s conclusory and speculative allegations of some undefined harm were insufficient to establish Article III standing.  The Eighth Circuit therefore vacated the district court’s orders dismissing Auer’s claims on the merits and remanded with instructions to dismiss for lack of jurisdiction.

 

On October 1, the State of Michigan will join more than 150 cities and counties as well as over 32 states in enacting a ban-the-box policy that prohibits asking job applicants if they have been convicted of a felony in an initial application. The policy applies to Michigan state positions and public employees, not private employers. The question will remain on applications where state law does not allow former felons from being licensed, such as in the healthcare field.

Michigan Governor Rick Snyder is encouraging private employers to follow suit.  Currently, eleven states require the removal of criminal history questions from job applications for private employers.

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

Clarity on Overlapping Background Check Laws in California

By Timothy St. George, David Anthony, Ronald Raether, Jonathan Yee and Sadia Mirza

On Aug. 20, 2018, the California Supreme Court issued its long-awaited order in Connor v. First Student Inc., finding the state’s Investigative Consumer Reporting Agencies Act, or ICRAA, was not unconstitutionally vague as applied to employer background checks, despite overlap with the Consumer Credit Reporting Agencies Act, or CCRAA.[1]

The Supreme Court resolved a conflict between two courts of appeal which had left many consumer reporting agencies, or CRAs, wondering whether the ICRAA applied even if they did not obtain the information from personal interviews — the definition of “investigative consumer report” used under the Fair Credit Reporting Act to impose additional requirements under 15 U.S.C. §1681l similar to those included in the ICRAA. With this decision, CRAs providing consumer reports for employment and tenant screening will need to carefully review their products to assure compliance with the ICRAA and the CCRAA.

View full article published on Law360.

 

On August 16, seven Democrat senators proposed a bill (S.3351, named the “Medical Debt Relief Act of 2018”) to amend the Fair Credit Reporting Act and Fair Debt Collection Practices Act to cover certain provisions related to the collection of medical-related debt. The proposed act would institute a 180-day waiting period under the FCRA before medical debt could be reported on a person’s credit report. Further, medical debt that has been settled or paid off would be required to be removed from a person’s credit report within 45 days of payment or settlement.

The bill has been referred to the Senate Banking Committee for consideration. The senators introducing the bill were Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.), Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.), Bob Menendez (D-N.J.), and Maggie Hassan (D-N.H.).

The bill targeted Section 1692(g) of the FDCPA specifically and would require debt collectors to send a statement to individuals that includes a notification that:

(1) the debt may not be reported to a credit bureau for 180 days from the date in which the statement is sent, and

(2) if the debt is settled or paid by the individual or an insurance agency during the 180-day period, the debt may not be reported to a consumer reporting agency.

Troutman Sanders will continue to monitor these developments and provide any further updates as they are available.

 Under the Fair Credit Reporting Act, a potential employer generally may not procure a consumer report on an applicant unless the employer provides a disclosure, in a document that consists “solely of the disclosure,” informing the applicant that a consumer report may be obtained.  In Williams v. TLC Casino Enters., the District Court for the District of Nevada has joined a growing chorus of courts finding that a plaintiff cannot bring a “solely of the disclosure” claim in federal court when he or she has suffered no actual harm separate from the perceived failure to properly format the disclosure.

Specifically, in Williams, the plaintiff alleged (on a class basis) that TLC Casino Enterprises violated the FCRA by obtaining a consumer report on her without providing her with a “stand-alone document of a legal disclosure.” According to Williams, TLC only provided her “with a written conditional offer to hire that included, inter alia, the following statement: ‘Continuation of this position and your employment is dependent upon your passing any Background Check or Drug Screen that may be required for your position.’” This document, in Williams’ view, was not a disclosure that consisted “solely of the disclosure” that a consumer report may be obtained for employment purposes.

TLC Casino Enterprises moved to dismiss Williams’ complaint for lack of standing, arguing that her claim amounted to nothing more than a bare procedural violation of the FCRA. According to the defendant, Williams could not state a claim in federal court because the bare procedural violation of a statute alone does not satisfy the injury-in-fact requirement for Constitutional standing.

The Court agreed with TLC Casino Enterprises. In its decision, it drew on the Supreme Court’s decision in Spokeo, Inc. v. Robins to conclude that Williams must allege a “concrete injury in fact” separate from the procedural violation of a statute in order to demonstrate standing.  Williams could not do that here. According to the Court, Williams framed TLC Casino Enterprises’ alleged FCRA violation as having “failed to provide the disclosure in a format required by the FCRA.” But “[a] formatting error such as this is a procedural issue that does not satisfy the requirement that plaintiff demonstrate a concrete, particularized injury.”

Although plaintiffs’ counsel often argue that disclosure claims are straightforward and easily certifiable as a purported class action, the Williams decision demonstrates that this is not the case. Indeed, courts are increasingly dismissing disclosure claims when plaintiffs allege nothing more than the violation of a procedural FCRA requirement.

We will continue to track this and other developments regarding the intersection of FCRA claims and standing to sue in federal court.

 

On June 21, 2018, the U.S. District Court for the District of Oregon dismissed a putative class action complaint alleging that a potential employer violated the disclosure and pre-adverse action notification requirements of the Fair Credit Reporting Act in Walker v. Fred Meyer Inc.[1] The Walker decision highlights several key lessons associated with FCRA class actions, particularly related to the disclosures employers must provide to prospective employees.

Background

Daniel Walker applied for a job with Fred Meyer Inc. As part of the application process, Fred Meyer provided Walker with separate disclosure and authorization forms regarding its intent to procure a background report on Walker. Fred Meyer presented the disclosure and authorization forms together, each in separate documents. The disclosure form mentioned both a general consumer report and an investigative consumer report.

View full article published on Law360.

On July 17, the Missouri Court of Appeals affirmed a ruling of the Cole County Circuit Court dismissing a putative class action under the Fair Credit Reporting Act against multinational staffing company, Kelly Services, Inc.

A three-judge panel of the Missouri Court of Appeals issued a one-page order and eleven-page memorandum opinion upholding the lower court’s ruling that the plaintiff lacked standing to pursue his claim since he alleged only bare procedural violations without the requisite concrete injury.

The panel held: “Not even the most liberal construction of his pleading would support a construction favorable to finding that Mr. Boergert pleaded a concrete and actual injury. …  Because Mr. Boergert did not plead an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical, the trial court did not err in dismissing his complaint for lack of standing.”

Plaintiff Cott Boergert claimed Kelly Services violated the FCRA when it fired him from a job placement based on information in his consumer report indicating that he had been on probation in 2009 for commission of a felony. Boergert had previously indicated that he had not been on probation for a felony in the preceding seven years when he filled out the employment application.

He then filed the class action in Cole County Circuit Court, claiming that Kelly Services violated the FCRA by including more information in its disclosure form than was allowed and by not providing him with either the report or a summary of his rights. Interestingly, the case was removed to federal court but was dismissed in 2016 under the U.S. Supreme Court’s Spokeo v. Robins decision. That federal district court, however, rethought its decision and the case was remanded back to state court.

The panel’s ruling added: “While alleging that Kelly Services knowingly violated the FCRA by using a disclosure form that contained extraneous information – a bare procedural violation – and that he was therefore entitled to statutory damages for these violations, Mr. Boergert did not plead any concrete or actual injury. … Although he testified during a deposition that the form confused him, he did not plead that it did so or that he did not see the disclosure or authorize Kelly Services to obtain a consumer report.”

Troutman Sanders will continue to monitor these developments and provide further updates as they are available.

On June 21, the United States District Court in Oregon dismissed a plaintiff’s class action complaint alleging his potential employer violated the disclosure and pre-adverse action notification requirements of the Fair Credit Reporting Act (“FCRA”).            

Plaintiff Daniel Walker applied for employment with defendant Fred Meyer, Inc.  As part of the application process, Fred Meyer provided Walker with a disclosure form and an authorization form regarding its intent to procure a background report on Walker.  Thereafter, Fred Meyer obtained from a background screening company a report that contained negative information on Walker.  Fred Meyer provided a pre-adverse action notice to Walker, explaining that he could contact the background screening company about issues regarding the report.  

The Court’s well-reasoned opinion laid out Walker’s baseless arguments and then systematically dismantled them.  Walker claimed the consumer report disclosure language was overshadowed by information about investigative consumer reports, which differ from general consumer reports.  Fred Meyer’s disclosure mentioned both reports in the single initial disclosure without distinguishing between the two.  However, the disclosure then set out a consumer report disclosure and did not mention a potential investigative report until the final paragraph, which stated “If [the background screening company] obtains any information by interview, you have the right to obtain a complete and accurate disclosure of the scope and nature of the investigation performed.”  Contrary to Walker’s argument, the Court found this sentence in fact emphasized that the disclosure was not itself an investigative report disclosure.

Likewise, the Court rejected Walker’s claim that the authorization form was unlawful because it was “riddled with extraneous information.”  The Court differentiated the requirements for the authorization and the disclosure, noting that the statute does not require the authorization to consist solely of the authorization.  The Court also found presenting the disclosure as a separate document along with the authorization “did not destroy the stand-alone character of the disclosure.” 

Walker’s pre-adverse action notice claims did not fare any better.  Walker claimed Fred Meyer violated the statute by only directing him to discuss his report with the background screening company.  Although the Court found he had Article III standing to bring this claim, it rejected the argument on the merits.  The Court found no support suggesting that Fred Meyer’s notice violated the FCRA because it did not inform Walker he could contact the employer directly, or the date by which he must do so.

This opinion highlights the importance of carefully following the requirements of the FCRA when obtaining a background report on prospective employees.  Fred Meyer defeated Walker’s claim because it provided disclosure and authorization notices in separate documents, apart from a job application or employee manual.